<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 19, 1995.
REGISTRATION NO. 33-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
KLA INSTRUMENTS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 04-256411
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
160 RIO ROBLES
SAN JOSE, CALIFORNIA 95161
(408) 434-4200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
KENNETH LEVY
CHIEF EXECUTIVE OFFICER
KLA INSTRUMENTS CORPORATION
160 RIO ROBLES
SAN JOSE, CALIFORNIA 95161
(408) 434-4200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
DENNIS C. SULLIVAN, ESQ. WILLIAM D. SHERMAN, ESQ.
PAUL A. BLUMENSTEIN, ESQ. GAVIN B. GROVER, ESQ.
DAVID A. HUBB, ESQ. GREGORY H. HANSON, ESQ.
GRAY CARY WARE & FREIDENRICH A. ALLISON LISBONNE, ESQ.
400 HAMINTON AVENUE MORRISON & FOERSTER
PALO ALTO, CA 94301 345 CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA 94104
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
------------------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
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Common Stock ($.001 par
value)...................... 1,725,000 Shares $61.875 $106,734,375 $36,804.96
</TABLE>
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(1) Includes 225,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee and based
on the average of the high and low prices of the Common Stock, as reported
on The Nasdaq National Market on April 18, 1995.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such State.
PROSPECTUS (Subject to Completion)
Issued April 19, 1995
1,500,000 Shares
KLA Instruments Corporation
COMMON STOCK
------------------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY KLA
INSTRUMENTS CORPORATION (THE "COMPANY"). THE COMPANY'S COMMON STOCK IS
TRADED IN THE OVER-THE-COUNTER MARKET UNDER THE NASDAQ NATIONAL
MARKET SYMBOL "KLAC." THE LAST SALE PRICE FOR THE COMMON
STOCK ON APRIL 18, 1995, AS REPORTED ON THE NASDAQ
NATIONAL MARKET, WAS $61 1/4 PER SHARE. SEE
"PRICE RANGE OF COMMON STOCK."
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
Total(3)...................................... $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses estimated at $400,000.
(3) The Company has granted to the Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to 225,000 additional
Shares at the price to public less underwriting discounts and
commissions for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total price to public,
underwriting discounts and commissions and proceeds to Company will be
$ , $ , and $ , respectively. See
"Underwriters."
------------------------
The Shares are offered subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Morrison & Foerster, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , 1995 at the
offices of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment
therefor in New York funds.
------------------------
MORGAN STANLEY & CO.
Incorporated
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
, 1995
<PAGE> 3
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, AND ANY INFORMATION OR REPRESENTATION NOT
CONTAINED OR INCORPORATED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANY PERSON
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN
OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS AT ANY TIME
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
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<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by Reference............................................ 2
Prospectus Summary......................................................................... 3
The Company................................................................................ 4
Recent Quarterly Results................................................................... 5
Risk Factors............................................................................... 6
Use of Proceeds............................................................................ 9
Price Range of Common Stock................................................................ 9
Dividend Policy............................................................................ 9
Capitalization............................................................................. 10
Selected Consolidated Financial Data....................................................... 11
Business................................................................................... 13
Description of Capital Stock............................................................... 21
Underwriters............................................................................... 23
Legal Matters.............................................................................. 24
Experts.................................................................................... 24
Available Information...................................................................... 24
</TABLE>
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Securities
and Exchange Commission (the "Commission") pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act") are incorporated herein by
reference: (1) the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994; (2) the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994; (3) the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1994; and (4) the Company's Registration
Statement on Form 8-A filed with the Commission on October 26, 1981 (including
all amendments in respect thereof).
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Common Stock hereunder shall be deemed to
be incorporated by reference herein and to be a part hereof from the date of the
filing of such reports and documents. The Company will provide without charge to
each person to whom this Prospectus is delivered, upon written or oral request,
a copy of any or all of the foregoing documents incorporated by reference in
this Prospectus. Requests for such documents should be directed to KLA
Instruments Corporation, 160 Rio Robles, San Jose, CA 95161, Attn: Investor
Relations, telephone (408) 434-4200.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITERS."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere or incorporated by
reference in this prospectus.
THE COMPANY
KLA is the leader in the design, manufacture, marketing and service of yield
management and process monitoring systems for the semiconductor industry. KLA
believes that it is the world's largest supplier to the wafer, reticle and
metrology inspection equipment markets. KLA's systems are used to analyze
product and process quality at critical steps in the manufacture of integrated
circuits, providing feedback so that fabrication problems can be identified,
addressed and contained. This understanding of defect sources and how to contain
them enables semiconductor manufacturers to increase yields. Quickly attaining
and then maintaining high yields is one of the most important determinants of
profitability in the semiconductor industry. The Company believes that its
customers typically experience rapid paybacks on their investments in the
Company's systems. The Company sells to virtually all of the world's
semiconductor manufacturers and has achieved very high market shares in its
principal businesses. Some of the Company's key customers include AMD, Fujitsu,
Hyundai, Intel, Motorola, NEC, Samsung, SGS-Thomson and TSMC.
RECENT QUARTERLY RESULTS. The Company reported net sales of $118.1 million,
net income of $20.8 million and earnings per share of $0.86 for the quarter
ended March 31, 1995 compared to net sales of $62.7 million, net income of $9.0
million and earnings per share of $0.40 for the same quarter in 1994. See
"Recent Quarterly Results."
THE OFFERING
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<S> <C>
Common Stock offered..................................... 1,500,000 shares(1)
Common Stock to be outstanding after the offering........ 24,724,000 shares(1)(2)
Use of proceeds.......................................... For the retirement of indebtedness and for general
corporate purposes. The Company may use a portion of the
net proceeds to acquire businesses, products or
technologies complementary to the Company's current
businesses. See "Use of Proceeds."
The Nasdaq National Market symbol........................ KLAC
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 31,
---------------------------------------------- ----------------
1990 1991 1992 1993 1994 1993 1994
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<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales............................................. $161.6 $148.4 $156.0 $167.2 $243.7 $109.0 $187.9
Gross profit.......................................... 75.5 65.6 56.0 59.8 110.7 45.4 98.9
Write-off of acquired in-process technology(3)........ -- -- -- -- -- -- (25.2)
Income (loss) from operations......................... 17.7 5.0 (13.6) 11.5 40.1 14.4 18.5
Income (loss) from continuing operations.............. 12.2 2.4 (16.6) 7.0 30.2 10.5 13.8
Income (loss) per share from continuing operations.... $ .67 $ .13 $ (.90) $ .35 $ 1.37 $ .50 $ .58
Weighted average common and dilutive common
equivalent shares................................... 18.0 18.6 18.5 19.7 22.0 20.9 24.0
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
-------------------------
AS
ACTUAL ADJUSTED(4)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...................................... $125.5 $ 192.9
Working capital........................................................................ 191.0 278.3
Marketable securities.................................................................. 17.0 17.0
Total assets........................................................................... 365.4 432.8
Notes payable and current portion of long-term debt.................................... 22.6 2.6
Long-term debt......................................................................... -- --
Stockholders' equity................................................................... 245.4 332.8
</TABLE>
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(1) Assumes the Underwriters' over-allotment option to purchase 225,000 shares
is not exercised. See "Underwriters."
(2) Based on the number of shares outstanding at December 31, 1994. Excludes
4,161,000 shares of Common Stock reserved for issuance under the Company's
stock option and employee stock purchase plans, including 2,739,000 shares
issuable upon the exercise of options outstanding as of December 31, 1994,
at a weighted average exercise price of $21.47 per share.
(3) Represents a charge for the write-off of in-process technology related to
the Company's acquisition of Metrologix, Inc. in December 1994.
(4) Gives effect to the sale of the 1,500,000 shares offered hereby by the
Company, at an assumed public offering price of $61.25 per share, and the
anticipated use of a portion of the net proceeds therefrom as set forth
under "Use of Proceeds."
3
<PAGE> 5
THE COMPANY
KLA is the leader in the design, manufacture, marketing and service of
yield management and process monitoring systems for the semiconductor industry.
KLA believes that it is the world's largest supplier to the wafer, reticle and
metrology inspection equipment markets. KLA's systems are used to analyze
product and process quality at critical steps in the manufacture of integrated
circuits, and to provide feedback so that fabrication problems can be
identified, addressed and contained. This understanding of defect sources and
how to contain them enables semiconductor manufacturers to increase yields.
Quickly attaining and then maintaining high yields is one of the most important
determinants of profitability in the semiconductor industry. The Company
believes that its customers typically experience rapid paybacks on their
investments in the Company's systems. The Company sells to virtually all of the
world's semiconductor manufacturers and has achieved very high market shares in
its principal businesses. Some of the Company's key customers include AMD,
Fujitsu, Hyundai, Intel, Motorola, NEC, Samsung, SGS-Thomson and TSMC.
Maximizing yields, or the number of good die per wafer, is a key goal of
modern semiconductor manufacturing. Higher yields increase the revenue a
manufacturer can obtain for each semiconductor wafer processed. As line width
geometries decrease, yields become more sensitive to the size and density of
defects. Semiconductor manufacturers use yield management and process monitoring
systems to improve yields by identifying defects, by analyzing them to determine
process problems, and, after corrective action has been taken, by monitoring
subsequent results to ensure that the problem has been contained. Monitoring and
analysis may take place at many points in the fabrication process as wafers move
through a production cycle consisting of hundreds of separate process steps.
Several years ago, the Company recognized the industry's need for in-line
monitoring to provide real-time process management capability. Prior to the
introduction of KLA's 2100 series, no suppliers' products were capable of both
the speed and the sensitivity needed for in-line inspection for all defect types
at critical process steps. In-line inspection is a critical yield enhancement
and cost reduction technique because it allows defect detection in real-time
rather than waiting until after final test results become available to discover
problems that have a significant yield impact. In response, the Company devoted
substantial resources to developing systems with the throughput, reliability and
associated data analysis capabilities for in-process inspection. During the past
several years, customers' use of the Company's wafer inspection systems began
evolving from single system, off-line engineering analysis applications to
multiple systems monitoring critical steps directly on advanced fabrication
lines. As a result of these advantages, most of the Company's customers are
adopting the KLA methodology of installing multiple systems directly monitoring
critical steps in the integrated circuit manufacturing process. The Company
believes that the market for in-line monitoring systems is several times larger
than its traditional market for engineering analysis systems.
The Company's technological strength has enabled it to develop and
introduce major new product families in the past two years for the following
three business units: WISARD, which addresses semiconductor wafer inspection;
RAPID, which addresses reticle inspection; and Metrology, which addresses
overlay registration and linewidth measurement. The Company believes that its
WISARD and RAPID product families incorporate proprietary technologies which
provide greater sensitivity to defects than any competing systems. KLA's
strategy is to leverage its technology leadership to develop new hardware and
software yield management tools. The Company has committed significant resources
to internally developing emerging yield management technologies. KLA has also
acquired technologies that it believes will be critical to enhancing its
long-term competitive position. In fiscal 1995, the Company has expanded its
position in the market for yield management and process monitoring systems by
expanding its product offerings to include yield management software, through
its recently formed PRISM division, and E-Beam metrology applications through
the December 1994 acquisition of Metrologix, Inc. The Company's long-term
strategy is to link information from its new and existing products, as well as
from measurement systems manufactured by others, to form an integrated network
of detection and analysis systems.
KLA sells its products through a combination of direct sales and
distribution channels. The Company believes that the size and location of its
field sales, service and applications engineering organization represents
4
<PAGE> 6
a significant competitive advantage in its served markets. Sales, service and
applications operations throughout the world employ over 400 sales, service and
applications engineers. In order to meet continuing developments in the
semiconductor industry and to broaden the applications for its image processing
technology, the Company is committed to significant engineering efforts for
product improvement and new product development. Approximately 20% of the
Company's workforce is engaged in engineering, research and development. The
Company's principal manufacturing activities take place in San Jose, California;
Bevaix, Switzerland; and Migdal Ha'Emek, Israel; and consist primarily of
assembling and testing components and subassemblies which are acquired from
third party vendors and then integrated into the Company's finished products.
KLA was incorporated in Delaware in July 1975. The Company's principal
offices are located at 160 Rio Robles, San Jose, California 95161, and its
telephone number is (408) 434-4200.
RECENT QUARTERLY RESULTS
The Company reported net sales of $118.1 million, net income of $20.8
million and earnings per share of $0.86 for the quarter ended March 31, 1995
compared to net sales of $62.7 million, net income of $9.0 million and earnings
per share of $0.40 for the same quarter in 1994. Sales of Company products
increased in all product divisions while gross margin increased to 54.1% in the
1995 quarter compared to 46.8% in the prior year period. A favorable product
mix, cost reductions and improving overhead absorption accounted for the
improvement in gross margin.
5
<PAGE> 7
RISK FACTORS
Prospective purchasers of Shares offered hereby should carefully consider
the following risk factors in addition to the other information presented in
this Prospectus.
Potential Fluctuations in Quarterly Results. The Company has experienced
and expects to continue to experience significant fluctuations in its quarterly
operating results. The Company's expense levels are based, in part, on
expectations of future revenues. If revenue levels in a particular quarter do
not meet expectations, operating results will be adversely affected, which may
have an adverse impact on the market price of the Company's Common Stock. Since
in a typical quarter the Company sells a relatively small number of high priced
systems, the sale by the Company of fewer systems than anticipated in any
quarter may have a substantial impact on the operating results for the quarter.
New product introductions may also contribute to fluctuations in quarterly
operating results, especially since customers may defer ordering products from
the Company's existing product lines. The Company's results also will be
affected by strategic decisions made by management regarding whether to continue
particular product lines, new product introductions by the Company's
competitors, the volume, mix and timing of orders received during a period,
fluctuations in foreign exchange rates, and changing conditions in both the
semiconductor industry and key semiconductor markets around the world.
Volatility of Semiconductor Industry. The Company's business depends in
large part upon the capital expenditures of semiconductor manufacturers, which
in turn depend on the current and anticipated market demand for integrated
circuits and products utilizing integrated circuits. The semiconductor industry
is highly cyclical and has historically experienced periodic downturns, which
often have had a severe effect on the semiconductor industry's demand for yield
management and process monitoring systems. Semiconductor industry downturns have
adversely affected the Company's results of operations. For example, the Company
believes that depressed capital expenditures by semiconductor manufacturers in
Japan have adversely affected the Company's revenues and operating results in
the past. Any future weakness in demand in the semiconductor industry is likely
to have a material adverse effect on the Company's business and results of
operations. In addition, the need for continued investment in engineering,
research and development and extensive ongoing customer service and support
requirements worldwide will limit the Company's ability to reduce expenses in
response to any such downturn. Further, there can be no assurance that
developments in the semiconductor industry or the semiconductor equipment
industry will occur at the rate or in the manner expected by the Company.
Dependence on Introduction of New Products and Product Enhancements. The
Company believes that its continued success will depend on its ability to
continuously develop and manufacture new products and product enhancements and
to introduce them into the market in response to demands for higher performance
yield management and process monitoring systems. Failure to develop and
introduce new products and product enhancements or to gain customers' acceptance
of such products in a timely fashion could harm the Company's competitive
position. Furthermore, due to the risks inherent in transitioning to new
products, the Company must accurately forecast demand in both volume and
configuration and also manage the transition from older products. If new
products have reliability or quality problems, reduced orders, higher
manufacturing costs, delays in collecting accounts receivable and additional
service and warranty expense may result. In the past, the Company has
experienced some delays as well as reliability and quality problems in
connection with product introductions, resulting in some of these consequences.
The Company plans to introduce several new products in fiscal 1996. There can be
no assurance that the Company will successfully develop and manufacture new
products, or that new products introduced by the Company will be accepted in the
marketplace. If the Company does not successfully introduce new products, the
Company's results of operations will be materially adversely affected.
Competition and Rapid Technological Change. The semiconductor equipment
industry is highly competitive and is characterized by rapidly advancing
technology. In each of the markets it serves, the Company increasingly faces
competition and the threat of competition from established and potential
competitors, some of which may have greater financial, engineering,
manufacturing and marketing resources than the Company. Development of new
technologies that have price/performance characteristics superior to the
Company's technologies could adversely affect the Company's results of
operations. There can be no assurance that the Company will be able to develop
and market new products successfully or that the products
6
<PAGE> 8
introduced by others will not render the Company's products or technologies
non-competitive or obsolete. See "Business -- Competition."
Limited Protection of Intellectual Property. The Company's success depends
in part on its proprietary technology. While the Company attempts to protect its
proprietary technology through patents, copyrights and trade secrets, it
believes that its success will depend more upon technological expertise,
continuing development of new systems, market penetration and installed base and
the ability to provide comprehensive support and service to customers. There can
be no assurance that the Company will be able to protect its technology or that
competitors will not be able to develop similar technology independently. The
Company currently has a number of United States and foreign patents and patent
applications. There can be no assurance that the claims allowed on any patents
held by the Company will be sufficiently broad to protect the Company's
technology, or that any patents will issue from any application pending or filed
by the Company. In addition, there can be no assurance that any patents issued
to the Company will not be challenged, invalidated or circumvented or that the
rights granted thereunder will provide competitive advantages to the Company.
The semiconductor industry is characterized by frequent litigation
regarding patent and other intellectual property rights. In addition, the
Company and its customers from time to time receive letters from third parties,
including some of the Company's competitors, alleging infringement of such
parties' rights by the Company's products. See "-- Notice of Patent Infringement
Received by Customers." Such letters are prevalent in the Company's industry and
there can be no assurance that the Company would prevail in any litigation
seeking damages or expenses from the Company or to enjoin the Company from
selling its products on the basis of such alleged infringement, or that the
Company would be able to license any valid and infringed patents held by third
parties on reasonable terms. In the event of litigation to determine the
validity of any third-party claims, such litigation could result in significant
expense to the Company or other adverse consequences to the Company and divert
the efforts of the Company's technical and management personnel, whether or not
such litigation is determined in favor of the Company.
Notice of Patent Infringement Received by Customers. Some customers using
certain products of the Company have received a notice of infringement from
Technivision Corporation and Jerome H. Lemelson, alleging that equipment used in
the manufacture of semiconductor products infringes patents issued to Mr.
Lemelson relating to "computer image analysis" or "digital signal generation and
analysis." Certain of these customers have notified the Company that they may
seek indemnification from the Company for any damages and expenses resulting
from this matter. Certain of the Company's customers are engaged in litigation
with Mr. Lemelson involving a number of Mr. Lemelson's patents, and are
challenging the validity of these patents and whether these patents are
infringed. It is possible that the Company's direct participation in this
litigation may be required. The Company is likely to incur costs if such
participation is required. Although management of the Company believes that this
matter will not have a material adverse effect on the Company, the Company
cannot predict the outcome of this or similar litigation or its effect upon the
Company.
Dependence on Japanese Market. The future performance of the Company will
be dependent, in part, upon its ability to continue to compete successfully in
the Japanese market, one of the largest markets for yield management and process
monitoring equipment. The Company's ability to compete in this market in the
future is dependent upon continuing free trade between Japan and the United
States in this industry, the continuing ability of the Company to develop
products in a timely manner that meet the technical requirements of its Japanese
customers, and the continuing ability of the Company and its Japanese
distributor, TEL, to maintain satisfactory relationships with leading companies
in the Japanese semiconductor industry. The Company's sales to Japan will also
be affected by the overall health of the Japanese economy, including the effects
of currency exchange rate fluctuations on the global competitiveness of Japanese
semiconductor manufacturers. In addition, any adverse developments in the
Company's relationship with TEL could adversely affect the Company's operating
results. Over the last three years, the Company significantly increased its
customer service organization in Japan in order to assume service and support
responsibilities from TEL.
Importance of International Sales. International sales accounted for 57%,
62% and 65% of the Company's net sales for fiscal years 1992, 1993 and 1994,
respectively. The Company expects that international sales will continue to
represent a significant percentage of net sales. International sales and
operations may be adversely affected by the imposition of governmental controls,
export license requirements,
7
<PAGE> 9
restrictions on the export of technology, political instability, trade
restrictions, changes in tariffs and difficulties in staffing and managing
international operations. The net sales and earnings from the Company's
international business may be affected by fluctuations in currency exchange
rates. Although the Company attempts to manage near term currency risks through
"hedging," there can be no assurance that such efforts will be adequate in each
case. These factors could have a material adverse effect on the Company's future
sales and operating results.
Dependence on Key Employees. The future success of the Company is
dependent, in part, on its ability to retain certain key personnel. The Company
also needs to attract additional skilled personnel in all areas of its business
to continue to grow. Competition for such personnel is intense. There can be no
assurance that the Company will be able to retain its existing key management,
engineering, and sales personnel or attract additional qualified employees in
the future.
Dependence on Suppliers. Certain of the components and subassemblies
included in the Company's systems are obtained from a single source or a limited
group of suppliers. Although the Company seeks to reduce dependence on sole and
limited source suppliers in some cases, the partial or complete loss of certain
of these sources could have at least a temporary adverse effect on the Company's
results of operations and damage customer relationships.
Potential Volatility of Common Stock Price. The market price of the Common
Stock could be subject to significant fluctuations in response to variations in
quarterly operating results, shortfalls in revenues or earnings from levels
expected by securities analysts and other factors such as announcements of
technological innovations or new products by the Company or by the Company's
competitors, government regulations, developments in patent or other proprietary
rights, and developments in the Company's relationships with parties to
collaborative agreements. In addition, the stock market has in recent years
experienced significant price fluctuations. These fluctuations often have been
unrelated to the operating performance of the specific companies whose stocks
are traded. Broad market fluctuations, as well as economic conditions generally
and in the semiconductor industry specifically, may adversely affect the market
price of the Company's Common Stock.
Potential Anti-Takeover Effects. Certain provisions of the Company's
stockholder rights plan, its Certificate of Incorporation and of Delaware law
could discourage potential acquisition proposals and could delay or prevent a
change in control of the Company. Such provisions could diminish the
opportunities for a stockholder to participate in tender offers, including
tender offers at a price above the then current market value of the Common
Stock. Such provisions may also inhibit increases in the market price of the
Common Stock that could result from takeover attempts. See "Description of
Capital Stock." In addition, the Board of Directors has the authority to issue
up to 1,000,000 shares of Preferred Stock and 1,000,000 shares of Junior Common
Stock without any further vote or action by the stockholders. The issuance of
Preferred Stock or Junior Common Stock may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the stockholders and could adversely affect the rights and powers,
including voting rights, of the holders of Common Stock. Such effects could
result in a decrease in the market price of the Company's Common Stock.
8
<PAGE> 10
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Common
Stock offered hereby are estimated to be $87,341,000 ($100,502,000 if the
Underwriters' over-allotment option is exercised in full), assuming a public
offering price of $61.25 per share. The Company intends to use $20 million of
the net proceeds to retire outstanding bank indebtedness, bearing interest at
7.6% per annum, at its maturity in August 1995 and to use the remainder of such
net proceeds for general corporate purposes. In addition, the Company may use a
portion of the net proceeds to acquire businesses, products or technologies
complementary to the Company's current businesses, although it has no such
commitments and no such acquisitions are currently being negotiated or planned.
Pending such uses, the net proceeds of this offering will be invested in
short-term and medium-term, interest-bearing investments.
PRICE RANGE OF COMMON STOCK
The following table sets forth the range of high and low sales prices of
the Company's Common Stock for the indicated periods, as reported by The Nasdaq
National Market. On April 18, 1995, the last reported sale price for the Common
Stock on The Nasdaq National Market was $61.25 per share.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 1993: HIGH LOW
---- ----
<S> <C> <C>
First Quarter.................................................... $ 9 $7 1/8
Second Quarter................................................... 12 1/4 7 3/4
Third Quarter.................................................... 14 3/4 10 5/8
Fourth Quarter................................................... 19 1/2 11 1/4
Fiscal Year Ended June 30, 1994:
First Quarter.................................................... 26 1/2 17
Second Quarter................................................... 28 19
Third Quarter.................................................... 43 25 7/8
Fourth Quarter................................................... 43 1/4 32 1/4
Fiscal Year Ending June 30, 1995:
First Quarter.................................................... 51 3/4 45 1/4
Second Quarter................................................... 53 44 3/4
Third Quarter.................................................... 55 46 1/2
Fourth Quarter (through April 18, 1995).......................... 65 1/8 60 1/2
</TABLE>
DIVIDEND POLICY
To date the Company has not declared or paid cash dividends on its Common
Stock. The Board of Directors of the Company presently intends to retain all
earnings for use in the Company's business and therefore does not anticipate
declaring or paying any cash dividends on its Common Stock in the foreseeable
future. The Company's bank credit agreement prohibits the payment of cash
dividends of more than 25% of earnings available therefor and earned during the
immediately preceding fiscal year.
9
<PAGE> 11
CAPITALIZATION
The following table sets forth the unaudited short-term debt and
capitalization of the Company as of December 31, 1994, and as adjusted to give
effect to the sale by the Company of the 1,500,000 shares of Common Stock
offered hereby at an assumed public offering price of $61.25 per share and the
anticipated application of the net proceeds as set forth in "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
----------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Notes payable to banks.......................................... $ 2,631 $ 2,631
Mortgage loan due August 1995................................... 20,000 --
-------- -----------
Total short-term debt................................... $ 22,631 $ 2,631
======== =========
Stockholders' equity:
Preferred Stock, $0.001 par value, 1,000,000 shares authorized,
none outstanding............................................. $ -- $ --
Common Stock, $0.001 par value, 75,000,000 shares authorized(1),
23,224,000 shares issued and outstanding, and 24,724,000
shares issued and outstanding, as adjusted................... 23 25
Capital in excess of par value.................................. 151,441 238,780
Retained earnings............................................... 94,119 94,119
Treasury stock.................................................. (581) (581)
Cumulative translation adjustment............................... 423 423
-------- -----------
Total stockholders' equity.............................. 245,425 332,766
-------- -----------
Total capitalization.................................... $245,425 $ 332,766
======== =========
</TABLE>
- ------------
(1) Excludes 4,161,000 shares of Common Stock reserved for issuance under the
Company's stock option and employee stock purchase plans, including
2,739,000 shares issuable upon the exercise of options outstanding as of
December 31, 1994, at a weighted average exercise price of $21.47 per share.
10
<PAGE> 12
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for, and as of the
end of, each of the years in the five-year period ended June 30, 1994 have been
derived from the consolidated financial statements of the Company, which have
been audited by Price Waterhouse LLP, independent accountants. The selected
consolidated financial data presented below as of December 31, 1994, for the six
month periods ended December 31, 1993 and 1994 and for each of the six quarters
in the period ended December 31, 1994 have been derived from unaudited
consolidated financial statements of the Company. In the opinion of management,
the unaudited interim financial information has been prepared on the same basis
as the audited consolidated financial statements and include all adjustments,
consisting of only normal recurring adjustments, necessary to state fairly the
information set forth therein. Such interim results are not necessarily
indicative of future results of operations. This data should be read in
conjunction with the consolidated financial statements, related notes and other
financial information incorporated by reference herein. See "Incorporation of
Certain Documents by Reference."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
------------------------------------------ ---------------
1990 1991 1992 1993 1994 1993 1994
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales............................ $161.6 $148.4 $156.0 $167.2 $243.7 $109.0 $187.9
Gross profit......................... 75.5 65.6 56.0 59.8 110.7 45.4 98.9
Engineering, research and development
expense............................ 26.3 27.1 25.9 16.3 22.4 9.7 17.0
Selling, general and administrative
expense............................ 31.5 33.5 35.5 32.7 48.2 21.2 38.2
Other charges........................ -- -- 8.2 (0.7) -- -- 25.2(1)
------ ------ ------ ------ ------ ------ ------
Income (loss) from operations........ 17.7 5.0 (13.6) 11.5 40.1 14.5 18.5
Interest income and other, net....... 1.8 1.8 1.2 1.2 2.2 0.5 3.0
Interest expense..................... (0.6) (3.3) (3.9) (3.4) (2.0) (1.0) (1.1)
------ ------ ------ ------ ------ ------ ------
Income (loss) from continuing
operations before income taxes..... 18.9 3.5 (16.3) 9.3 40.3 14.0 20.4
Provision for income taxes........... 6.7 1.1 0.3 2.3 10.1 3.5 6.6
------ ------ ------ ------ ------ ------ ------
Income (loss) from continuing
operations......................... 12.2 2.4 (16.6) 7.0 30.2 10.5 13.8
Loss (recovery) from discontinued
operations...................... 2.8 13.0 (2.8) -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net income (loss).................... $ 9.4 $(10.6) $(13.8) $ 7.0 $ 30.2 $ 10.5 $ 13.8
====== ====== ====== ====== ====== ====== ======
Income (loss) per share from
continuing operations.............. $ .67 $ .13 $ (.90) $ .35 $ 1.37 $ .50 $ .58
Net income (loss) per share.......... $ .52 $ (.57) $ (.75) $ .35 $ 1.37 $ .50 $ .58
Weighted average common and dilutive
common equivalent shares........... 18.0 18.6 18.5 19.7 22.0 20.9 24.0
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
---------------------------------------------- DECEMBER 31,
1990 1991 1992 1993 1994 1994
------ ------ ------ ------ ------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments......................... $ 32.3 $ 31.3 $ 23.7 $ 52.4 $139.1 $125.5
Working capital....................... 99.2 91.1 84.0 93.6 212.9 191.0
Marketable securities................. -- -- -- -- -- 17.0
Total assets.......................... 179.3 198.0 188.5 199.1 321.6 365.4
Notes payable and current portion of
long-term debt...................... 3.6 4.4 5.0 6.5 4.7 22.6
Long-term debt........................ -- 24.0 24.0 20.0 20.0 --
Stockholders' equity.................. 122.1 113.2 103.0 114.1 227.4 245.4
</TABLE>
- ---------------
(1) During the quarter ended December 31, 1994, the Company wrote off the
in-process technology acquired in the acquisition of Metrologix, Inc.
resulting in a pretax charge of $25.2 million ($16.2 million after tax).
11
<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL DATA--(CONTINUED)
The following table presents unaudited quarterly results in dollar amounts
and as a percentage of net sales for the last six quarters.
<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1995
----------------------------------------- -------------------
SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Net sales.................................. $ 51.9 $57.1 $62.6 $72.1 $ 83.2 $ 104.7
Gross profit............................... 20.7 24.7 29.4 35.9 42.6 56.3
Engineering, research and development expenses... 4.9 4.8 5.5 7.2 8.2 8.8
Selling, general and administrative
expenses................................. 9.9 11.3 12.0 15.0 16.5 21.7
Write-off of acquired in-process
technology............................... -- -- -- -- -- 25.2
-------- ------- ------- ------- -------- -------
Income from operations..................... 5.9 8.6 11.9 13.7 17.9 0.6
Interest income and other, net............. .2 .3 .6 1.1 1.5 1.5
Interest expense........................... (.5) (.5) (.5) (.5) (.5) (.6)
-------- ------- ------- ------- -------- -------
Income before income taxes................. 5.6 8.4 12.0 14.3 18.9 1.5
Provision for income taxes................. 1.4 2.1 3.0 3.6 6.1 .5
-------- ------- ------- ------- -------- -------
Net income................................. $ 4.2 $ 6.3 $ 9.0 $10.7 $ 12.8 $ 1.0
====== ====== ====== ====== ====== ======
Net income per share....................... $ .20 $ .30 $ .40 $ .45 $ .54 $ .04
Weighted average common and dilutive common
equivalent shares........................ 20.8 20.9 22.7 23.7 23.9 24.1
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............................... 39.9 43.3 47.0 49.8 51.2 53.8
Engineering, research and development
expenses................................. 9.4 8.4 8.8 10.0 9.9 8.4
Selling, general and administrative
expenses................................. 19.1 19.8 19.2 20.8 19.8 20.7
Write-off of acquired in-process
technology............................... -- -- -- -- -- 24.1
-------- ------- ------- ------- -------- -------
Income from operations..................... 11.4 15.1 19.0 19.0 21.5 .6
Interest income and other, net............. .4 .5 1.0 1.5 1.8 1.4
(1.0) (.9) (.8) (.7) (.6) (.6)
-------- ------- ------- ------- -------- -------
Income before income taxes................. 10.8 14.7 19.2 19.8 22.7 1.4
Provision for income taxes................. 2.7 3.7 4.8 5.0 7.3 .5
-------- ------- ------- ------- -------- -------
Net income................................. 8.0% 11.0% 14.4% 14.8% 15.4% .9%
====== ====== ====== ====== ====== ======
</TABLE>
12
<PAGE> 14
BUSINESS
KLA is the leader in the design, manufacture, marketing and service of
yield management and process monitoring systems for the semiconductor industry.
KLA believes that it is the world's largest supplier to the wafer, reticle and
metrology inspection equipment markets. KLA's systems are used to analyze
product and process quality at critical steps in the manufacture of integrated
circuits, and to provide feedback so that fabrication problems can be
identified, addressed and contained. This understanding of defect sources and
how to contain them enables semiconductor manufacturers to increase yields.
Quickly attaining and then maintaining high yields is one of the most important
determinants of profitability in the semiconductor industry. The Company
believes that its customers typically experience rapid paybacks on their
investments in the Company's systems. The Company sells to virtually all of the
world's semiconductor manufacturers and has achieved very high market shares in
its principal businesses. Some of the Company's key customers include AMD,
Fujitsu, Hyundai, Intel, Motorola, NEC, Samsung, SGS-Thomson and TSMC.
YIELD MANAGEMENT
Maximizing yields, or the number of good die per wafer, is a key goal of
modern semiconductor manufacturing. Higher yields increase the revenue a
manufacturer can obtain for each semiconductor wafer processed. As line width
geometries decrease, yields become more sensitive to the size and density of
defects. Semiconductor manufacturers use yield management and process monitoring
systems to improve yields by identifying defects, by analyzing them to determine
process problems, and, after corrective action has been taken, by monitoring
subsequent results to ensure that the problem has been contained. Monitoring and
analysis may take place at many points in the fabrication process as wafers move
through a production cycle consisting of hundreds of separate process steps.
Semiconductor factories are increasingly expensive to build and equip.
Yield management and process monitoring systems, which typically represent a
small percentage of the total investment required to build and equip a
fabrication facility, enable integrated circuit manufacturers to leverage these
expensive facilities and improve their returns on investment.
The most significant opportunities for yield improvement generally occur
when production is started at new factories and when new products are first
built. Equipment that helps a manufacturer to increase yields quickly when
products are new enables the manufacturer to offer products in volume at the
time when they are likely to generate the greatest profits.
The following are some of the methods used to manage yield; they all
require the capture and analysis of data gathered through many measurements:
- Engineering analysis is performed off the manufacturing line to identify
and analyze defect sources. Engineering analysis equipment operates with
very high sensitivity to enable comprehensive analysis of wafers. Because
they operate off-line, engineering analysis systems do not require high
speeds of operation.
- In-line monitoring is used to review the status of circuits during
production steps. Information generated is used to determine whether the
fabrication process steps are within required tolerances and to make any
necessary process adjustments in real-time before wafer lots move to
subsequent process stations. Because the information is needed quickly to
be of greatest value, in-line monitoring requires both high throughput
and high sensitivity.
- Pass/fail tests are used at several steps in the manufacturing process to
evaluate products. For example, a pass/fail test is used to determine
whether reticles used in photolithography are defect-free; electrical
pass/fail testing is performed at the end of the manufacturing process to
determine whether products meet performance specifications.
13
<PAGE> 15
KLA STRATEGY
KLA is the premier supplier of yield management and process monitoring
systems to the semiconductor manufacturing industry. Key elements of KLA's
strategy are as follows:
- Leadership in Yield Management. The Company believes that yield
management requires both the ability to identify defects and the ability
to use defect data: (i) to recognize patterns which reveal process
problems; and (ii) to resolve and contain process flaws which are causing
reduced yields. The Company has developed yield management solutions that
consist of sophisticated defect detection sensors located at key steps in
the production process, as well as analysis stations with relational
database software that enable isolation of defect sources, identification
of problem causes and implementation of corrective action.
The Company believes that its world-wide organization of more than 50
applications engineers provides an important competitive advantage. These
applications engineers serve as yield management consultants to the
Company's customers, assisting in applying KLA's systems to accelerate
yield improvement and achieve real-time process control.
- Expansion of In-Line Monitoring Market. Several years ago, the Company
recognized the industry's need for in-line monitoring to provide
real-time process management capability. Prior to the introduction of
KLA's 2100 series, no suppliers' products were capable of both the speed
and the sensitivity needed for in-line inspection for all defect types at
critical process steps. In-line inspection is a critical yield
enhancement and cost reduction technique because it allows defect
detection in real-time rather than waiting until after final test results
become available to discover problems that have a significant yield
impact. In response, the Company devoted substantial resources to
developing systems with the throughput, reliability and associated data
analysis capabilities for in-process inspection. During the past several
years, customers' use of the Company's wafer inspection systems began
evolving from single system, off-line engineering analysis applications
to multiple systems monitoring critical steps directly on advanced
fabrication lines. As a result of these advantages, most of the Company's
customers are adopting the KLA methodology of installing multiple systems
directly monitoring critical steps in the integrated circuit
manufacturing process. The Company believes that the market for in-line
monitoring systems is several times larger than its traditional market
for engineering analysis systems.
- Development of New Technologies for Integrated Yield Management. KLA's
strategy is to leverage its technology leadership to develop new hardware
and software yield management tools. The Company has committed
significant resources to internally developing emerging yield management
technologies. KLA has also acquired technologies that it believes will be
critical to enhancing its long-term competitive position. In fiscal 1995,
the Company has expanded its position in the market for yield management
and process monitoring systems by expanding its product offerings to
include yield management software, through its recently formed PRISM
division, and E-Beam metrology applications through the December 1994
acquisition of Metrologix, Inc. The Company's long-term strategy is to
link information from its new and existing products, as well as from
measurement systems manufactured by others, to form an integrated network
of detection and analysis systems.
YIELD MANAGEMENT AND PROCESS MONITORING SYSTEMS
KLA's systems are developed to work together to offer its customers
integrated yield management solutions rather than stand-alone tools. KLA offers
inspection systems for key steps in the semiconductor manufacturing process and
analysis systems comprised of database management hardware and software to
translate raw inspection data into patterns which reveal process problems. The
Company's wafer inspection and metrology systems are used for engineering
analysis and in-line monitoring, and its reticle inspection systems and wafer
probers are used for pass/fail tests. The Company's software productivity and
analysis systems collect, store and analyze data collected by test equipment
manufactured both by the Company and by others to provide semiconductor
manufacturers with an integrated yield management application. The Company's
principal business units are: Wafer Inspection Systems (WISARD); Reticle
Inspection Systems
14
<PAGE> 16
(RAPID); Metrology, including Optical Metrology and Electron Beam (E-Beam)
Metrology; Wafer Probing Systems (ATS); Software Productivity and Analysis
Systems (PRISM); and Scanning Electron Microscope Inspection Systems (SEMSpec).
WISARD -- WAFER INSPECTION SYSTEMS
KLA's WISARD business unit created the market for automated inspection of
semiconductor wafers with the introduction of the KLA 2000 series over ten years
ago. KLA continues to have a predominant market share with its current
generation of wafer inspection systems, the 2100 series.
KLA's 2100 series, combined with a dedicated defect data gathering and
analysis workstation, the KLA 2551, and an off-line Review Station, the KLA
2608, provide semiconductor manufacturers with a yield management system
sensitive enough for engineering analysis and fast enough for in-line monitoring
of the semiconductor manufacturing process. The 2100 series of inspection
systems offers an increase in inspection speed of up to 2,000 times over that of
KLA's original wafer inspection system. This marked increase in speed and
sensitivity allows customers to obtain very prompt feedback on process status by
placing wafer inspection systems on the production line.
The selection of the technology architecture for the 2100 series was made
to allow the base unit to support a family of products capable of performance
enhancements through upgrades of various subsystems. The first model, the KLA
2110, was introduced in 1991 with sufficient speed and sensitivity to enable
in-line inspection of repeating arrays typical in memory devices. One year
later, in 1992, KLA introduced a new repeating array model, the KLA 2111, which
operates at up to five times the speed of the KLA 2110 and has improved
sensitivity.
Shortly thereafter in 1992, KLA introduced the KLA 2130 which is capable of
"all pattern" inspection required for microprocessors and other logic devices as
well as both the logic and repeating array portions of memory devices. In late
1993, KLA introduced the 2131 model for all pattern inspection which operates at
up to twice the speed of the KLA 2130 and with higher sensitivity. The Company
believes that there are further opportunities to expand the 2100 series family
of systems and has several new models under development.
To manage defect data, KLA offers the KLA 2551 Analysis Station, a
multi-user work station using a relational database for storing defect
coordinates and digitized images. Defect analysis and image review operates
through a WindowsTM-based interface. The KLA 2551 incorporates an open
architecture which consolidates data from inspection systems, review stations,
wafer sort electrical testers, host computers, and scanning electron microscopes
(SEMs). The data analysis software provides statistical process control reports,
defect source analysis, and automated correlation of in-line process defects to
bit failures. The graphical software combines both data and image to produce
wafer maps, trend charts, and video review. When coupled with an optional remote
terminal, the KLA 2551 permits process engineers in remote locations to link to
the database of defect records and images to perform further analyses or compare
data from different wafer fabrication facilities.
The KLA 2608 Review Station provides a platform for reviewing and
classifying defects detected on KLA and non-KLA wafer inspection systems. An
operator may append classification codes to the defect record, a record which
also includes wafer number, die coordinates, defect location, and defect size.
The average selling prices of KLA's 2100 series of wafer inspection systems
range from approximately $1 million to approximately $2 million.
RAPID -- RETICLE INSPECTION SYSTEMS
RAPID, KLA's first business unit, created the market for automated
inspection of reticles and photomasks for the semiconductor manufacturing
industry over 16 years ago, and continues to have a predominant market share.
KLA has delivered over 700 reticle and photomask inspection systems worldwide.
During photolithography, a stepper projects a circuit pattern from a
reticle onto a wafer. Error-free reticles are the first step in ensuring high
yields in the manufacturing process because defects in reticles can translate
into millions of ruined die.
15
<PAGE> 17
In 1992, KLA introduced its new generation of reticle inspection systems,
the 300 series. The KLA 301 Reticle Inspection System and the KLA 30 Reference
Data Computer together form the KLA 331 Inspection System which represents a
major advance in speed, sensitivity and flexibility. The KLA 331 offers the
highest inspection sensitivity available in the market place, which the Company
believes is vital to meet reticle inspection requirements for today's more
complex microprocessors and larger DRAMs. This dedicated image processor employs
a flexible system architecture which permits future upgrades and enhancements
through software, rather than hardware changes. Further, the KLA 331's optics
include a rotating telescope turret to provide three sensitivities in one
system. The KLA 331 offers flexibility for users who need a versatile inspection
system to address the inspection needs of both the most demanding and the more
routine semiconductor manufacturing processes. Users may select lower
sensitivity inspections in return for higher throughput.
The KLA 331 incorporates a reference database generator and data
preparation system which give full die-to-database functionality to the
inspection, permitting reticle inspection against the ideal schematic as
specified by the user's circuit design CAD program. In addition, to meet
customers' production throughput requirements, the KLA 331 may be equipped with
a variety of options to provide automatic set-up, unattended inspection, and
categorized results storage. The Company is continuing to develop enhancements
to the KLA 331 inspection system to improve serviceability and reliability.
The Company recently introduced a new reticle inspection product,
STARlight, which uses reflected and transmitted light detection techniques
simultaneously to identify reticle contaminants, including airborne particles.
STARlight permits users to identify defects which had previously not been
detectable. The Company believes STARlight will be applied both by mask
manufacturers and semiconductor manufacturers. STARlight is offered both as an
option on the KLA 331 inspection system and as a stand-alone unit.
The average selling prices of KLA's 331 inspection systems range from
approximately $1.4 million to approximately $2.6 million.
METROLOGY DIVISION
Optical Metrology Systems. Lithography for sub-micron semiconductor
fabrication requires increasingly stringent overlay and critical dimension
tolerances. In particular, decreasing line widths, larger die sizes, and
additional layers have made overlay mis-registration errors a crucial cause of
yield loss. To address these challenges, KLA offers the KLA 5000 series
metrology systems: the 5100 for overlay; and the 5015 for both overlay and
critical dimension measurement. KLA estimates that during its fiscal 1993 and
1994, it had the leading share in the worldwide market for overlay registration
systems.
The KLA 5000 series uses a patented coherence probe microscopy technology
which permits fast autofocus and precision critical dimension measurements.
Applying its expertise in digital image processing, KLA has developed
sophisticated measurement algorithms that are tolerant of process variations.
With coherence probe microscopy, the system scans the image-forming coherence
region through the wafer plane, only gathering information from in-focus
surfaces. As a result, measurements are more tolerant of process and substrate
reflectivity variations than those from ordinary optical systems.
The precision measurements from the KLA 5000 series identify the magnitude
and direction of overlay mis-registration errors arising from the stepping
process and from optical distortion inherent in the stepper lens. Based upon
these measurements, users can fine-tune the stepper program to compensate for
these errors, and improve process yield.
The disk drive manufacturing industry is an emerging market for KLA's
metrology systems. Disk drive manufacturers use a semiconductor photolithography
process to produce thin film heads. The Company's coherence probe technology is
particularly well-suited to handle the complex topography characteristics
encountered in the thin film head process. The Company believes that its
solution to these requirements has allowed it to achieve the major share of the
thin film head metrology market.
16
<PAGE> 18
The average selling prices of KLA's optical metrology systems for the
semiconductor industry range from approximately $300,000 to approximately
$550,000 and for the disk drive industry range from approximately $500,000 to
approximately $900,000.
E-Beam Metrology Systems. KLA broadened its portfolio of metrology
products in December 1994 with the acquisition of Metrologix, Inc., a
manufacturer of advanced electron beam measurement equipment. With this
acquisition, KLA's E-Beam Metrology business gained an established position in
the CD SEM inspection market, a market which KLA believes is larger than the
optical overlay market, and one which it believes will grow as semiconductor
manufacturers continue to produce more complex semiconductor devices.
KLA's first generation E-Beam metrology system features high throughput and
automated setup. One major U.S. memory manufacturer and two major U.S.
microprocessor manufacturers have purchased multiple systems for use in both
production and research and development. KLA anticipates increasing its
expenditures for engineering and manufacturing capabilities to complete the
development of the E-Beam metrology system.
The average selling prices of KLA's E-Beam metrology systems range from
approximately $1.1 million to approximately $1.4 million.
ATS DIVISION -- WAFER PROBING SYSTEMS
The ATS division sells and services a family of automated wafer probers and
network controllers which position individual semiconductor devices still in
wafer form under electrical test probes. The probers work in conjunction with
electronic parametric and functional testers to perform fully automated tests of
the performance of completed die before the wafers are diced and packaged. The
electrical test procedure also identifies failed die, classifies die by
performance and generates a database of test results for use in process control.
KLA develops, manufactures and markets these products in cooperation with
Tokyo Electron, Limited ("TEL"), the leading distributor of semiconductor
equipment in Japan. KLA develops and manufactures the prober's image processing
electronics and optical subsystems. TEL manufactures the prober's mechanical
chassis and incorporates the KLA electronics and subsystems. The ATS division
sells the integrated prober systems in the United States and Europe with its own
control software and custom interfaces. TEL sells and services the integrated
prober systems in Japan and the rest of Asia.
The average selling prices of KLA's basic wafer prober systems range from
approximately $150,000 to approximately $350,000.
PRISM DIVISION -- SOFTWARE PRODUCTIVITY AND ANALYSIS SYSTEMS
The PRISM division was formed in April 1994 to address the market for
software products that can be utilized in semiconductor fabrication applications
for yield management and productivity improvement. The PRISM division is
developing and marketing two software product lines, Discovery and CIMA.
Discovery is an enterprise-wide yield management system that collects, stores
and correlates yield information from multiple data sources in a fabrication
facility. This product was the result of a cooperative development project with
Motorola. The Company expects to release production versions of Discovery in
early fiscal 1996. CIMA is a test floor automation product that was developed by
the Company and introduced in August 1994. CIMA collects test data from, and
automates the operation of, wafer power systems. CIMA is currently in production
and is installed in several modern fabrication facilities. PRISM has formed a
client services organization to provide system integration and consulting
services to assist its customers in the integration of its software products
into the facility's information systems.
SEMSPEC -- SCANNING ELECTRON MICROSCOPE INSPECTION SYSTEMS
As feature sizes of semiconductor circuits continue to decrease for leading
edge semiconductor products, the Company believes that conventional optical
technologies ultimately will begin to reach physical limits imposed by the
wavelength of light and fail to provide the necessary inspection resolution.
Working closely
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<PAGE> 19
with those customers with the most advanced inspection requirements, KLA has
developed the world's only fully automatic electron beam inspection systems.
These systems, comprised of the world's fastest scanning electron-optical column
and a high speed image computer, are used for reticle and wafer inspection. The
development of these systems was funded in part by customer-sponsored research
and development programs. KLA has sold four of these systems to customers. KLA
expects the market for these inspection systems to emerge slowly.
TECHNOLOGY
KLA's inspection and metrology systems precisely capture trillions of
features on wafers and reticles that are as small as 10 millionths of an inch on
a side and analyze each of these features for possible defects through the use
of the following technologies:
Image Acquisition. KLA's systems acquire images of sub-micron features on
wafers and reticles. The quality and brightness of the images greatly influence
the speed and sensitivity of the final inspection system. KLA has developed a
wide range of optical imaging systems, such as laser scanners, interference
microscope systems, and conventional white light and deep UV optical systems. To
satisfy the future sensitivity requirements of advanced lithography, KLA has
already developed an electron beam system which incorporates the world's fastest
scanning electron-optical column.
Image Conversion. The Company's equipment converts the photon or electron
image to an electronic digital format. KLA has pioneered the use of
time-delay-integration sensors that convert as many as 100 million pixels
(picture elements) to 256-level gray scale images each second. KLA also utilizes
other image conversion technologies such as avalanche diode detectors, photo
multiplier systems, and fixed frame pickups.
Precision Mechanics. In the most common configuration of an inspection
system, the reticle or the wafer is moved at a constant speed through the field
of the imaging system. Since areas of interest are as small as 5 millionths of
an inch, and vibrations in the scanning system of one-tenth of the area of
interest can degrade system performance, the mechanical stage must be extremely
smooth and precise. To address these requirements, KLA has eight years
experience in the design and manufacture of air-bearing linear drive stages.
Proprietary Algorithms. To perform the inspection or measurement task, the
Company's equipment examines the properties of the digitized images using a set
of logical steps (algorithms) which measure the desired image property. KLA's
engineers develop sets of algorithms that are specifically tailored to obtain
optimum performance for its wafer, reticle and metrology systems. These
algorithms are largely responsible for the state-of-the-art performance of KLA's
systems.
Image Computers. The combination of proprietary algorithms and special
purpose computers allows KLA's equipment to have a high performance to cost
ratio. While general purpose computers are capable of executing KLA's
algorithms, very few computer architectures can sustain the computing speed that
is required in KLA's systems. To address this requirement, KLA develops and
builds special purpose image computers designed to execute its algorithms.
Database Analysis. Many of the inspections that KLA reticle inspection
systems perform require a digital image representation of the ideal pattern
obtained from the data used to manufacture the reticle. This capability allows
inspection systems to compare the actual circuit with its design specifications.
KLA has been developing database systems for over 15 years to satisfy this
objective. Its present generation of special purpose database computers is
capable of generating simulated images at the same high speeds at which KLA's
image conversion systems generate the digital image from the actual reticle.
Statistical Process Control. Integrated circuit yield management and
process monitoring systems generate hundreds of thousands of data items each
day. To enhance the utility of these data, KLA has a team of software engineers
who build systems containing statistical process control software to simplify
data and present these data in a useful manner. KLA is continuing to work on new
software to enhance its statistical process control systems.
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<PAGE> 20
CUSTOMERS
The Company believes that it is one of the few suppliers which sells its
systems to virtually all of the world's semiconductor manufacturers. In fiscal
1992 and 1994, no single customer accounted for more than 10% of the Company's
revenues. During fiscal 1993, Motorola accounted for approximately 11% of the
Company's revenues. During the nine months ended March 31, 1995, Samsung
accounted for approximately 10% of the Company's revenues. Set forth below is a
list of some of the Company's customers:
<TABLE>
<S> <C> <C>
AMD IBM Ricoh
AT&T IDT Rockwell
Bosch Intel Rohm
Canon Matsushita Samsung
Cypress Micron SGS-Thompson
Digital Equipment Mitsubishi Sharp
DNP Micro Motorola Siemens
Du Pont National Semiconductor Sony
Fujitsu NEC TEL
Goldstar NKK Texas Instruments
Hewlett-Packard Nippon Denso Toppan
Hitachi NTT Toshiba
Hoya Oki TSMC
Hyundai Photronics UMC
</TABLE>
SALES, SERVICE AND MARKETING
The Company sells products through a combination of direct sales and
distribution channels. The Company believes that the size and location of its
field sales, service and applications engineering organization represents a
significant competitive advantage in its served markets. In the United States,
Europe and Korea, the Company has a direct sales force located in major
geographical markets. Sales, service and applications facilities throughout the
world employ over 400 sales, service and applications engineers.
In Japan, the Company sells systems for the semiconductor market through
TEL. TEL has been the Company's distributor to the Japanese semiconductor market
since 1978. The sales effort in Japan is supported by KLA Japan, which provides
marketing, applications support, technical support and service to Japanese
customers. Over the last three years, the Company significantly increased its
customer service organization in Japan in order to assume service and support
responsibilities from TEL. KLA Japan has over 120 local employees in its
Yokohama headquarters and four regional service centers.
In Singapore and Taiwan, the Company sells its systems through local sales
representatives.
RESEARCH AND DEVELOPMENT
The market for yield management and process monitoring systems is
characterized by rapid technological development and product innovation. The
Company believes that continued and timely development of new products and
enhancements to existing products are necessary to maintain its competitive
position. Accordingly, the Company devotes a significant portion of its
personnel and financial resources to research and development programs and seeks
to maintain close relationships with customers to remain responsive to their
needs. In order to meet continuing developments in the semiconductor industry
and to broaden the applications for its image processing technology, the Company
is committed to significant engineering efforts for product improvement and new
product development. Approximately 20% of the Company's workforce is engaged in
engineering, research and development.
MANUFACTURING
The Company's principal manufacturing activities take place in San Jose,
California; Bevaix, Switzerland; and Migdal Ha'Emek, Israel; and consist
primarily of assembling and testing components and
19
<PAGE> 21
subassemblies which are acquired from third party vendors and then integrated
into the Company's finished products. In April 1995, the Company began
construction of an additional manufacturing facility on undeveloped land at its
San Jose campus facility. The Company is also evaluating the lease of additional
facilities adjacent to its San Jose campus. The Company is also cross-training
personnel, so that it can respond to changes in product mix by reallocating
personnel in addition to hiring.
The Company has been working with key vendors to improve inventory
management. Volume purchase agreements and just-in-time delivery schedules have
reduced both inventory levels and costs. The Company's manufacturing engineers,
in conjunction with key vendors, are improving the manufacturability and
reliability of the new wafer and reticle inspection systems.
Many of the components and subassemblies are standard products, although
certain items are made to Company specifications. Certain of the components and
subassemblies included in the Company's systems are obtained from a single
source or a limited group of suppliers. Those parts subject to single or limited
source supply are routinely monitored by management and the Company endeavors to
ensure that adequate supplies are available to maintain manufacturing schedules,
should supply for any part be interrupted. Although the Company seeks to reduce
its dependence on sole and limited source suppliers, in some cases the partial
or complete loss of certain of these sources could have at least a temporary
adverse effect on the Company's results of operations and damage customer
relationships.
COMPETITION
The market for yield management and process control systems is highly
competitive. In each of the markets it serves, the Company faces competition
from established and potential competitors, some of which may have greater
financial, engineering, manufacturing and marketing resources than the Company.
Significant competitive factors in the market for yield management and process
control systems include system performance, ease of use, reliability, installed
base and technical service and support.
The Company believes that, while price and delivery are important
competitive factors, the customers' overriding requirement is for systems which
easily and effectively incorporate automated, highly accurate inspection
capabilities into their existing manufacturing processes, thereby enhancing
productivity. The Company's yield management and process control systems for the
semiconductor industry are generally higher priced than those of its present
competitors and are intended to compete based upon performance and technical
capabilities. These systems also compete with less expensive, more
labor-intensive manual inspection devices.
The Company's wafer and reticle inspection systems have a predominant share
of their markets. The Company is the leading provider of overlay registration
systems. The Company believes it is the second largest supplier of wafer prober
systems in the U.S. and Europe.
Many of the Company's competitors are investing in the development of new
products aimed at applications currently served by the Company. The Company's
competitors in each product area can be expected to continue to improve the
design and performance of their products and to introduce new products with
competitive price/performance characteristics. Competitive pressures often
necessitate price reductions which can adversely affect operating results.
Although the Company believes that it has certain technical and other advantages
over its competitors, maintaining such advantages will require a continued high
level of investment by the Company in research and development and sales and
marketing. There can be no assurance that the Company will have sufficient
resources to continue to make such investments or that the Company will be able
to make the technological advances necessary to maintain these competitive
advantages.
The yield management and process control industry is characterized by
rapidly changing technology and a high rate of technological obsolescence.
Development of new technologies that have price/performance characteristics
superior to the Company's technologies could adversely affect the Company's
results of operations. In order to remain competitive, the Company believes that
it will be necessary to expend substantial effort on continuing product
improvement and new product development. There can be no assurance that the
Company will be able to develop and market new products successfully or that the
products introduced by others will not render the Company's products or
technologies non-competitive or obsolete.
20
<PAGE> 22
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 75,000,000 shares of
common stock, $0.001 par value ("Common Shares"), 74,000,000 of which are
designated "Common Stock" and 1,000,000 of which are designated "Junior Common
Stock," and 1,000,000 shares of preferred stock, $0.001 par value ("Preferred
Stock"). As of December 31, 1994, there were 23,224,000 shares of Common Stock,
no shares of Junior Common Stock, and no shares of Preferred Stock outstanding.
COMMON STOCK
The holders of the Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Stockholders are not entitled to
cumulative voting for the election of directors. Subject to preferences
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends as may be declared from time to time
by the Board of Directors out of funds legally available therefor and in the
event of liquidation, dissolution, or winding up of the Company, the holders of
Common Stock are entitled to share in all assets remaining after payment of
liabilities. The Common Stock has no preemptive or conversion rights and is not
subject to further calls or assessments by the Company. There are no redemption
or sinking fund provisions applicable to the Common Stock. The Common Stock
currently outstanding is, and the Common Stock offered hereby will be, validly
issued, fully paid, and non-assessable.
JUNIOR COMMON STOCK
The Board of Directors of the Company has the authority to issue the Junior
Common Stock in one or more series and to fix the rights, preferences and
privileges, including dividend rights, conversion rights, liquidation rights,
voting rights, and the number of shares constituting any series or the
designation of such series of Junior Common Stock, without any further vote or
action by the stockholders. As of the date of this Prospectus, there are no
outstanding shares of Junior Common Stock, or options to purchase Junior Common
Stock. Although it has no present intention to do so, the Board of Directors of
the Company may, without stockholder approval, issue Junior Common Stock with
voting and conversion rights which could adversely affect the voting power of
the holders of Common Stock. The issuance of Junior Common Stock may have the
effect of delaying, deferring, or preventing a change of control of the Company.
PREFERRED STOCK
The Board of Directors of the Company has the authority to issue the
Preferred Stock in one or more series and to fix the rights, preferences and
privileges, including dividend rights, conversion rights, liquidation rights,
voting rights, and the number of shares constituting any series or the
designation of such series of Preferred Stock, without any further vote or
action by the stockholders. As of the date of this Prospectus, there are no
outstanding shares of Preferred Stock, or options to purchase Preferred Stock.
Although it has no present intention to do so, the Board of Directors of the
Company may, without stockholder approval, issue Preferred Stock with voting and
conversion rights which could adversely affect the voting power of the holders
of Common Stock. The issuance of Preferred Stock may have the effect of
delaying, deferring, or preventing a change of control of the Company.
STOCKHOLDER RIGHTS PLAN
KLA has a stockholder rights plan (the "Plan") to protect the value of KLA
stockholders' investment in the Company. Pursuant to the Plan, the Board has
declared a dividend distribution of one Common Stock purchase right (a "Right"),
at an exercise price of $100.00, on each outstanding share of its Common Stock.
In the event of certain hostile efforts to acquire control of the Company, the
Plan would entitle holders of each Right to purchase stock in KLA or an acquiror
of KLA with a market value equal to twice the exercise price of the Right. The
Rights have certain anti-takeover effects as they will cause substantial
dilution to a person or group that attempts to acquire the Company on terms or
in a manner not approved by the Company's Board of Directors, except pursuant to
an offer conditioned upon the negation, purchase or redemption of the Rights.
21
<PAGE> 23
The Board may redeem the Rights for $0.01 per Right at any time prior to
the day a person or group acquires 20% or more of the Company's stock without
Board approval. After such date, the Board may redeem the Rights prior to the
consummation of a business combination in which all holders of Common Stock are
treated equally and which does not involve such 20% stockholder. The Company
may, except with respect to the redemption price, amend the Rights in any
manner. After a person becomes a 20% stockholder, the Company may amend the
Rights in any manner which does not adversely affect the interests of the
holders of the Rights.
DELAWARE TAKEOVER STATUTE
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law, which prohibits a publicly held Delaware corporation
from engaging in any "business combination" with an "interested stockholder" for
three years following the date that such stockholder became an interested
stockholder, unless (i) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding, those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66-2/3% of the outstanding voting
stock not owned by the interested stockholder.
Generally, a "business combination" includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the stockholders. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior did own) 15% or more of the
corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is First National
Bank of Boston, Mail Stop 45-02-16, Blue Hills Office Park, 150 Royale Street,
Canton, Massachusetts 02021.
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<PAGE> 24
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof, each of the Underwriters named below has
severally agreed to purchase, and the Company has agreed to sell to them, the
respective number of shares of Common Stock set forth opposite their respective
names below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Morgan Stanley & Co. Incorporated................................................. 500,000
PaineWebber Incorporated.......................................................... 500,000
Smith Barney Inc. ................................................................ 500,000
---------
Total................................................................... 1,500,000
========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all of the shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any such shares are
taken.
The Underwriters initially propose to offer part of the shares directly to
the public at the public offering price set forth on the cover page hereof and
part to certain dealers at a price that represents a concession not in excess of
$ per share under the public offering price. Any Underwriter may allow, and
such dealers may reallow, a concession not in excess of $ per share to other
Underwriters or to certain other dealers.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an additional 225,000
shares of Common Stock at the public offering price set forth on the cover page
hereof, less underwriting discounts and commissions. The Underwriters may
exercise such option solely for the purpose of covering over-allotments, if any,
made in connection with this offering. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares as the
number set forth next to such Underwriter's name in the preceding table bears to
the total number of Shares offered hereby.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act").
Certain officers and directors of the Company owning an aggregate of
approximately 1,200,000 shares of Common Stock have agreed with the Underwriters
that, for a period of 90 days after the date of this Prospectus, they will not
directly or indirectly (i) offer, sell or otherwise dispose of more than an
aggregate of 100,000 shares of Common Stock, or securities convertible into or
exchangeable for, or rights to purchase or acquire, shares of Common Stock, or
(ii) individually offer, sell or otherwise dispose of more than 50,000 such
shares, securities or rights, in each case without the prior written consent of
Morgan Stanley & Co. Incorporated. In addition, the Company has agreed in the
Underwriting Agreement that, for a period of 90 days after the date of this
Prospectus, it will not, without the prior written consent of Morgan Stanley &
Co. Incorporated, offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities convertible into or exchangeable for
Common Stock, except pursuant to existing options or warrants or the conversion
of existing securities.
In connection with this offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on The Nasdaq National Market, may engage in passive market making
transactions in the Common Stock on The Nasdaq National Market in accordance
with Rule 10b-6A under the Exchange Act during the two business day period
before commencement of offers or sales of the Common Stock. The passive market
making transactions must comply with applicable volume and price limits and be
identified as such. In general, a passive market maker may display its bid at a
price not in excess of the highest independent bid for the security; if all
independent bids are lowered below
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<PAGE> 25
the passive market maker's bid, however, such bid must then be lowered when
certain purchase limits are exceeded.
LEGAL MATTERS
Gray Cary Ware & Freidenrich, a Professional Corporation, Palo Alto,
California, counsel to the Company, will render an opinion that the shares
offered hereby will be duly authorized, validly issued, fully paid and
nonassessable. Certain legal matters in connection with the Offering, will be
passed upon for the Underwriters by Morrison & Foerster, San Francisco,
California.
EXPERTS
The consolidated financial statements as of June 30, 1993 and 1994 and for
each of the three years in the period ended June 30, 1994 incorporated by
reference in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-3 (referred to herein, together with all amendments and exhibits, as the
"Registration Statement") under the Securities Act, with respect to the
securities offered by this Prospectus. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement.
Statements made in this Prospectus as to the contents of any contract or other
document referred to herein are not necessarily complete and, in each instance
in which a copy of such contract is filed as an exhibit to the Registration
Statement, reference is made to such copy and each such statement shall be
deemed qualified in all respects by such reference. Copies of the Registration
Statement may be inspected, without charge, at the offices of the Commission, or
obtained at prescribed rates from the Public Reference Section of the Commission
at the address set forth below.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities of the Commission located at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's regional offices at Seven
World Trade Center, New York, New York 10048 and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material also can be obtained from the Public Reference Section of the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Company's Common Stock is quoted for trading on The Nasdaq
National Market and reports, proxy statements and other information concerning
the Company may be inspected at the offices of the National Association of
Securities Dealers, Inc., 9513 Key West Avenue, Rockville, Maryland 20850.
24
<PAGE> 26
(LOGO)
KLA Instruments
Corporation
<PAGE> 27
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates
except the Securities and Exchange Commission registration fee, the Nasdaq
National Market listing fee and the NASD filing fee.
<TABLE>
<CAPTION>
TO BE PAID
BY THE
REGISTRANT
<S> <C>
Securities and Exchange Commission registration fee....................... $ 36,805
NASD filing fee........................................................... 11,174
The Nasdaq National Market listing fee.................................... 17,500
Accounting fees and expenses.............................................. 75,000
Printing expenses......................................................... 60,000
Transfer agent and registrar fees and expenses............................ 10,000
Blue Sky fees and expenses (including counsel fees)....................... 15,000
Legal fees and expenses................................................... 125,000
Miscellaneous expenses.................................................... 49,521
----------
Total........................................................... $ 400,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In 1986, Delaware enacted legislation which authorizes corporations to
eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breach or alleged breach of directors'
fiduciary "duty of care." Prior to this legislation, directors were accountable
to corporations and their stockholders for monetary damages for conduct
constituting gross negligence in the exercise of their duty of care. Numerous
complaints alleging breach of directors' duty of care have been filed in
connection with corporate mergers and acquisitions, and although the statute
does not change directors' duty of care, it enables corporations to limit
available relief to equitable remedies such as injunction or rescission. The
legislation has no effect on directors' (1) duty of loyalty, (2) acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law, (3) illegal payment of dividends or (4) approval of any
transaction from which a director derives an improper personal benefit. The
validity and scope of the new statute has not been interpreted to any
significant extent by Delaware courts. The statute has no effect on claims
arising under the federal securities laws.
The Company's Certificate of Incorporation includes the provision
authorized by the statute to eliminate the personal liability of its directors
for monetary damages for breach or alleged breach of their duty of care. The
Company's Bylaws provide that the Company shall indemnify its directors,
officers, employees, and agents to the full extent permitted by the Delaware
General Corporation Law, including in circumstances in which indemnification is
otherwise discretionary under such law. In addition, with the approval of the
Board of Directors and the stockholders, the Company has entered into separate
indemnification agreements with its directors, officers and certain employees
which require the Company, among other things, to indemnify them against certain
liabilities which may arise by reason of their status or service (other than
liabilities arising from willful misconduct of a culpable nature) and to obtain
directors' and officers' insurance, if available on reasonable terms.
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons, under certain circumstances, for
liabilities (including reimbursement of expenses incurred) arising under the
Securities Act of 1933.
II-1
<PAGE> 28
The Underwriting Agreement between the Company and the Underwriters will
contain provisions regarding indemnification of directors and officers of the
Company by the Underwriters.
ITEM 16. EXHIBITS.
The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
- ------- ----------------------------------------------------------------------
<S> <C> <C> <C>
1.1 Form of Underwriting Agreement.
4.1 Rights Agreement (Incorporated by reference to Exhibit 1 of
Registrant's Form 8-A, filed on March 24, 1989).
5.1 Legal opinion of Gray Cary Ware & Freidenrich, counsel to the
Registrant.
23.1 Consent of Price Waterhouse LLP, independent accountants (included on
page II-4).
23.2 Consent of Gray Cary Ware & Freidenrich (included in Exhibit 5.1
hereto).
24.1 Power of Attorney (included on page II-3).
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (the "Act"), each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers, and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-2
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Jose, State of California, on the 18th day of
April, 1995.
KLA INSTRUMENTS CORPORATION
By: KENNETH LEVY
------------------------------------
Kenneth Levy, Chief Executive
Officer
POWER OF ATTORNEY
Each of the officers and directors of KLA Instruments Corporation whose
signature appears below hereby constitutes and appoints Kenneth Levy and Robert
J. Boehkle, and each of them, their true and lawful attorneys and agents, with
full power of substitution, each with power to act alone, to sign and execute on
behalf of the undersigned any amendment or amendments to this Registration
Statement on Form S-3 and to perform any acts necessary in order to file such
amendments, and each of the undersigned does hereby ratify and confirm all that
said attorneys and agents, or their or his substitutes, shall do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on April 18, 1995 by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<C> <S> <C>
KENNETH LEVY Chief Executive Officer and
- --------------------------------------------- Chairman of the Board
(Kenneth Levy) (Principal Executive Officer)
ROBERT J. BOEHLKE Vice President, Finance and
- --------------------------------------------- Administration, and Chief
(Robert J. Boehlke) Financial Officer (Principal
Accounting and Financial
Officer)
KENNETH L. SCHROEDER Director, President, and Chief
- --------------------------------------------- Operating Officer
(Kenneth L. Schroeder)
LEO J. CHAMBERLAIN Director
- ---------------------------------------------
(Leo J. Chamberlain)
ROBERT E. LORENZINI Director
- ---------------------------------------------
(Robert E. Lorenzini)
DR. YOSHIO NISHI Director
- ---------------------------------------------
(Dr. Yoshio Nishi)
SAMUEL RUBINOVITZ Director
- ---------------------------------------------
(Samuel Rubinovitz)
DAG TELLEFSEN Director
- ---------------------------------------------
(Dag Tellefsen)
</TABLE>
II-3
<PAGE> 30
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
July 26, 1994, which appears on page 24 of the 1994 Annual Report to
Stockholders of KLA Instruments Corporation, which is incorporated by reference
in KLA Instruments Corporation's Annual Report on Form 10-K for the year ended
June 30, 1994. We also consent to the incorporation by reference of our report
on the Financial Statement Schedules, which appears on page 20 of such Annual
Report on Form 10-K. We also consent to the references to us under the headings
"Experts" and "Selected Consolidated Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse has not prepared or certified
such "Selected Consolidated Financial Data."
PRICE WATERHOUSE LLP
San Jose, California
April 18, 1995
II-4
<PAGE> 1
1,500,000 SHARES
KLA INSTRUMENTS CORPORATION
COMMON STOCK ($0.001 PER SHARE PAR VALUE)
UNDERWRITING AGREEMENT
May ___, 1995
<PAGE> 2
May ___, 1995
Morgan Stanley & Co. Incorporated
PaineWebber Incorporated
Smith Barney Inc.
c/o Morgan Stanley & Co. Incorporated
1251 Avenue of the Americas
New York, New York 10020
Dear Sirs:
KLA Instruments Corporation, a Delaware corporation (the "Company"),
proposes to issue and sell to you (the "Underwriters"), an aggregate of
1,500,000 shares of the Common Stock ($0.001 per share par value) of the Company
(the "Firm Shares"). The Company also proposes to issue and sell to the
Underwriters not more than an additional 225,000 shares of its Common Stock
($0.001 per share par value) (the "Additional Shares") if and to the extent that
the Underwriters shall have determined to exercise the right to purchase such
shares of common stock granted to the Underwriters in Article II hereof. The
Firm Shares and the Additional Shares are hereinafter collectively referred to
as the Shares. The shares of Common Stock ($0.001 per share par value) of the
Company to be outstanding after giving effect to the sales contemplated hereby
are hereinafter referred to as the Common Stock.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the Registration Statement; the prospectus in the form first used
to confirm sales of Shares is hereinafter referred to as the Prospectus
(including, in the case of all references to the Registration Statement and the
Prospectus, documents incorporated therein by reference).
-1-
<PAGE> 3
I.
The Company represents and warrants to each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or
threatened by the Commission.
(b) (i) The Company has filed in a timely manner each document or
report required to be filed by it pursuant to the Security Exchange Act
of 1934, as amended (the "Exchange Act") and the rules and regulations
thereunder, (ii) each such document complied, or will comply when so
filed, in all material respects with the Exchange Act and the
applicable rules and regulations thereunder, (iii) each part of the
Registration Statement, when such part became effective, did not
contain and each such part, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading, (iv) the Registration
Statement and the Prospectus comply and, as amended or supplemented, if
applicable, will comply in all material respects with the Securities
Act and the applicable rules and regulations of the Commission
thereunder and (v) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and
warranties set forth in this Paragraph (b) do not apply to statements
or omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as
a corporation in good standing under the laws of the jurisdiction of
its incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus and
is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to
-2-
<PAGE> 4
the extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(e) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(f) The shares of Common Stock outstanding prior to the issuance
of the Shares to be sold by the Company have been duly authorized and
are validly issued, fully paid and non-assessable.
(g) The Shares to be sold by the Company have been duly authorized
and, when issued and delivered in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, and
the issuance of such Shares will not be subject to any preemptive or
similar rights.
(h) This Agreement has been duly authorized, executed and
delivered by the Company.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of or qualification with any
governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus.
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party
or to which any of the properties of the Company or any of its
subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or
any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
that are not described or filed as required.
-3-
<PAGE> 5
(l) Each of the Company and its subsidiaries has all necessary
consents, authorizations, approvals, orders, certificates and permits
of and from, and has made all declarations and filings with, all
federal, state, local and other governmental authorities, all
self-regulatory organizations and all courts and other tribunals, to
own, lease, license and use its properties and assets and to conduct
its business in the manner described in the Prospectus, except to the
extent that the failure to obtain or file would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(m) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Securities Act, complied when so
filed in all material respects with the Securities Act and the rules
and regulations of the Commission thereunder.
(n) The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended.
(o) The Company and its subsidiaries are (i) in compliance with
any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(p) The Company has reasonably concluded that costs and
liabilities associated with Environmental Laws would not, singly or in
the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(q) The Company has complied with all provisions of Section
517.075, Florida Statutes (Chapter 92-198, Laws of Florida).
(r) The financial statements of the Company and its subsidiaries,
together with related schedules and notes set forth in the Registration
Statement and the Prospectus, fairly present the financial condition of
the Company and its subsidiaries as of the dates indicated and the
results of operations and changes in financial position for the periods
therein specified in conformity with generally accepted accounting
principles consistently applied throughout the periods involved (except
as otherwise disclosed therein) and, except as disclosed in the
Prospectus, the other financial
-4-
<PAGE> 6
information and financial and statistical data set forth in the
Prospectus including all references to the amount of the Company's
"backlog" are fairly presented and prepared on a basis consistent with
such financial statements and the books and records of the Company.
(s) To its knowledge, the Company owns, or possesses adequate
right to use, all patents, inventions, trademarks, service marks,
tradenames, copyrights and proprietary rights necessary for the conduct
of its business as described in the Prospectus. Except as disclosed in
the Prospectus, the Company has not received any notice of conflict
with the asserted proprietary rights of others which materially and
adversely affects the business of the Company and its subsidiaries, and
does not know of any basis therefor. There are no legal or governmental
proceedings pending relating to patents, trademarks, service marks or
proprietary information, to which the Company or any subsidiary is a
party or of which any property of the Company or any subsidiary is the
subject and, to the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others.
(t) The Company and its subsidiaries have filed all tax returns
required to be filed and are not in default in the payment of any taxes
which were payable pursuant to said returns or any assessments with
respect thereto, other than any which the Company or any such
subsidiary is contesting in good faith and other than where any such
failures or defaults, taken in the aggregate, would not have a material
adverse effect on the business or financial condition of the Company
and its subsidiaries taken as a whole.
(u) The accountants who have certified or shall certify the
financial statements filed or to be filed with the Commission as parts
of the Registration Statement and the Prospectus are independent public
accountants as required by the Securities Act.
(v) No holders of Common Stock or other securities of the Company
have registration rights with respect to such securities which are
triggered by this offering, except for registration rights which have
been waived with respect to this offering.
(w) The Company has not distributed and, prior to the later to
occur of (i) the Closing Date and (ii) completion of the distribution
of the Shares, will not distribute any offering material in connection
with the offering and sale of the Shares other than the Registration
Statement, the Prospectus or other materials, if any, permitted by the
Securities Act.
(x) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) material
transactions are executed in accordance with management's general or
specific authorization; (ii) material transactions are recorded as
necessary to permit preparation of financial statements in
-5-
<PAGE> 7
conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to material assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for material assets
is compared with existing material assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(y) To the Company's knowledge, neither the Company nor any of its
subsidiaries nor any employee or agent of the Company or any of its
subsidiaries has made any payment of funds of the Company or any
subsidiary or received or retained any funds in violation of any law,
rule or regulation, which payment, receipt or retention of funds is of
a character required to be disclosed in the Prospectus.
II.
The Company hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from the Company at $______ a share -- the purchase
price -- the number of Firm Shares (subject to such adjustments to eliminate
fractional shares as you may determine) that bears the same proportion to the
number of Firm Shares to be sold by the Company as the number of Firm Shares set
forth in Schedule I hereto opposite the name of such Underwriter bears to the
total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to all of the
Additional Shares at the purchase price. Additional Shares may be purchased as
provided in Article IV hereof solely for the purpose of covering over-allotments
made in connection with the offering of the Firm Shares. If any Additional
Shares are to be purchased, each Underwriter agrees, severally and not jointly,
to purchase the number of Additional Shares (subject to such adjustments to
eliminate fractional shares as you may determine) that bears the same proportion
to the total number of Additional Shares to be purchased as the number of Firm
Shares set forth in Schedule I hereto opposite the name of such Underwriter
bears to the total number of Firm Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co., Incorporated, it will not offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock of the Company or any securities
convertible into or exercisable or exchangeable for such Common Stock for a
period of ninety (90) days after the date of the initial public offering of the
Shares, other than (i) the Shares to be sold hereunder and (ii) any shares of
such Common Stock which may be sold by the Company
-6-
<PAGE> 8
upon the exercise of an option or warrant or the conversion of a security in any
such case only to the extent such security was outstanding on the date hereof.
III.
The Company is advised by you that the Underwriters propose to make a
public offering of their respective portions of the Shares as soon after the
Registration Statement and this Agreement have become effective as in your
judgment is advisable. The Company is further advised by you that the Shares are
to be offered to the public initially at $_____________ a share (the public
offering price) and to certain dealers selected by you at a price that
represents a concession not in excess of $______ a share under the public
offering price, and that any Underwriter may allow, and such dealers may
reallow, a concession, not in excess of $_____ a share, to any Underwriter or to
certain other dealers.
IV.
Payment for the Firm Shares to be sold by the Company shall be made by
certified or official bank check or checks payable to the order of the Company
in New York Clearing House funds at the office of Gray, Cary, Ware &
Freidenrich, 400 Hamilton Avenue, Palo Alto, California 94301, at 7:00 A.M.,
local time, on ____________, 1995, or at such other time on the same or such
other date, not later than _________, 1995, as shall be designated in writing by
you. The time and date of each such payment are hereinafter referred to as the
Closing Date.
Payment for any Additional Shares shall be made by certified or
official bank check or checks payable to the order of the Company in New York
Clearing House funds at the office of Gray, Cary, Ware & Freidenrich, 400
Hamilton Avenue, Palo Alto, California 94301, at 7:00 A.M., local time, on such
date (which may be the same as the Closing Date but shall in no event be earlier
than the Closing Date nor later than ten (10) business days after the giving of
the notice hereinafter referred to) as shall be designated in a written notice
from you to the Company of your determination, on behalf of the Underwriters, to
purchase a number, specified in said notice, of Additional Shares, or on such
other date, in any event not later than _______, 1995, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to as
the Option Closing Date. The notice of the determination to exercise the option
to purchase Additional Shares and of the Option Closing Date may be given at any
time within thirty (30) days after the date of this Agreement.
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than two (2) full business days prior to the
Closing Date or the Option Closing
-7-
<PAGE> 9
Date, as the case may be. The certificates evidencing the Firm Shares and
Additional Shares shall be delivered to you on the Closing Date or the Option
Closing Date, as the case may be, for the respective accounts of the several
Underwriters, with any transfer taxes payable in connection with the transfer of
the Shares to the Underwriters duly paid, against payment of the purchase price
therefor.
V.
The obligations of the Company and the several obligations of the
Underwriters hereunder are subject to the condition that the Registration
Statement shall have become effective not later than the date hereof.
The several obligations of the Underwriters hereunder are subject to
the following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, there shall not have occurred any change, or
any development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations, of
the Company and its subsidiaries, taken as a whole, from that set forth
in the Registration Statement, that, in your judgment, is material and
adverse and that makes it, in your judgment, impracticable to market
the Shares on the terms and in the manner contemplated in the
Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by the Company's (i)
Chairman of the Board of Directors, President or a Vice President and
(ii) principal financial or accounting officer, to the effect that the
representations and warranties of the Company contained in this
Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of
the conditions on its part to be performed or satisfied hereunder on or
before the Closing Date. The officers signing and delivering such
certificate may rely upon the best of their knowledge as to proceedings
threatened.
(c) You shall have received on the Closing Date an opinion of
Gray, Cary, Ware & Freidenrich, counsel for the Company, dated the
Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the
-8-
<PAGE> 10
conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken
as a whole;
(ii) each subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation,
has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership
or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Company and its
subsidiaries taken as a whole;
(iii) the authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the
Prospectus;
(iv) the shares of Common Stock outstanding prior to the
issuance of the Shares to be sold by the Company have been duly
authorized and are validly issued, fully paid and non-assessable;
(v) the Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the
terms of this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be
subject to any preemptive or similar rights;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this
Agreement will not contravene any provision of applicable law or
the certificate of incorporation or by-laws of the Company or, to
the best of such counsel's knowledge, any agreement or other
instrument binding upon the Company or any of its subsidiaries
that is material to the Company and its subsidiaries, taken as a
whole, or, to the best of such counsel's knowledge, any judgment,
order or decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of or qualification with any
governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as
may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares;
-9-
<PAGE> 11
(viii) the statements (1) in the Prospectus under the
captions "____________," "Description of Capital Stock" and
"Underwriters" and (2) in the Registration Statement in Item 15,
in each case insofar as such statements constitute summaries of
the legal matters, documents or proceedings referred to therein,
fairly present the information called for with respect to such
legal matters, documents and proceedings and fairly summarize the
matters referred to therein;
(ix) after due inquiry, such counsel does not know of any
legal or governmental proceeding pending or threatened to which
the Company or any of its subsidiaries is a party or to which any
of the properties of the Company or any of its subsidiaries is
subject that is required to be described in the Registration
Statement or the Prospectus and is not so described or of any
statute, regulation, contract or other document that is required
to be described in the Registration Statement or the Prospectus or
to be filed as an exhibit to the Registration Statement that is
not described or filed as required;
(x) the Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined
in the Investment Company Act of 1940, as amended;
(xi) such counsel is of the opinion that the Company is (i)
in compliance with any and all applicable Environmental Laws, (ii)
has received all permits, licenses or other approvals required of
it under applicable Environmental Laws to conduct its business and
(iii) is in compliance with all terms and conditions of any such
permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses
or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect of the
Company;
(xii) such counsel (1) is of the opinion that each document,
if any, filed pursuant to the Exchange Act and incorporated by
reference in the Registration Statement and the Prospectus (except
for financial statements and schedules as to which such counsel
need not express any opinion) complied when so filed as to form in
all material respects with the Exchange Act, and the applicable
rules and regulations of the Commission thereunder, (2) is of the
opinion that the Registration Statement and Prospectus (except for
financial statements and schedules included therein as to which
such counsel need not express any opinion) comply as to form in
all material respects with the Securities Act and the rules and
regulations of the Commission thereunder, (3) believes that
(except for financial statements and schedules as to which such
counsel need not express any belief) the Registration Statement
and the prospectus included therein at the time the Registration
Statement became
-10-
<PAGE> 12
effective did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (4)
believes that (except for financial statements and schedules as to
which such counsel need not express any belief) the Prospectus
does not contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made,
not misleading; and
(xiii) no holders of Common Stock or other securities of the
Company have registration rights with respect to such securities
which are triggered by this offering, except for registration
rights which have been waived with respect to this offering.
(d) You shall have received on the Closing Date an opinion of
Morrison & Foerster, counsel for the Underwriters, dated the Closing
Date:
(i) covering the matters referred to in subparagraphs (v),
(vi) and clauses (3) and (4) of paragraph (c) above; and
(ii) to the effect that the statements in the Prospectus
under the caption "Underwriters" insofar as such statements
constitute summaries of the legal matters, documents or
proceedings referred to therein, fairly present the information
called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein
in all material respects.
With respect to subparagraph (xii) of paragraph (c) above, Gray,
Cary, Ware & Freidenrich and Morrison & Foerster may make such statement based
upon their participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto (other than the documents
incorporated by reference) and upon review and discussion of the contents
thereof, but are without independent check or verification except as specified.
The opinions of Gray, Cary, Ware & Freidenrich described in
paragraph (c) above shall be rendered to you at the request of the Company, and
shall so state therein.
(e) You shall have received, on each of the date hereof and the
Closing Date, a letter dated the date hereof or the Closing Date, as
the case may be, in form and substance satisfactory to you, from Price
Waterhouse LLP, independent public accountants, containing statements
and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in, or
incorporated by reference into, the Registration Statement and the
Prospectus.
-11-
<PAGE> 13
(f) The "lock-up" agreements between you and certain stockholders,
officers and directors of the Company relating to sales of shares of
common stock of the Company or any securities convertible into or
exercisable or exchangeable for such common stock, delivered to you on
or before the date hereof, shall be in full force and effect on the
Closing Date.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares, other matters related to the issuance of the Additional Shares and an
opinion of counsel in form and substance satisfactory to counsel for the
Underwriters.
VI.
In further consideration of the agreements of the Underwriters herein
contained, the Company covenants as follows:
(a) To furnish you, without charge, seven (7) signed copies of the
Registration Statement (including exhibits thereto and documents
incorporated by reference therein) and to each other Underwriter a conformed
copy of the Registration Statement (without exhibits thereto, but including
documents incorporated by reference therein) and, during the period
mentioned in paragraph (c) below, as many copies of the Prospectus, and
documents incorporated by reference therein, and any supplements and
amendments thereto or to the Registration Statement as you may reasonably
request. The terms "supplement" and "amendment" or "amend" as used in this
Agreement shall include all documents subsequently filed by the Company with
the Commission pursuant to the Exchange Act, that are deemed to be
incorporated by reference in the Prospectus.
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and to file no such proposed amendment or supplement to which you
reasonably object.
(c) If, during such period after the first date of the public offering
of the Shares as in the opinion of your counsel the Prospectus is required
by law to be delivered in connection with sales by an Underwriter or dealer,
any event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, or if, in the opinion of your
counsel, it is necessary to amend or supplement the Prospectus to comply
-12-
<PAGE> 14
with law, forthwith to prepare, file with the Commission and furnish, at its
own expense, to the Underwriters and to the dealers (whose names and
addresses you will furnish to the Company) to which Shares may have been
sold by you on behalf of the Underwriters and to any other dealers upon
request, either amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in the
light of the circumstances when the Prospectus is delivered to a purchaser,
be misleading or so that the Prospectus, as amended or supplemented, will
comply with law.
(d) To use reasonable efforts to qualify the Shares for offer and sale
under the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-month
period ending ________, 1996 that satisfies the provisions of Section 11(a)
of the Securities Act and the rules and regulations of the Commission
thereunder.
(f) To pay all expenses incident to the performance of its obligations
under this Agreement, including (i) the preparation and filing of the
Registration Statement and the Prospectus and all amendments and supplements
thereto, (ii) the preparation, issuance and delivery of the Shares,
including any transfer taxes payable in connection with the transfer of the
Shares to the Underwriters, (iii) the fees and disbursements of the
Company's counsel and accountants, (iv) the qualification of the Shares
under state securities or Blue Sky laws in accordance with the provisions of
paragraph (d) above, including filing fees and the fees and disbursements of
counsel for the Underwriters in connection therewith and in connection with
the preparation of any Blue Sky or Legal Investment Memoranda, (v) the
printing and delivery to the Underwriters, in quantities as hereinabove
stated, copies of the Registration Statement and all amendments and exhibits
thereto and of each preliminary prospectus and the Prospectus and any
amendments or supplements thereto, (vi) the printing and delivery to the
Underwriters of copies of any Blue Sky or Legal Investment Memoranda, (vii)
the filing fees and expenses, including fees and disbursements of counsel,
incurred with respect to any filing and review with the National Association
of Securities Dealers, Inc., made in connection with the offering of the
Shares, (viii) any expenses incurred by the Company in connection with a
"road show" presentation to potential investors and (ix) the listing of the
Common Stock on The Nasdaq National Market.
(g) The Company will apply the net proceeds from the sale of the Shares
as set forth in the Prospectus.
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<PAGE> 15
VII.
The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary prospectus or
the Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein; provided, however, that
the foregoing indemnity agreement with respect to any preliminary prospectus
shall not inure to the benefit of any Underwriter from whom the person
asserting any such losses, claims, damages or liabilities purchased Shares, or
any person controlling such Underwriter, if a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to
the written confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage or liability.
Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, the directors of the Company, the officers of the
Company who sign the Registration Statement and each person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.
-14-
<PAGE> 16
In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to any of the three preceding paragraphs, such person (the "indemnified
party") shall promptly notify the person against whom such indemnity may be
sought (the "indemnifying party") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably satisfactory
to the indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (a) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, and (b) the fees and expenses
of more than one separate firm (in addition to any local counsel) for the
Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of either such
Section, and that all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters and such
control persons of Underwriters, such firm shall be designated in writing by
Morgan Stanley & Co. Incorporated. In the case of any such separate firm for the
Company, and such directors, officers and control persons of the Company, such
firm shall be designated in writing by the Company. The indemnifying party shall
not be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than thirty (30) days after receipt
by such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
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<PAGE> 17
If the indemnification provided for in the first, second or third
paragraph of this Article VII is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party or parties on the one hand
and the indemnified party or parties on the other hand from the offering of the
Shares or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the indemnifying party or parties on the one hand and of the indemnified party
or parties on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Underwriters on the other hand in connection with the
offering of the Shares shall be deemed to be in the same respective proportions
as the net proceeds from the offering of the Shares (before deducting expenses)
received by the Company and the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover of the Prospectus, bear to the aggregate public offering price of the
Shares. The relative fault of the Company on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Underwriters' respective obligations to contribute
pursuant to this Article VII are several in proportion to the respective number
of Shares they have purchased hereunder, and not joint.
The Company and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Article VII were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Article VII, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for
-16-
<PAGE> 18
in this Article VII are not exclusive and shall not limit any rights or remedies
which may otherwise be available to any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this Article VII
and the representations and warranties of the Company contained in this
Agreement shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of any Underwriter or any person controlling any Underwriter, or the Company,
its officers or directors or any person controlling the Company and (iii)
acceptance of and payment for any of the Shares.
VIII.
This Agreement shall be subject to termination by notice given by you
to the Company, if (a) after the execution and delivery of this Agreement and
prior to the Closing Date (i) trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the National Association of Securities
Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange or the Chicago Board of Trade, (ii) trading of any securities of the
Company shall have been suspended on any exchange or in any over-the-counter
market, (iii) a general moratorium on commercial banking activities in New York
shall have been declared by either Federal or New York State authorities, or
(iv) there shall have occurred any outbreak or escalation of hostilities or any
change in financial markets or any calamity or crisis that, in your judgment, is
material and adverse and (b) in the case of any of the events specified in
clauses (a)(i) through (iv), such event singly or together with any other such
event makes it, in your judgment, impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus.
IX.
This Agreement shall become effective upon the later of (x) execution
and delivery hereof by the parties hereto and (y) release of notification of the
effectiveness of the Registration Statement by the Commission.
If, on the Closing Date or the Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares that
it or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule I bears to the aggregate number of
Firm
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<PAGE> 19
Shares set forth opposite the names of all such non-defaulting Underwriters, or
in such other proportions as you may specify, to purchase the Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
on such date; provided that in no event shall the number of Shares that
any Underwriter has agreed to purchase pursuant to Article II be increased
pursuant to this Article IX by an amount in excess of one-ninth of such number
of Shares without the written consent of such Underwriter. If, on the Closing
Date or the Option Closing Date, as the case may be, any Underwriter or
Underwriters shall fail or refuse to purchase Shares and the aggregate number of
Shares with respect to which such default occurs is more than one-tenth of the
aggregate number of Shares to be purchased on such date, and arrangements
satisfactory to you and the Company for the purchase of such Shares are not made
within thirty-six (36) hours after such default, this Agreement shall terminate
without liability on the part of any non-defaulting Underwriter or the Company.
In any such case, either you or the Company shall have the right to postpone the
Closing Date or the Option Closing Date, as the case may be, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
This Agreement may be signed in two or more counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
-18-
<PAGE> 20
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York.
Very truly yours,
KLA INSTRUMENTS CORPORATION
By_____________________________
Robert J. Boehlke
Vice President, Finance
and Administration
Accepted, May __, 1995
Morgan Stanley & Co. Incorporated
PaineWebber Incorporated
Smith Barney Inc.
By Morgan Stanley & Co. Incorporated
By___________________________
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<PAGE> 21
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
<S> <C>
Morgan Stanley & Co. Incorporated
PaineWebber Incorporated
Smith Barney Inc.
--------------
Total ........ 1,500,000
==============
</TABLE>
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<PAGE> 1
EXHIBIT 5.1
April 19, 1995
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: KLA Instruments Corporation
Registration Statement on Form S-3
Ladies and Gentlemen:
As counsel to KLA Instruments Corporation, a Delaware corporation (the
"Company"), we are rendering this opinion in connection with a proposed sale by
the Company of up to 1,725,000 shares of its common stock, $.001 par value
("Common Stock").
We have examined all instruments, documents, and records which we deemed
relevant and necessary for the basis of our opinion hereinafter expressed. In
such examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies.
Based on such examination, we are of the opinion that the 1,725,000 shares
of Common Stock to be issued and sold by the Company (of which up to 225,000
shares are to be issued to cover over-allotments, if any) are duly authorized
shares of Common Stock and, when issued against payment of the purchase price
therefor, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name wherever it
appears in said Registration Statement, including the Prospectus constituting a
part thereof, as originally filed or as subsequently amended.
Respectfully submitted,
GRAY CARY WARE & FREIDENRICH
A Professional Corporation
