SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to section 240.14a-11(c) or
section 240.14a-12
KLA INSTRUMENTS CORPORATION
(Name of Registrant as Specified In Its Charter)
KLA INSTRUMENTS CORPORATION
160 RIO ROBLES
SAN JOSE, CA 95134
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/x/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)
(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction
applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:(1)
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4) Proposed maximum aggregate value of transaction:
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(1) Set forth the amount on which the filing fee is calculated and
state how it was determined.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
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KLA INSTRUMENTS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held November 15, 1995
The Annual Meeting of Stockholders of KLA INSTRUMENTS CORPORATION (the
"Company") will be held at the offices of the Company, 160 Rio Robles, San Jose,
California 95134 on Wednesday, November 15, 1995 at 11:00 a.m. for the following
purposes:
1. To elect three (3) directors to Class III of the Board of Directors.
2. To approve an amendment to the 1982 Stock Option Plan (the "Option
Plan") to increase the number of shares reserved for issuance under the Option
Plan by 2,200,000 shares.
3. To ratify the appointment of Price Waterhouse LLP as the independent
accountants of the Company for the fiscal year ending June 30, 1996.
4. To transact such other business as may properly come before the
meeting, or any adjournment thereof.
Stockholders of record at the close of business on September 29, 1995,
shall be entitled to vote at the meeting.
By order of the Board of Directors
PAUL E. KREUTZ
Secretary
San Jose, California
October 17, 1995
IMPORTANT: PLEASE FILL IN, DATE, SIGN AND MAIL PROMPTLY THE ENCLOSED PROXY IN
THE POSTAGE-PAID ENVELOPE PROVIDED TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT
THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH TO DO
SO EVEN THOUGH YOU HAVE SENT IN YOUR PROXY.
KLA INSTRUMENTS CORPORATION
PROXY STATEMENT
The accompanying Proxy is solicited by the Board of Directors of KLA
Instruments Corporation, a Delaware corporation, for use at the Annual Meeting
of Stockholders to be held on Wednesday, November 15, 1995, at 11:00 a.m., local
time, or at any adjournment thereof. The meeting will be held at the Company's
offices located at 160 Rio Robles, San Jose, California 95134. The Company's
telephone number at that location is (408) 434-4200. At the meeting, only
stockholders of record at the close of business on September 29, 1995, shall be
entitled to vote. On that date, the Company had outstanding 50,365,651 shares of
Common Stock. All share amounts and per share prices set forth in this Proxy
Statement reflect the 100% stock dividend that was paid September 29, 1995. The
date of this Proxy Statement is October 17, 1995, the approximate date on which
the Proxy Statement and form of Proxy were first sent or given to stockholders.
Each stockholder is entitled to one vote for each share of stock held
by him or her on all matters. If no instructions are given on the executed
Proxy, the Proxy will be voted in favor of the proposals described.
The cost of solicitation of Proxies will be borne by the Company. In
addition, the Company may reimburse brokerage houses and other custodians,
nominees and fiduciaries for their expenses incurred in forwarding solicitation
materials to the beneficial owners of the stock held of record by such persons.
It is contemplated that Proxies will be solicited principally through the mail,
but directors, officers and regular employees of the Company may, without
additional compensation, solicit Proxies, personally or by telephone, telegraph
or special letter.
Any Proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Company a
written notice of revocation or duly executed Proxy bearing a later date or by
attending the meeting and voting in person.
The Annual Report to Stockholders for the fiscal year ended June 30,
1995, accompanies this Proxy Statement.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of three
Class I directors (Kenneth Levy, Robert Lorenzini and Samuel Rubinovitz), two
Class II directors (Leo Chamberlain and Dag Tellefsen), and three Class III
directors (Edward W. Barnholt, Yoshio Nishi, and Kenneth L. Schroeder), who will
serve until the annual meetings of stockholders to be held in 1996, 1997 and
1995, respectively, or until their respective successors are duly elected and
qualified. At each annual meeting of stockholders, directors are elected for a
full term of three years to succeed those directors whose terms expire at the
annual meeting.
The terms of the three directors in Class III will expire on the date
of the upcoming annual meeting. Accordingly, three persons are to be elected to
Class III of the Board of Directors at the meeting. The nominees for election by
the stockholders to these three positions are Edward W. Barnholt, Yoshio Nishi
and Kenneth L. Schroeder, the current members of the Board of Directors in Class
III. If elected, the nominees will serve as directors until the Company's annual
meeting of stockholders in 1998, or until their successors are elected and
qualified. If any of the nominees declines to serve or becomes unavailable for
any reason, or if a vacancy occurs before the election, the Proxies may be voted
for such substitute nominees as management may designate. The proxy holders have
also advised that in the event any of the nominees shall not be available for
election, a circumstance that is not currently expected, they may vote for the
election of substitute nominees in accordance with their judgment.
1
If a quorum is present and voting, the three nominees for Class III
director receiving the highest number of votes will be elected as Class III
directors. Abstentions and shares held by brokers that are present, but not
voted because the brokers were prohibited from exercising discretionary
authority, i.e., "broker non-votes," will be counted as present in determining
if a quorum is present.
The following table indicates the name and age of each member of the
Company's Board of Directors, the year in which each such member became a
director of the Company and each such member's principal occupation. The
principal occupation of each such member has been his principal occupation for
the past five (5) years unless otherwise noted.
DIRECTOR EMPLOYMENT OR
NAME AGE SINCE PRINCIPAL OCCUPATION
- ---- --- -------- --------------------
Kenneth Levy 52 1975 Co-Founder, Chairman of the Board and Chief Executive Officer.
Since May 1993, Mr. Levy has been a Director of Ultratech
Stepper, Inc., a manufacturer of photolithography equipment;
since April 1993, a Director of Network Peripherals, Inc., a
supplier of high-performance client-server networking
solutions; and since August 1995, a Director of Integrated
Process Equipment Corporation, a manufacturer of semiconductor
processing equipment for chemical, mechanical, planarization
(CMP) and cleaning of advanced integrated circuits.
Kenneth L. Schroeder 49 1991 President, Chief Operating Officer and Director since November
1991. Senior Vice President from 1985 to 1987. Vice President
from 1979 to 1985. From May 1990 to November 1991, President,
Chief Operating Officer and Director of Genus Corporation, a
manufacturer of thin film deposition and ion implant equipment.
Edward W. Barnholt 52 1995 Since 1990, General Manager of the Test and Measurement
organization, Hewlett-Packard Company. From 1988 to 1990,
General Manager of the Electronic Instruments Group,
Hewlett-Packard Company. Elected to Vice President of
Hewlett-Packard in July 1988 and to Senior Vice President in
November 1993.
Leo J. Chamberlain 65 1982 Private investor. Since March 1989, a Director of Octel
Communications Corporation, a manufacturer of high-performance
voice processing systems.
Robert E. Lorenzini 58 1976 Since February 1995, Chairman and Chief Executive Officer of
Virtual Golf, Inc., a manufacturer of sports simulation
systems. From October 1988 until January 1994, President and
Chief Executive Officer and from January 1994 Chairman of the
Board of Sun Power Corporation, a manufacturer of semiconductor
devices. Since October 1986, a Director of FSI International, a
semiconductor process equipment manufacturer.
2
DIRECTOR EMPLOYMENT OR
NAME AGE SINCE PRINCIPAL OCCUPATION
- ---- --- -------- --------------------
Yoshio Nishi 55 1989 Since May 1995, Director of Research and Development and Vice
President of the Semiconductor Group, Texas Instruments, Inc.,
a manufacturer of integrated circuits and electronic equipment.
From 1986 to April 1995, Director of Silicon Process
Laboratory, Hewlett-Packard Laboratories, a semiconductor
technology research facility affiliated with Hewlett-Packard
Company. Since April 1993, a Director of Silicon Valley
Research, Inc., a software manufacturer of integrated circuit
place and route tools. Consulting Professor in the Department
of Electrical Engineering at Stanford University since 1986.
Samuel Rubinovitz 65 1990 Previously served as a director of the Company from October
1979 to January 1989. From April 1989 to January 1994,
Executive Vice President and since April 1989 Director of EG&G,
Inc., a diversified manufacturer of scientific instruments and
electronic, optical and mechanical equipment. Since October
1984, a Director of Richardson Electronics, Inc., a
manufacturer and distributor of electron tubes and
semiconductors. Since September, 1994, a Director of LTX
Corporation, a manufacturer of semiconductor capital equipment.
Dag Tellefsen 53 1978 General Partner of the investment manager of Glenwood Ventures
I and II, venture capital funds. Since January 1983, a Director
of Arix Corporation, a manufacturer of computers for
transaction-oriented applications. Since September 1982, a
Director of Octel Communications Corporation.
The Board of Directors has an Audit Committee, a Compensation Committee
and a Nominating Committee. Messrs. Lorenzini and Tellefsen are the members of
the Audit Committee, which held one (1) meeting during fiscal 1995. The
functions of the Audit Committee include recommending the independent
accountants to the Board of Directors and providing oversight of the services
rendered by the independent accountants. Messrs. Chamberlain and Tellefsen are
the members of the Compensation Committee, which held one (1) meeting in fiscal
1995. The Compensation Committee reviews and recommends salaries for corporate
officers and key employees. Mr. Chamberlain is the sole member of the Nominating
Committee, which held no meetings in fiscal 1995. The Nominating Committee was
formed for purposes of identifying and evaluating the qualifications of all
candidates for election to the Board of Directors. The Nominating Committee will
consider nominations recommended by stockholders. Stockholders wishing to submit
nominations must notify the Company of their intent to do so (and provide the
Company with certain information set forth in the Company's bylaws, a copy of
which may be obtained from the Company) on or before the date on which
stockholder proposals to be included in the proxy statement for the stockholder
meeting must be received by the Company.
During fiscal 1995, the Board of Directors held five (5) meetings. No
director attended fewer than 75% of such meetings of the Board of Directors or
the committees on which he serves.
3
STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
Company's Common Stock owned on August 31, 1995, by (i) each person who is known
to the Company to own beneficially more than five percent (5%) of the Company's
Common Stock, (ii) each of the directors and director-nominees of the Company,
(iii) the Chief Executive Officer and the four other most highly compensated
executive officers of the Company as of June 30, 1995, whose salary and bonus
for the year ended June 30, 1995 exceeded $100,000, and (iv) all directors and
executive officers of the Company as a group.
NAME OR IDENTITY NUMBER OF
OF GROUP SHARES OWNED PERCENT OWNED
---------------- ------------ -------------
FMR Corporation 4,991,200 9.9
82 Devonshire Street
Boston, MA 02109
Twentieth Century Mutual Funds 2,750,600 5.5
P. O. Box 419200
Kansas City, MO 64141-6200
Kenneth Levy 1,950,506(1) 3.9
Kenneth L. Schroeder 230,934(2) *
Arthur P. Schnitzer 106,010(2) *
Michael D. McCarver 47,558(2) *
Robert E. Lorenzini 33,884(2) *
Robert J. Boehlke 29,338(2) *
Yoshio Nishi 19,884(2) *
Leo J. Chamberlain 14,510(2) *
Samuel Rubinovitz 8,498(2) *
Dag Tellefsen 3,518(2) *
Edward W. Barnholt --- *
All directors and executive
officers as a group: (21 persons) 2,478,696(3) 4.9
- ----------
* Represents less than one percent (1%).
(1) Includes 1,689,004 shares held in trusts for the benefit of Mr. Levy's
children, as to which Mr. Levy, who is co-trustee of the trusts,
disclaims beneficial ownership. Also includes 249,666 shares issuable
upon exercise of options held by Mr. Levy, which are currently
exercisable or exercisable within 60 days of August 31, 1995, granted
under the Company's 1982 Stock Option Plan.
(2) Includes 109,442, 104,026, 41,518, 13,884, 28,600, 19,884, 6,110,
4,498, and 3,518 shares issuable upon exercise of options held by
Messrs. Schroeder, Schnitzer, McCarver, Lorenzini, Boehlke, Nishi,
Chamberlain, Rubinovitz, and Tellefsen, respectively, which are
currently exercisable or exercisable within 60 days of August 31, 1995,
granted under the Company's 1982 Stock Option Plan and the 1990 Outside
Directors Stock Option Plan.
(3) Includes 613,236 shares issuable upon exercise of options, which are
currently exercisable or exercisable within 60 days of August 31, 1995,
granted under the Company's 1982 Stock Option Plan and the 1990 Outside
Directors Stock Option Plan.
4
EXECUTIVE COMPENSATION AND OTHER MATTERS
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation
earned during the fiscal years ended June 30, 1993, 1994, and 1995 by the Chief
Executive Officer of the Company and the four other most highly compensated
executive officers of the Company as of June 30, 1995 whose total salary and
bonus for the fiscal year ended June 30, 1995 exceeded $100,000.
SUMMARY COMPENSATION
TABLE
Long Term
Annual Compensation Compensation
---------------------------------- ------------
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options Compensation
------------------ ---- ------ ----- ------------ ---------- ------------
Kenneth Levy 1995 $274,807 $314,500 (1) 120,000 $43,977(3)
Chairman of the Board, 1994 $256,823 $220,000 (1) -0- $48,016(4)
and Chief Executive Officer 1993 $216,000 $113,022 (1) 30,000 $9,028(5)
Kenneth L. Schroeder 1995 $263,815 $302,280 (1) 120,000 $49,562(3)
President, Chief Operating 1994 $248,100 $211,200 (1) -0- $40,771(4)
Officer and Director 1993 $206,550 $110,200 (1) 330,000(2) $9,008(5)
Robert J. Boehlke 1995 $223,568 $166,340 (1) 80,000 $37,207(3)
Vice President, Finance 1994 $223,808 $152,995 $33,875 -0- $16,664(4)
and Administration and 1993 $203,000 $106,200 (1) 28,000 $8,991(5)
Chief Financial Officer
Arthur P. Schnitzer 1995 $199,846 $127,539 (1) 80,000 $40,279(3)
Group Vice President 1994 $177,154 $110,223 (1) -0- $14,994(4)
Wafer and Reticle 1993 $160,000 $100,000 (1) 35,000 $8,826(5)
Michael D. McCarver 1995 $176,335 $98,221 (1) 40,000 $37,584(3)
Vice President, 1994 $171,385 $118,650 (1) -0- $14,844(4)
Corporate Sales 1993 $160,000 $25,262 (1) 24,000 $8,826(5)
(1) Total amount of personal benefits paid to this executive officer during
the fiscal year was less than the lesser of (i) $50,000 or (ii) 10% of
such executive officer's total reported salary and bonus.
(2) Includes options to purchase 300,000 shares that were repriced on
August 14, 1992, replacing options granted in October 1991, in
connection with a repricing offered to all option holders who were not
officers during all of fiscal 1992.
5
(3) For fiscal 1995 includes payments by the Company pursuant to the
Company's profit sharing plan to Messrs. Levy, Schroeder, Boehlke,
Schnitzer and McCarver of $30,659, $29,432, $24,722, $22,543, and
$19,499, respectively. Includes a matching contribution of $1,000 made
by the Company pursuant to the Company's 401(k) Plan to each of the
above named officers. Includes a matching contribution of $7,500 made
by the Company pursuant to the Supplemental Executive Benefit Plan to
each of the above-named officers.
(4) For fiscal 1994 includes payments by the Company pursuant to the
Company's profit sharing plan to Messrs. Levy, Schroeder, Boehlke,
Schnitzer and McCarver of $9,791, $9,411, $8,414, $6,744, and $6,594,
respectively. Includes a matching contribution of $750 made by the
Company pursuant to the Company's 401(k) Plan to each of the above
named officers. Includes a matching contribution of $7,500 made by the
Company pursuant to the Supplemental Executive Benefit Plan to each of
the above-named officers. Includes payments by the Company to Messrs.
Levy and Schroeder of $29,975 and $23,110, respectively, paid in lieu
of Messrs. Levy and Schroeder's participation in the Company's 1981
Employee Stock Purchase Plan.
(5) For fiscal 1993 includes payments by the Company pursuant to the
Company's profit sharing plan to Messrs. Levy, Schroeder, Boehlke,
Schnitzer and McCarver of $778, $758, $731, $576, and $576,
respectively. Includes a matching contribution of $750 made by the
Company pursuant to the Company's 401(k) plan to each of the above
named officers. Includes a matching contribution of $7,500 made by the
Company pursuant to the Supplemental Executive Benefit Plan to each of
the above named officers, except for Mr. Schroeder who received $4,375
in fiscal 1992.
6
STOCK OPTIONS GRANTED IN FISCAL 1995
The following table provides the specified information concerning grants of
options to purchase the Company's Common Stock made during the fiscal year ended
June 30, 1995, to the persons named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for
Individual Grants in Fiscal 1995 Option Term (1)
- ------------------------------------------------------------------------- -------------------------------
% of Total Exercise
Options Granted or Base
Options to Employees Price Expiration
Granted (2) in Fiscal Year ($/Sh) Date 5% ($) 10% ($)
----------- --------------- -------- ---------- ------ -------
Kenneth 120,000 4.51% $18.63 7/26/04 $1,405,579 $3,562,014
Levy
Kenneth L. 120,000 4.51% $18.63 7/26/04 $1,405,579 $3,562,014
Schroeder
Robert J. 80,000 3.01% $18.63 7/26/04 $937,053 $2,374,676
Boehlke
Arthur P. 80,000 3.01% $18.63 7/26/04 $937,053 $2,374,676
Schnitzer
Michael D. 40,000 1.50% $18.63 7/26/04 $468,526 $1,187,338
McCarver
(1) Potential gains are net of exercise price, but before taxes associated
with exercise. These amounts represent certain assumed rates of
appreciation only, based on the Securities and Exchange Commission's
rules. Actual gains, if any, on stock option exercises are dependent on
the future performance of the Company's Common Stock, overall market
conditions and option holders' continued employment through the vesting
period. The amounts reflected in the table may not necessarily be
achieved.
(2) Options were granted at fair market value on July 26, 1994. Options
begin vesting thirty (30) months after the date of grant at a rate of
1/30 per month.
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OPTION EXERCISES AND FISCAL 1995 YEAR-END VALUES
The following table provides the specified information concerning
exercises of options to purchase the Company's Common Stock in the fiscal year
ended June 30, 1995, and unexercised options held as of June 30, 1995, by the
persons named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES
AND FISCAL YEAR-END VALUES
Number of Securities
Shares Underlying Unexercised Value of Unexercised In-the-
Acquired Options at 6/30/95 Money Options at 6/30/95 [2]
on Value ----------------------------- ----------------------------
Name Exercise Realized Exercisable(2) Unexercisable Exercisable Unexercisable
- ---- -------- -------- -------------- ------------- ----------- -------------
Kenneth Levy 90,000 $2,054,376 231,104 157,596 $8,109,855 $3,703,858
Kenneth L. Schroeder 80,000 $2,112,500 84,998 285,002 $2,958,993 $8,142,882
Robert J. Boehlke 110,000 $2,712,635 31,492 108,220 $1,098,995 $2,575,639
Arthur P. Schnitzer 46,000 $1,393,750 90,440 114,976 $3,167,753 $2,809,047
Michael D. McCarver 23,814 $545,523 27,674 68,512 $969,162 $1,788,122
- ----------
(1) Based on the value of $38.625, which was the closing price of the
Company's Common stock on June 30,1995, adjusted for the stock split.
(2) Generally, Company stock options vest, conditional upon continued
employment with the Company, over a five-year period, either at the
rate of 1/54 per month beginning six (6) months after the date of
grant, or at the rate of 1/30 per month beginning thirty (30) months
after the date of grant.
CHANGE OF CONTROL ARRANGEMENTS
Options granted under the Company's 1982 Stock Option Plan and the
Company's 1990 Outside Directors Stock Option Plan (the "Directors Plan")
contain provisions pursuant to which, under certain circumstances, all
outstanding options and shares granted under such plans shall become fully
vested and immediately exercisable upon a "transfer of control" as defined in
such plans.
COMPENSATION OF DIRECTORS
The Company pays each non-employee director an annual retainer of
$8,000 per year plus $1,000 for each Board meeting attended and $500 for each
Board committee meeting attended. The Company reimburses expenses incurred by
directors in attending Board meetings. In addition, the Company reimbursed
directors a total of $11,015 in fiscal 1995 for travel expenses for their
spouses to attend one meeting at a site away from the Company's executive
offices. In addition to his services as director, Samuel Rubinovitz provides
consulting services to the Company for which he receives $1,200 per day, plus
expenses. During fiscal 1995 Mr. Rubinovitz received $36,294 for his consulting
services.
8
The Company's Directors Plan provides that upon the effective date of
the Directors Plan or initial election to the Board of Directors, each
non-employee director (an "Outside Director") will receive a one-time grant of
an option to purchase 5,000 shares of the Company's Common Stock. The Directors
Plan also provides for subsequent grants to each Outside Director of an option
to purchase 5,000 shares of Common Stock automatically on each of the
anniversary dates of the initial grant.
9
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
The goals of the Company's compensation policy are to attract, retain
and reward executive officers who contribute to the overall success of the
Company by offering compensation that is competitive in the industry, to
motivate executives to achieve the Company's business objectives and to align
the interests of officers with the long term interests of stockholders. The
Company currently uses salary, a management incentive plan, and stock options to
meet these goals.
COMPENSATION COMMITTEE
The Compensation Committee is composed of two non-management directors
of the Board of Directors, Leo Chamberlain and Dag Tellefsen. The Committee is
responsible for setting and administering the policies governing annual
compensation of executive officers, including cash compensation and grants of
stock options. The Committee reviews compensation levels of executive officers,
considers their performance and makes recommendations regarding their cash
compensation and stock options to the full Board of Directors.
FORMS OF COMPENSATION
The Company provides its executive officers with a compensation package
consisting of base salary, variable incentive pay, and participation in benefit
plans generally available to other employees. In setting total compensation, the
Committee considers individual and Company performance, as well as market
information from published survey data provided to the Committee by the
Company's human resources staff. The market data consist primarily of base
salary and total cash compensation rates, as well as incentive bonus and stock
programs of the companies considered by the Committee to be peer companies in
the Company's industry.
BASE SALARY. Salaries for executive officers are initially set based on
negotiation with individual executive officers at the time of recruitment and
with reference to salaries for comparable positions among companies in the
Company's industry or in industries that employ individuals of similar education
and background to the executive officers being recruited. The Company also gives
consideration to the individual's experience, reputation in his or her industry
and expected contributions to the Company.
Salary adjustments are made for each executive officer at the end of
each fiscal year. The size of the annual salary adjustments for each executive
officer is primarily based on the Committee's determination that the officer has
met or exceeded his or her individual goals. These individual goals are
determined in consultation with management, subject to review and approval by
the Board of Directors, and generally relate to strategic goals within the
responsibility of the executive officer. The Chief Executive Officer's goals
also include the Company's financial performance, measured primarily by the
adherence to predetermined revenue and expense levels and maintenance of
adequate cash reserves.
MANAGEMENT INCENTIVE PLAN. Each year since fiscal 1979, the Company has
adopted a management incentive plan (the "Incentive Plan"), which provides for
payments to officers and key employees based on the financial performance of the
Company, the business unit and the achievement of the person's individual
performance objectives. In fiscal 1995 the Incentive Plan set goals for
profitability, asset management, and new product introductions, among other
things.
LONG-TERM INCENTIVES. Longer term incentives are provided through the
Option Plan and the Company's 1981 Employee Stock Purchase Plan (the "Purchase
Plan"), both of which reward executives through the growth in value of the
Company's stock. The Committee believes that employee equity ownership is highly
motivating, provides a major incentive for employees to build stockholder value
and serves to align the interests of employees with those of stockholders.
Grants of stock options to executive officers are based upon each
officer's relative position, responsibilities, historical and expected
contributions to the Company, and the officer's existing stock ownership and
previous option grants, with primary weight given to the executive officer's
relative
10
rank and responsibilities. Initial stock option grants designed to recruit an
executive officer to join the Company may be based on negotiations with the
officer and with reference to historical option grants to existing officers.
Stock options are granted at market price on the date of grant and will provide
value to the executive officers only when the price of the Company's Common
Stock increases over the exercise price.
OTHER BENEFIT PLANS. Executive officers may participate in several
benefit plans, including the Company's profit sharing plan, 401(k) plan and
Supplemental Executive Benefit Plan (the "SEBP"), a nonqualified deferred
compensation plan. The Company in its discretion may make contributions to the
SEBP and 401(k) plan.
IMPACT OF SECTION 162(m)
Section 162(m) of the Internal Revenue Code of 1986 disallows a tax
deduction by any publicly held corporation for compensation exceeding $1 million
in any taxable year received by any officers named in the Summary Compensation
Table, unless compensation is deemed to be performance based. To enable the
Company to preserve the benefit of receiving a tax deduction for the full amount
of income recognized by the Company's executive officers upon exercise of stock
options, the Company has adopted amendments to the Option Plan that provide that
no optionee may be granted options to purchase in excess of 200,000 shares per
fiscal year, provided that the foregoing limit shall be 600,000 shares with
respect to options granted to any person during the first fiscal year of such
person's employment with the Company. Historically, grants by the Company have
seldom approached these limits.
FISCAL 1995 COMPENSATION
Compensation for the Chief Executive Officer and other executive
officers was set according to the Company's established compensation policy
described above. The executive officers of the Company, including the Chief
Executive Officer, received increases in base salary in fiscal 1995 based upon
the Company's successes in fiscal 1994 and the individual executives'
contributions to these successes, including the Company's return to
profitability, the successful introduction of new products, particularly in the
wafer inspection division, and increased sales of metrology and prober
equipment.
During fiscal 1995, the Company paid bonuses to the Company's executive
officers pursuant to the Incentive Plan, including a bonus of $324,500 to the
Chief Executive Officer. These payments were based upon both the overall
performance of the Company and the individual officers' performance with respect
to certain objectives. These payments recognized that fiscal 1995 was a year of
rapid advances on all fronts, with all of the Company's major businesses growing
at the same time. Concurrent with rapid growth, the Company posted new records
for profitability. Earnings per share for fiscal 1995 of $3.06 (prior to the
write-off resulting from the Metrologix acquisition) were more than double
fiscal 1994's then-record $1.37. A successful equity offering in April 1995
further bolstered the Company's already strong balance sheet. The fiscal 1995
bonuses rewarded both the current year's financial successes and the operational
successes that should fuel future business, including a doubling of backlog to
$250 million and the successful launches of new product offerings.
At the beginning of fiscal 1995, the Company granted stock options to
the executive officers and other employees, including an option for 120,000
shares to the Chief Executive Officer, under the Company's 1982 Stock Option
Plan. These grants recognized both the record-setting financial results of
fiscal 1994, and the dramatic improvement in stockholder value during the
period. However, the options granted to the executive officers have a different
vesting period than had been traditional under the Company's 1982 Stock Option
Plan. The options granted in fiscal 1995 become exercisable ratably over 30
months, beginning 30 months after the date of grant. The Company believes that
the extended waiting period before the options vest will serve to retain key
executives and thereby help ensure that the Company can capitalize on its
current opportunities.
THE COMPENSATION COMMITTEE
Leo Chamberlain
Dag Tellefsen
11
COMPARISON OF STOCKHOLDER RETURN
Set forth below is a line graph comparing the annual percentage change
in the cumulative total return on the Company's Common Stock with the cumulative
total return of the CRSP Total Return Index for The Nasdaq Stock Market (U.S.
Companies) and the CRSP Total Return for the H&Q Technology for the period
commencing on June 30, 1990 and ending on June 30, 1995.
COMPARISON OF CUMULATIVE TOTAL RETURN FROM JUNE 30, 1990 THROUGH JUNE 30,
1995(1)(2)
KLA INSTRUMENTS CORPORATION
KLA $100.00 $104.17 $72.92 $143.75 $312.50 $643.75
NASDAQ $100.00 $105.89 $127.25 $159.99 $161.61 $215.33
H&Q Tech $100.00 $100.60 $114.31 $139.66 $141.70 $237.29
- ----------
(1) Assumes that $100.00 was invested on June 30, 1990, in the Company's
Common Stock at the price of $6.00 per share and at the closing sales
price for each index on that date and that all dividends were
reinvested. No cash dividends have been declared on the Company's
Common Stock. Stockholder returns over the indicated period should not
be considered indicative of future stockholder returns.
(2) The information contained in the chart was prepared for the Company by
KPMG Peat Marwick.
12
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who
beneficially own more than 10% of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission (the "SEC")
initial reports of beneficial ownership on Form 3 and reports of changes in
beneficial ownership on Forms 4 and 5 with respect to the Company's Common Stock
and other equity securities. Such officers, directors and greater-than-10%
beneficial owners are also required by SEC rules to furnish the Company with
copies of all Section 16(a) reports they file with the SEC.
Based solely on a review of copies of such forms received by the
Company, and written representations from certain reporting persons that no
other reports were required for such persons, the Company believes that, during
the fiscal year ended June 30, 1995, all Section 16(a) filing requirements
applicable to its officers, directors and greater-than-10% beneficial owners
were complied with.
PROPOSAL 2
APPROVAL OF AMENDMENT TO 1982 STOCK OPTION PLAN
Under the Company's 1982 Stock Option Plan (the "Option Plan"), the
Company has reserved 12,700,000 shares of the Company's Common Stock (subject to
adjustment in the event of a stock dividend, stock split, reverse stock split or
like change in the corporate structure of the Company) for issuance to employees
(including officers and employee directors), and consultants under either
incentive stock options meeting the requirements of section 422 of the Code or
nonqualified options which do not meet those requirements.
The Board may terminate or amend the Option Plan at any time. The
approval of the Company's stockholders, however, is required to increase the
number of shares reserved for issuance thereunder or to change the class of
persons eligible to receive options under the Option Plan. As of September 29,
1995, 5,469,491 shares of the Company's Common Stock were reserved for issuance
upon the exercise of previously granted and unexercised options and 6,295,452
shares had been issued under the Option Plan, leaving 935,057 shares available
for future grant,
In September 1995, the Board of Directors adopted an amendment to the
1982 Stock Option Plan, subject to stockholder approval, to increase the number
of shares reserved for issuance pursuant to the Option Plan by 2,200,000 shares,
to a total of 14,900,000 shares.
SUMMARY OF THE PROVISIONS OF THE OPTION PLAN
The following summary of the Option Plan is qualified in its entirety
by the specific language of the Option Plan, a copy of which may be obtained
from the Company by any stockholder upon written request.
The Option Plan is administered by the Board or a committee thereof.
All employees and consultants of the Company and its subsidiaries may be granted
options under the Option Plan. The Option Plan provides for the grant of
incentive stock options within the meaning of section 422 of the Code and
nonqualified stock options. Incentive stock options may be granted only to
employees of the Company who do not own more than 10% of the Company's
outstanding stock. No optionee may be granted options to purchase in excess of
200,000 shares per fiscal year, or 600,000 in the case of options granted during
the first fiscal year of an optionee's employment with the Company (such limits
to be adjusted in the event of a stock dividend, stock split, reverse stock
split or like change in the corporate structure of the Company).
13
Options granted under the Option Plan must have an exercise price not
less than 100% of the fair market value of the Common Stock of the Company, as
determined by the Board, on the date that the option is granted. As of September
30, 1995, the closing price of the Company's Common Stock, as reported on the
Nasdaq National Market System was $38.625 per share.
The Board may set the time or times within which each option is
exercisable or the event or events upon the occurrence of which all or a portion
of each option shall be exercisable and the term of each option, which may not
exceed 10 years for incentive stock options and 10 years and one day for
nonqualified stock options. Unless otherwise specified by the Board, an option
(i) becomes exercisable ratably over 54 months beginning six months after the
grant date and (ii) terminates 10 years (10 years and one day for nonqualified
stock options) from the date of grant.
Options may be exercised by payment of the exercise price (1) in cash,
by check or in cash equivalent, (2) by tender of shares of Common Stock of the
Company that (a) have a fair market value equal to the exercise price and (b)
have been owned by the optionee for more than six months or were not acquired
either directly or indirectly from the Company, or (3) by such other
consideration as the Board may approve at the time the option is granted. The
Board has the authority under the Option Plan, with respect to optionees who are
not subject to Section 16(b) of the Securities Exchange Act of 1934, as amended,
to permit such optionees to pay the exercise price by assigning the proceeds of
the sale of some or all of the shares acquired by the exercise to the Company.
The Board also has the authority under the Option Plan, with respect to
optionees who are subject to Section 16(b), to permit the payment of the
exercise price by a combination of cash for a part of the exercise price and the
optionee's promissory note for the balance. No option may be exercised until the
optionee has made adequate provision for federal and state withholding
obligations of the Company, if any, relating to the exercise of the option.
During the lifetime of the optionee, the option may be exercised only
by the optionee. An option may not be transferred or assigned, except by will or
the laws of descent and distribution.
In the event an optionee ceases to be an employee of the Company for
any reason, except death or disability, the optionee may exercise an option (to
the extent unexercised and exercisable on the date of termination of employment)
within one month after such date of termination of employment. In the event of
termination of employment due to death or disability, an optionee (or his legal
representative) may exercise an option (to the extent unexercised and
exercisable on the date of termination of employment) within 12 months after
such date of termination of employment. An optionee's employment will be deemed
to have terminated on account of death if the Optionee dies within three months
of such termination. For consultants who are granted options, termination of
their status as a consultant constitutes termination of employment.
In the event of a merger or consolidation in which the stockholders of
the Company before such transaction do not retain, directly or indirectly, at
least a majority of the beneficial interest in the voting stock of the surviving
entity, or the sale of all or substantially all of the Company's assets (other
than to a subsidiary of the Company) all outstanding options will become fully
exercisable prior to the consummation of such transaction at such times as the
Board shall determine unless the surviving or acquiring corporation, as a
condition precedent to the consummation of such transaction, assumes the
outstanding options or issue substitute options in place thereof.
SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE OPTION PLAN
The following summary is intended only as a general guide as to the
United States federal income tax consequences under current law with respect to
participation in the Option Plan and does not attempt to describe all possible
federal or other tax consequences of such participation. Furthermore, the tax
consequences of options are complex and subject to change, and a taxpayer's
14
particular situation may be such that some variation of the described rules is
applicable. For example, special tax rules apply to affiliates of the Company or
if shares acquired upon the exercise of an option are unvested and therefore
subject to repurchase restrictions.
INCENTIVE STOCK OPTIONS Options designated as incentive stock options
are intended to fall within the provisions of section 422 of the Code. An
optionee recognizes no taxable income as the result of the grant or exercise of
such an option.
For optionees who do not dispose of their shares within two years
following the date the option was granted or within one year following the
transfer of the shares upon exercise of the option, the gain on sale of the
shares (which is defined to be the difference between the sale price and the
purchase price of the shares) will be taxed as long-term capital gain. If an
optionee is entitled to long-term capital gain treatment upon a sale of the
shares, the Company will not be entitled to any deduction for federal income tax
purposes. If an optionee disposes of shares within two years after the date of
grant or within one year from the date of exercise (a "disqualifying
disposition"), the lesser of (i) the difference between the option exercise
price and the fair market value of the shares on the determination date of the
option (as defined under "Nonqualified Stock Options" below) or (ii) the gain
recognized on the disposition will be taxed as ordinary income at the time of
disposition. Any additional gain and any loss will constitute a capital gain or
loss. A capital gain or loss will be long-term if the optionee's holding period
is more than 12 months. Generally, any ordinary income recognized by the
optionee upon the disposition of the shares should be deductible by the Company
for federal income tax purposes.
The difference between the option exercise price and the fair market
value of the shares on the determination date of an incentive stock option is
included in the optionee's alternative minimum taxable income and may thus be
subject to the alternative minimum tax if such tax exceeds the optionee's
regular tax liability for the year. Special rules may apply with respect to
certain subsequent sales of the shares in a disqualifying disposition, certain
basis adjustments for purposes of computing the alternative minimum taxable
income on a subsequent sale of the shares, and certain tax credits which may
arise with respect to optionees subject to the alternative minimum tax.
NONQUALIFIED STOCK OPTIONS Nonqualified stock options have no special
tax status. An optionee recognizes no taxable income as the result of the grant
of such an option. Upon exercise of a nonqualified stock option, the optionee
recognizes ordinary income equal to the excess (if any) of the fair market value
of the shares on the determination date (as defined below) over the purchase
price of the shares. Such ordinary income generally is subject to withholding of
income and employment taxes. The "determination date" is the date on which the
option is exercised unless the shares are not vested and/or the sale of the
shares at a profit would subject the Optionee to suit under Section 16(b) of the
Exchange Act, in which case the determination date is the later of (i) the date
on which the shares vest or (ii) the date the sale of the shares would no longer
subject the Optionee to suit under Section 16(b) of the Exchange Act. If the
determination date is after the exercise date, the optionee may elect, pursuant
to section 83(b) of the Code, to have the exercise date be the determination
date by filing an election with the Internal Revenue Service not later than 30
days after the date the option is exercised. Upon the sale of shares acquired by
the exercise of a nonqualified stock option, any gain or loss, based on the
difference between the sale price and the fair market value on the determination
date, will be taxed as capital gain or loss. A capital gain or loss will be
long-term if the optionee's holding period is more than 12 months from the
determination date of recognition of income. No tax deduction is available to
the Company with respect to the grant of a nonqualified stock option or the sale
of the stock acquired pursuant to the grant. The Company should be entitled to a
deduction equal to the amount of ordinary income recognized by the optionee as a
result of the exercise of a nonqualified stock option if the Company satisfies
any applicable tax withholding requirements.
15
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes present or represented
by proxy and entitled to vote at the Annual Meeting of Stockholders, at which a
quorum representing a majority of all outstanding shares of Common Stock of the
Company is present and voting, either in person or by proxy, is required for
approval of this proposal. Abstentions and broker non-votes will each be counted
as present for purposes of determining the presence of a quorum. Abstentions
will have the same effect as a negative vote. Broker non-votes, on the other
hand, will have no effect on the outcome of the vote.
The Company's management believes that the Option Plan is an important
incentive to retain and motivate qualified employees and is essential to the
success of the Company. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" THIS PROPOSAL TO AMEND THE OPTION PLAN TO INCREASE THE NUMBER OF
SHARES RESERVED FOR ISSUANCE UNDER THE OPTION PLAN BY 2,200,000 SHARES.
PROPOSAL 3
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board, upon recommendation of the Company's Audit Committee, has
selected Price Waterhouse LLP as the independent accountants of the Company for
fiscal 1996. Price Waterhouse LLP has acted in such capacity since its
appointment for fiscal 1977. A representative of Price Waterhouse LLP, who will
be present at the Annual Meeting, will be given the opportunity to make a
statement if he or she so desires and will be available to respond to
appropriate questions.
In the event that ratification by the stockholders of the appointment
of Price Waterhouse LLP as the Company's independent accountants is not
obtained, the Board will reconsider said appointment.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF PRICE
WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR FISCAL 1996. The
affirmative vote of a majority of the votes cast at the Annual Meeting of
Stockholders, at which a quorum representing a majority of all outstanding
shares of Common Stock of the Company is present and voting, either in person or
by proxy, is required for approval of this proposal. Abstentions and broker
non-votes will each be counted as present for purposes of determining the
presence of a quorum, but will not be counted as having been voted on the
proposal.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT THE NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next Annual
Meeting of Stockholders of the Company (i) must be received by the Company at
its offices at 160 Rio Robles, San Jose, California 95134, no later than June
27, 1996, and (ii) must satisfy the conditions established by the Securities and
Exchange Commission for stockholder proposals to be included in the Company's
Proxy Statement for that meeting.
16
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board
of Directors intends to present or knows that others will present at the meeting
is as set forth above. If any other matter or matters are properly brought
before the meeting, or any adjournment thereof, it is the intention of the proxy
holders named in the accompanying Proxy to vote the Proxy on such matters in
accordance with their best judgment.
Paul E. Kreutz
Secretary
October 17, 1995
17
KLA INSTRUMENTS CORPORATION
1982 STOCK OPTION PLAN
AS AMENDED
1. Purpose: On October 6, 1981, the KLA Instruments Corporation 1981
Incentive Stock Option Plan (the "1981 Plan") was adopted. The 1981 Plan was
amended and restated in its entirety and renamed the KLA Instruments Corporation
1982 Stock Option Plan (the "1982 Plan"). The 1982 Plan was amended and restated
in its entirety in 1985 (the "Prior Plan"). The Prior Plan was amended and
restated in its entirety effective January 1, 1987 (the "Plan"). The Plan is
established to create additional incentive for key employees, consultants and
directors of KLA Instruments Corporation and any present or future parent and/or
subsidiary corporations of such corporation (collectively referred to as the
"Company"). For purposes of the Plan, a parent corporation and a subsidiary
corporation shall be as defined in sections 425(e) and 425(f) of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Administration.
(a) Administration by Board and/or Committee. The Plan shall be
administered by the Board of Directors of the Company (the "Board") and/or by a
duly appointed committee of the Board having such powers as shall be specified
by the Board. Any subsequent references herein to the Board shall also mean the
committee if such committee has been appointed and, unless the powers of the
committee have been specifically limited, the committee shall have all of the
powers of the Board granted herein, including, without limitation, the power to
terminate or amend the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law. All questions of interpretation of
the Plan or of any options granted under the Plan (an "Option") shall be
determined by the Board, and such determinations shall be final and binding upon
all persons having an interest in the Plan and/or any Option.
(b) Options Authorized. Options may be either incentive stock
options as defined in section 422 of the Code or nonqualified stock options.
(c) Compliance with Section 162(m) of the Code. In the event
that the Company is a "publicly held corporation" as defined in paragraph (2) of
section 162(m) of the Code, as amended by the Revenue Reconciliation Act of 1993
(P.L. 103-66), and the regulations promulgated thereunder ("Section 162(m)"),
the Company may establish a committee of outside directors meeting the
requirements of Section 162(m) to approve the grant of Options which might
reasonably be anticipated to result in the payment of employee remuneration that
would otherwise exceed the limit on employee remuneration deductible for income
tax purposes pursuant to Section 162(m).
1
3. Eligibility:
(a) Eligible Persons. The Options may be granted only to
employees (including officers), consultants and directors of the Company;
provided, however, that no non-employee director may be granted an Option after
October 25, 1991. The Board shall, in its sole discretion, determine which
persons shall be granted Options (an "Optionee"). A consultant of the Company
shall be eligible to be granted only a nonqualified stock option. In the event
an Optionee is not an employee at the time an Option is granted to such
Optionee, termination of such Optionee's status as a consultant shall be deemed
to be termination of the Optionee's employment for purposes of applying the
provisions of the Plan. An Optionee may, if he is otherwise eligible, be granted
additional Options.
(b) Fair Market Value Limitation. To the extent that the
aggregate fair market value (determined at the time the Option is granted) of
stock with respect to which Incentive Stock Options are exercisable by an
Optionee for the first time during any calendar year (under all stock option
plans of the Company, including the Plan) exceeds One Hundred Thousand Dollars
($100,000), such options shall be treated as nonqualified stock options. This
paragraph shall be applied by taking Incentive Stock Options into account in the
order in which they were granted. In the event of an amendment to section 422 of
the Code, this paragraph 3(b) shall be automatically amended to make this
provision no more restrictive to the Optionee than necessary to insure
qualification of the incentive stock option as meeting the requirements of
section 422 of the Code. In the event an Optionee receives an Option intended to
be an incentive stock option which is subsequently determined to have exceeded
the fair market value limitation, the Option shall be amended, if necessary, in
accordance with applicable Treasury Regulations and rulings to preserve, as the
first priority, to the maximum possible extent, the status of the Option as an
incentive stock option and to preserve, as a second priority, to the maximum
possible extent, the total number of shares subject to the Option. Options
designated as nonqualified stock options shall not be subject to the fair market
value limitation.
(c) Ten Percent Owner Optionees. No person shall be eligible to
receive an Option which is intended to be an incentive stock option if such
person owns stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company within the meaning of section 422(b)(6) of
the Code.
4. Shares Subject to Option. The maximum number of shares of stock
which may be issued under the Plan shall be Fourteen Million Nine Hundred
Thousand (14,900,000) shares of the Company's authorized but unissued common
stock subject to adjustment as provided in paragraph 6(f). Subject to adjustment
as provided in paragraph 6(f) below, at any such time as the Company is a
"publicly held corporation" as defined in Section 162(m), no person shall be
granted within any fiscal year of the Company Options which in the aggregate
cover more than Two Hundred Thousand (200,000) shares; provided, however, that
the foregoing limit shall be Six Hundred Thousand (600,000) shares with respect
to Options granted to any person during the first fiscal year of such person's
employment with the
2
Company (the "Per Optionee Limit"). In the event that any outstanding Option for
any reason expires or is terminated, the shares allocable to the unexercised
portion of such Option may again be subjected to an Option.
5. Time for Granting Options. All options shall be granted, if at all,
within ten (10) years from July 20, 1990.
6. Terms, Conditions and Form of Options. Subject to the provisions of
the Plan, the Board shall determine for each Option (which need not be
identical) the number of shares for which the Option shall be granted, the
option price of the Option, the exercisability of the Option, whether the Option
is a nonqualified stock option or an incentive stock option, and all other terms
and conditions of the Option. Options granted pursuant to the Plan shall be
evidenced by written agreements specifying the number of shares covered thereby,
in such form as the Board shall from time to time establish, which agreements
may incorporate all or any of the terms of the Plan by reference and shall
comply with and be subject to the following terms and conditions:
(a) Option Price. The option price shall be not less than the fair
market value as determined by the Board of the shares of common stock of the
Company on the date the Option is granted.
(b) Exercise Period of Options. The Board shall have the power to
set the time or times within which each Option shall be exercisable or the event
or events upon the occurrence of which all or a portion of each Option shall be
exercisable and the term of each Option; provided, however, that no incentive
stock option shall be exercisable after the expiration of ten (10) years from
the date such option is granted and no nonqualified stock option shall be
exercisable after the expiration of ten (10) years and one (1) day from the date
such option is granted. Unless otherwise provided for by the Board in the grant
of the Option, any Option granted hereunder shall be exercisable during the
period commencing seven (7) months after the date the Option is granted (the
"Grant Date") and ending at the time set forth in the previous sentence. During
such period the Option shall be exercised only in proportion to the vested ratio
at the time of the exercise. The "vested ratio" at the time of an exercise is a
fraction the numerator of which is the number of full months of continuous
employment with the Company which have occurred more than six (6) months after
the Grant Date and the denominator of which is 54.
(c) Exercise of Options.
(i) Options may be exercised only by written notice to the
Company, stating the number of shares being purchased and accompanied by payment
of the option price for the number of shares being purchased (1) in cash, by
check, or in cash equivalent, (2) by tender to the Company of shares of common
stock of the Company which (a) either have been owned by the optionee for more
than six (6) months or were not acquired directly or indirectly from the
Company, and (b) have a fair market value not less than the option price, or (3)
by such other
3
consideration as the Board may approve at the time the Option is granted.
Notwithstanding the foregoing, the Board shall have the authority (A) with
respect to Optionees who would not be subject to suit under section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), upon the sale
of shares of the Company, to establish or approve a program and/or procedures
which permit the payment of the option price upon the exercise of an Option by
the assignment of the proceeds of a sale of some or all of the shares being so
acquired and (B) with respect to Optionees who would be subject to suit under
section 16(b) of the Exchange Act upon the sale of shares of the Company, to
establish or approve a program and/or procedures which permit the payment of the
option price upon the exercise of an Option by cash for a portion of the option
price and the Optionee's promissory note for the balance of the option price. At
the time an Option is exercised, in whole or in part, or at any time thereafter
as requested by the Company, the Optionee shall make adequate provision for the
federal and state income tax withholding obligations of the Company, if any,
which arise upon exercise, in whole or in part, of the Option or which arise,
directly or indirectly, upon any transfer, in whole or in part, of any shares
acquired on exercise of the Option.
(ii) The Company reserves, at any and all times, the right, in
the Company's sole and absolute discretion, to establish, decline to approve
and/or terminate any programs and/or procedures for the exercise of Options by
means of an assignment of the proceeds of a sale of some or all of the shares to
be acquired upon such exercise.
(iii) No promissory note shall be permitted pursuant to
paragraph 6(c)(i)(B) if an exercise using a promissory note would be a violation
of any law. In the event an Optionee provides for partial payment with a
promissory note, such promissory note shall comply with provisions established
by the Board; provided, however, that the principal balance shall not exceed the
lesser of (A) the option price or (B) the maximum amount permitted under the
Delaware General Corporation Law or other applicable law. Any permitted
promissory note shall be due and payable not more than two (2) years after the
Option is granted and interest shall be payable at least annually and be at
least equal to the minimum interest rate necessary to avoid imputed interest
pursuant to all applicable sections of the Code. The Board shall have the
authority to permit or require the Optionee to secure any promissory note used
to exercise an Option with the shares acquired on exercise of the Option and/or
with other collateral acceptable to the Company. In the event the Company at any
time is subject to the regulations promulgated by the Board of Governors of the
Federal Reserve System or any other governmental entity affecting the extension
of credit in connection with the Company's securities, any promissory note shall
comply with such applicable regulations, and the Optionee shall pay the unpaid
principal and accrued interest, if any, to the extent necessary to comply with
such applicable regulations.
(iv) If an amendment to the Plan requiring the approval of the
stockholders of the Company is necessary for the grant of an Option and/or the
approval of such stockholders is deemed necessary or advisable by the Board
prior to
4
the exercise of an Option, such Option shall not be exercisable until such time
as the Plan is duly approved by the stockholders of the Company.
(v) In the event of (1) a merger or consolidation or other
reorganization in which the stockholders of the Company before such merger do
not retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the surviving entity, and/or (2) the sale of all
or substantially all of the Company's assets (other than a sale or transfer to a
subsidiary of the Company as defined in section 425(f) of the Code), all
outstanding Options, notwithstanding the terms of such Options, shall become
fully exercisable prior to consummation of such merger or sale of assets at such
time(s) as the Board shall determine or the surviving or acquiring corporation,
as a condition precedent to consummation of said transaction, shall assume the
outstanding Options or issue substitute options in place thereof. Such
assumption or substitution shall meet the requirements of section 425(a) of the
Code if the Options assumed or surrendered are incentive stock options (as
defined in the Code) and shall satisfy comparable requirements if the Options
assumed or surrendered are nonqualified stock options.
(d) Options Non-Transferable. During the lifetime of the Optionee,
the Option shall be exercisable only by said Optionee. No option shall be
assignable or transferable by the Optionee, except by will or by the laws of
descent and distribution.
(e) Termination of Options. If an Optionee ceases to be an employee
of the Company for any reason except death or disability within the meaning of
Section 422(c) of the Code, any Option, to the extent unexercised and
exercisable by the Optionee on the date on which the Optionee ceased to be an
employee, may be exercised by the Optionee within one (1) month after the date
on which the Optionee ceased to be an employee, but in any event no later than
the date of expiration of the Option's term. If the Optionee's employment with
the Company is terminated because of the death of the Optionee or disability of
the Optionee within the meaning of section 422(c) of the Code, any Option, to
the extent unexercised and exercisable by the Optionee on the date the Optionee
ceased to be employed by the Company, may be exercised by the Optionee (or the
Optionee's legal representative) at any time prior to the expiration of twelve
(12) months from the date the Optionee ceased to be employed, but in any event
no later than the date of expiration of the Option's term. An Optionee's
employment shall be deemed to have terminated on account of death if the
Optionee dies within three (3) months of the Optionee's termination of
employment. Except as provided in this paragraph 6(e), an Option shall terminate
and may not be exercised after the Optionee ceases to be an employee of the
Company.
(f) Effect of Change in Stock Subject to Plan. Appropriate
adjustments shall be made in the number and class of shares of stock subject to
the Plan, to the Per Optionee Limit set forth in paragraph 4 above, and to any
outstanding Options and in the exercise price of any outstanding Options in the
5
event of a stock dividend, stock split, reverse stock split, or like change in
the capital structure of the Company.
(g) Restriction on Issuance of Shares. The grant of Options and
the issuance of shares shall be subject to compliance with all of the applicable
requirements of all federal, state, and other laws and regulations with respect
to such securities.
(h) Rights as a Stockholder or Employee. No person shall have
any rights as a stockholder with respect to any shares covered by an Option
until the date of the issuance of a stock certificate(s) for the shares for
which the Option has been exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
such stock certificate(s) are issued, except as provided in paragraph 6(f).
Nothing in the Plan or in any Option agreement shall confer upon any Optionee
any right to continue in the employ of the Company or interfere in any way with
any right of the Company to terminate the Optionee's employment at any time.
(i) Fractional Shares. In no event shall the Company be
required to issue fractional shares upon the exercise of an Option.
7. Termination or Amendment of Plan. The Board may at any time
terminate or amend the Plan, provided that without approval of stockholders
there shall be: (i) no increase in the total number of shares covered by the
Plan (except by operation of the provisions of paragraph 6(f) above), and (ii)
no change in the class of person eligible to receive Options. In any case, no
amendment may adversely affect any then outstanding Options or any unexercised
portions thereof without the consent of the Optionee unless such amendment is
required to enable the Option to qualify as an incentive stock option.
8. Continuation of Prior Plan as to Outstanding Options.
Notwithstanding the provisions of the Plan set forth herein, the terms of the
1981 Plan, the 1982 Plan, and the Prior Plan shall remain in effect and apply to
Options granted pursuant to the 1981 Plan, the 1982 Plan, and the Prior Plan,
respectively.
6
P KLA INSTRUMENTS CORPORATION
R PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
O SOLICITED BY THE BOARD OF DIRECTORS
X
Y
The undersigned, revoking all prior proxies, hereby appoints Kenneth
Levy and Kenneth Schroeder, or either, with full power of substitution as
proxies to represent and vote as designated in this proxy any and all shares
of the stock of KLA Instruments Corporation, held or owned by or standing in
the name of the undersigned on the Company's books on September 29, 1995, at
the Annual Meeting of Stockholders of the Company to be held at the
principal executive offices of the Company at 11:00 a.m. on November 15,
1995, and any continuation or adjournment thereof, with all powers the
undersigned would possess if personally present at the meeting.
The undersigned hereby directs and authorizes said proxies, and each of
them, or their substitute or substitutes, to vote as specified with respect
to the proposalss listed on the reverse side, or, if no specification is
made, to vote in favor thereof.
The undersigned hereby further confers upon said proxies, and each of
them, or their substitute or substitutes, discretionary authority to vote
with respect to all other matters, which may properly come before the
meeting or any continuation or adjournment thereof.
The undersigned hereby acknowledges receipt of: (a) Notice of Annual
Meeting of Stockholders of the Company, (b) accompanying Proxy Statement,
and (c) Annual Report to Stockholders for the year ending June 30, 1995.
-------------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
-------------
[X] Please mark
votes as in
this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR
AND FOR PROPOSALS 2 AND 3.
1. Election of three (3) directors to Class III of the Board of Directors.
NOMINEES: Edward W. Barnholt, Yoshio Nishi and Kenneth L. Schroeder
FOR WITHHELD
[ ] [ ]
MARK HERE [ ]
[ ] FOR ADDRESS
----------------------------------------- CHANGE AND
For all nominees except as noted above NOTE BELOW
2. To approve an amendment to the 1992 Stock Option FOR AGAINST ABSTAIN
Plan (the "Option Plan") to increase the number of [ ] [ ] [ ]
shares reserved for issuance under the Option Plan
by 2,200,000 shares.
3. To ratify the appointment of Price Waterhouse LLP FOR AGAINST ABSTAIN
as independent accountants of the Company for the [ ] [ ] [ ]
fiscal year ending June 30, 1996.
Sign exactly as your name(s) appears on your stock certificate. If shares of
stock are held in the name of two or more persons or in the name of husband and
wife, whether as joint tenants or otherwise, both or all of such persons should
sign the above Proxy. If shares of stock are held by a corporation, the Proxy
should be executed by the President or Vice President and the Secretary or
Assistant Secretary. Executors or administrators or other fiduciaries who
execute the above Proxy for a deceased shareholder should give their full
title. Please date the Proxy.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO SIGN
AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE SO THAT YOUR STOCK MAY BE
REPRESENTED AT THE MEETING.
Signature: Date
---------------------------------------- ----------------------
Signature: Date
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