<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
KLA INSTRUMENTS CORPORATION
(Name of Registrant as Specified In Its Charter)
KLA INSTRUMENTS CORPORATION
160 RIO ROBLES
SAN JOSE, CA 95134
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/x/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
______________________________________________________________________
2) Aggregate number of securities to which transaction applies:
______________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
______________________________________________________________________
4) Proposed maximum aggregate value of transaction:
______________________________________________________________________
(1) Set forth the amount on which the filing fee is calculated and state
how it was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
______________________________________________________________________
2) Form, Schedule or Registration Statement No.:
______________________________________________________________________
3) Filing Party:
______________________________________________________________________
4) Date Filed:
______________________________________________________________________
<PAGE> 2
KLA INSTRUMENTS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held November 18, 1996
The Annual Meeting of Stockholders of KLA INSTRUMENTS CORPORATION (the
"Company") will be held at the offices of the Company, 160 Rio Robles, San Jose,
California 95134, on Monday, November 18, 1996 at 11:00 a.m. for the following
purposes:
1. To elect two (2) directors to Class I of the Board of
Directors.
2. To approve amendments to the 1982 Stock Option Plan (the
"Option Plan") (a) to increase the number of shares reserved for issuance
pursuant to the Option Plan (i) by 1,600,000 shares in fiscal 1997, (ii) on the
first day of each subsequent fiscal year by 3% of the number of shares of Common
Stock then issued and outstanding, and (iii) at any time by the number of
shares, if any, repurchased on the open market for issuance under the Option
Plan (all subject to a limit regarding the number of shares subject to incentive
stock options that may be granted), and (b) to extend the term of the Option
Plan to July 29, 2006.
3. To approve an amendment to the 1981 Employee Stock Purchase
Plan (the "Purchase Plan") to increase the number of shares reserved for
issuance under the Purchase Plan by 800,000 shares.
4. To ratify the appointment of Price Waterhouse LLP as the
independent accountants of the Company for the fiscal year ending June 30, 1997.
5. To transact such other business as may properly come before
the meeting, or any adjournment thereof.
Stockholders of record at the close of business on September 20, 1996,
shall be entitled to vote at the meeting.
By order of the Board of Directors
PAUL E. KREUTZ
Secretary
San Jose, California
October 11, 1996
IMPORTANT: PLEASE FILL IN, DATE, SIGN AND MAIL PROMPTLY THE ENCLOSED PROXY IN
THE POSTAGE-PAID ENVELOPE PROVIDED TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT
THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH TO DO
SO EVEN THOUGH YOU HAVE SENT IN YOUR PROXY.
<PAGE> 3
KLA INSTRUMENTS CORPORATION
PROXY STATEMENT
The accompanying Proxy is solicited by the Board of Directors of KLA
Instruments Corporation, a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on Monday, November 18, 1996, at 11:00
a.m., local time, or at any adjournment thereof. The meeting will be held at the
Company's offices located at 160 Rio Robles, San Jose, California 95134. The
Company's telephone number at that location is (408) 434-4200. At the meeting,
only stockholders of record at the close of business on September 20, 1996,
shall be entitled to vote. On that date, the Company had outstanding 51,062,224
shares of Common Stock. The date of this Proxy Statement is October 11, 1996,
the approximate date on which the Proxy Statement and form of Proxy were first
sent or given to stockholders.
Each stockholder is entitled to one vote for each share of stock held
by him or her on all matters. If no instructions are given on the executed
Proxy, the Proxy will be voted in favor of the proposals described.
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the proxy
and any additional soliciting materials sent to shareholders. The Company has
retained the services of MacKenzie Partners, Inc. ("MacKenzie") to aid in the
solicitation of proxies, deliver proxy materials to brokers, nominees,
fiduciaries and other custodians for distribution to beneficial owners of stock
and to solicit proxies therefrom. MacKenzie will receive a fee of $7,500 and
reimbursement of all reasonable out-of-pocket expenses. In addition, the Company
may reimburse brokerage houses and other custodians, nominees and fiduciaries
for their expenses incurred in forwarding solicitation materials to the
beneficial owners of the stock held of record by such persons. It is
contemplated that Proxies will be solicited principally through the mail, but
directors, officers and regular employees of the Company may, without additional
compensation, solicit Proxies, personally or by telephone, telegraph or special
letter.
Any Proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Company a
written notice of revocation or duly executed Proxy bearing a later date or by
attending the meeting and voting in person.
The Annual Report to Stockholders for the fiscal year ended June 30,
1996 accompanies this Proxy Statement.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of three
Class I directors (Kenneth Levy, Robert E. Lorenzini and Samuel Rubinovitz), two
Class II directors (Leo J. Chamberlain and Dag Tellefsen), and three Class III
directors (Edward W. Barnholt, Yoshio Nishi, and Kenneth L. Schroeder), who will
serve until the annual meetings of stockholders to be held in 1996, 1997 and
1998, respectively, or until their respective successors are duly elected and
qualified. At each annual meeting of stockholders, directors are elected for a
full term of three years to succeed those directors whose terms expire at the
annual meeting.
The terms of the three directors in Class I will expire on the date of
the upcoming annual meeting. Two persons are to be elected to Class I of the
Board of Directors at the meeting. The nominees for election by the stockholders
to these two positions are Kenneth Levy and Samuel Rubinovitz, both current
members of the Board of Directors in Class I. Robert E. Lorenzini, a current
member of the Board of Directors in Class I, will not be standing for election
at the meeting. If elected, the nominees will serve as directors until the
Company's annual meeting of stockholders in 1999, or until their successors are
elected and qualified. If any of the nominees declines to serve or becomes
unavailable for any reason, or if a vacancy occurs before the election, the
Proxies may be voted for such substitute nominees as management may designate.
The proxy
1
<PAGE> 4
holders have also been advised that in the event any of the nominees shall not
be available for election, a circumstance that is not currently expected, they
may vote for the election of substitute nominees in accordance with their
judgment.
If a quorum is present and voting, the two nominees for Class I
director receiving the highest number of votes will be elected as Class I
directors. Abstentions and shares held by brokers that are present, but not
voted because the brokers were prohibited from exercising discretionary
authority, i.e., "broker non-votes," will be counted as present in determining
if a quorum is present.
The following table indicates the name and age of each member of the
Company's Board of Directors, the year in which each such member became a
director of the Company and each such member's principal occupation. The
principal occupation of each such member has been his principal occupation for
the past five (5) years unless otherwise noted.
<TABLE>
<CAPTION>
DIRECTOR EMPLOYMENT OR
NAME AGE SINCE PRINCIPAL OCCUPATION
- --------------------------------- --------- -------------- ----------------------------------------------------
<S> <C> <C> <C>
Kenneth Levy 54 1975 Co-Founder, Chairman of the Board and Chief
Executive Officer. Since May 1993, a Director
of Ultratech Stepper, Inc., a manufacturer of
photolithography equipment; since April 1993, a
Director of Network Peripherals, Inc., a supplier
of high-performance client-server networking
solutions; and since August 1995, a Director of
Integrated Process Equipment Corporation, a
manufacturer of semiconductor processing
equipment for chemical, mechanical planarization
(CMP) and cleaning of advanced integrated circuits.
Kenneth L. Schroeder 50 1991 President, Chief Operating Officer and Director
since November 1991. Senior Vice President
from 1985 to 1987. Vice President from 1979
to 1985. From May 1990 to November 1991, President,
Chief Operating Officer and Director of Genus Corporation,
a manufacturer of thin film deposition and ion implant
equipment. Since August 1995, a Director of GaSonics
International, a manufacturer of semiconductor processing
equipment.
Edward W. Barnholt 53 1995 Since October 1990, General Manager of the Test and
Measurement organization, Hewlett-Packard Company
("Hewlett-Packard"), a manufacturer of electronic and
computer equipment. From 1988 to 1990, General Manager of
the Electronic Instruments Group, Hewlett-Packard.
Elected Vice President of Hewlett-Packard in July 1988 and
Senior Vice President in November 1993.
Leo J. Chamberlain 66 1982 Private investor. Since March 1989, a Director of Octel
Communications Corporation ("Octel"), a manufacturer of
high-performance voice processing systems.
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
DIRECTOR EMPLOYMENT OR
NAME AGE SINCE PRINCIPAL OCCUPATION
- --------------------------------- --------- -------------- ----------------------------------------------------
<S> <C> <C> <C>
Robert E. Lorenzini 59 1976 Since February 1995, Chairman and Chief Executive Officer
of Virtual Golf, Inc., a manufacturer of sports simulation
systems. From October 1988 until January 1994, President
and Chief Executive Officer and from January 1994, Chairman
of the Board of Sun Power Corporation, a manufacturer of
semiconductor devices. Since October 1986, a Director of
FSI International, a semiconductor process equipment
manufacturer.
Yoshio Nishi 56 1989 Since May 1995, Director of Research and Development and
Senior Vice President of the Semiconductor Group, Texas
Instruments, Inc., a manufacturer of integrated circuits
and electronic equipment. From January 1986 to April 1995,
Director of Silicon Process Laboratory, Hewlett-Packard
Laboratories, a semiconductor technology research facility
affiliated with Hewlett-Packard. Since April 1993, a
Director of Silicon Valley Research, Inc., a software
developer of integrated circuit place and route tools.
Consulting Professor in the Department of Electrical
Engineering at Stanford University since 1986.
Samuel Rubinovitz 66 1990 Previously served as a director of the Company from October
1979 to January 1989. From April 1989 to January 1994,
Executive Vice President and from April 1989 to April 1996,
Director of EG&G, Inc., a diversified manufacturer of
scientific instruments and electronic, optical and
mechanical equipment. Since October 1984, a Director of
Richardson Electronics, Inc., a manufacturer and
distributor of electron tubes and semiconductors. Since
September 1994, a Director of LTX Corporation, a
manufacturer of semiconductor capital equipment. Since
June 1985, a Director of Kronos, Inc., a manufacturer of
electronic time keeping systems.
Dag Tellefsen 54 1978 General Partner of the investment manager of Glenwood
Ventures I and II, venture capital funds. Since January
1993, a Director of Iwerks Entertainment Corporation, a
provider of not-at-home entertainment. Since September
1982, a Director of Octel.
</TABLE>
3
<PAGE> 6
The Board of Directors has an Audit Committee, a Compensation Committee
and a Nominating Committee. Messrs. Lorenzini and Rubinovitz are the members of
the Audit Committee, which held two (2) meetings during fiscal 1996. The
functions of the Audit Committee include recommending the independent
accountants to the Board of Directors and providing oversight of the services
rendered by the independent accountants. Messrs. Chamberlain and Tellefsen are
the members of the Compensation Committee, which held one (1) meeting in fiscal
1996. The Compensation Committee reviews and establishes cash and stock-based
compensation for corporate officers and key employees. Messrs. Levy and Nishi
are the members of the Nominating Committee, which held one (1) meeting in
fiscal 1996. The Nominating Committee was formed for purposes of identifying and
evaluating the qualifications of all candidates for election to the Board of
Directors. The Nominating Committee will consider nominations recommended by
stockholders. Stockholders wishing to submit nominations must notify the Company
of their intent to do so (and provide the Company with certain information set
forth in the Company's bylaws, a copy of which may be obtained from the Company)
on or before the date on which stockholder proposals to be included in the proxy
statement for the stockholder meeting must be received by the Company.
During fiscal 1996, the Board of Directors held five (5) meetings.
Other than Messrs. Barnholt and Nishi, no director attended fewer than 75% of
the aggregate of (i) all meetings of the Board of Directors (held during the
period in which such director served) and (ii) all meetings of committees of the
Board on which such director served.
4
<PAGE> 7
STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
Company's Common Stock owned on August 31, 1996, by (i) each person who is known
to the Company to own beneficially more than five percent (5%) of the Company's
Common Stock, (ii) each of the directors and director-nominees of the Company,
(iii) the Chief Executive Officer and the four other most highly compensated
executive officers of the Company as of June 30, 1996, whose salary and bonus
for the year ended June 30, 1996 exceeded $100,000, and (iv) all directors and
executive officers of the Company as a group:
<TABLE>
<CAPTION>
NAME OR IDENTITY NUMBER OF
OF BENEFICIAL OWNER OR GROUP SHARES OWNED PERCENT
- ------------------------------------------------------- -------------------------------- ------------------
<S> <C> <C>
The Capital Group Companies, Inc. 5,840,800 (1) 11.4
333 South Hope Street
Los Angeles, CA 90071
The Prudential Insurance Company of America 5,115,640 (2) 10.0
Prudential Plaza
Newark, NJ 07102
Kenneth Levy 1,891,934 (3) 3.7
Kenneth L. Schroeder 286,258 (4) *
Arthur P. Schnitzer 115,898 (4) *
Robert E. Lorenzini 38,886 (4) *
Robert J. Boehlke 27,235 (4) *
Yoshio Nishi 24,886 (4) *
Leo J. Chamberlain 14,512 (4) *
Gary E. Dickerson 11,190 (4) *
Samuel Rubinovitz 9,000 (4) *
Dag Tellefsen 6,520 (4) *
Edward W. Barnholt 648 (4) *
All directors and executive
officers as a group (21 persons): 2,523,209 (5) 4.9
</TABLE>
- -----------------------
* Represents less than one percent (1%).
(1) Consists of 4,645,800 shares, 599,700 shares and 595,300 shares
beneficially owned by Capital Guardian Trust Company, Capital
International Limited and Capital International, S.A., respectively,
each of which is a subsidiary of the Capital Group Companies, Inc.
(2) Includes 5,081,700 shares beneficially owned by Jennison Associates
Capital Corp. ("Jennison"), a wholly-owned subsidiary of the Prudential
Insurance Company of America ("Prudential"). Consists of shares
beneficially owned by clients of Jennison or Prudential, which may be
deemed to have sole or shared voting or dispositive power with respect
to such shares in their capacities as investment advisors to such
clients.
(3) Includes 262,000 shares held in trusts for the benefit of Mr. Levy's
children, as to which Mr. Levy, who is co-trustee of the trusts,
disclaims beneficial ownership. Also includes 196,888 shares issuable
upon exercise of options held by Mr. Levy, which are currently
exercisable or exercisable within 60 days of August 31, 1996, granted
under the Company's 1982 Stock Option Plan.
5
<PAGE> 8
(4) Includes 163,332, 112,453, 18,886, 25,341, 24,886, 6,112, 9,605, 5,000,
6,520 and 648 shares issuable upon exercise of options held by Messrs.
Schroeder, Schnitzer, Lorenzini, Boehlke, Nishi, Chamberlain,
Dickerson, Rubinovitz, Tellefsen, and Barnholt, respectively, which are
currently exercisable or exercisable within 60 days of August 31, 1996,
granted under the 1982 Stock Option Plan and the 1990 Outside Directors
Stock Option Plan.
(5) Includes 646,178 shares issuable upon exercise of options, which are
currently exercisable or exercisable within 60 days of August 31, 1996,
granted under the 1982 Stock Option Plan and the 1990 Outside Directors
Stock Option Plan.
6
<PAGE> 9
EXECUTIVE COMPENSATION AND OTHER MATTERS
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation
earned during the fiscal years ended June 30, 1994, 1995, and 1996 by the Chief
Executive Officer of the Company and the four other most highly compensated
executive officers of the Company as of June 30, 1996 whose total salary and
bonus for the fiscal year ended June 30, 1996 exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
-------------------------------------------------------- -----------------
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options/SARs (1) Compensation
- ------------------------ ------ ---------- --------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth Levy 1996 $350,289 $413,070 (2) -0- $111,023 (3)
Chairman of the Board 1995 $274,807 $314,500 (2) 120,000 $65,066 (4)
and Chief Executive 1994 $256,823 $220,000 (2) -0- $48,016 (5)
Officer
Kenneth L. Schroeder 1996 $330,777 $396,095 (2) -0- $106,810 (3)
President, Chief 1995 $263,815 $302,280 (2) 120,000 $62,802 (4)
Operating Officer 1994 $248,100 $211,200 (2) -0- $40,771 (5)
and Director
Robert J. Boehlke 1996 $248,185 $186,008 (2) -0- $79,526 (3)
Vice President, Finance 1995 $223,568 $166,340 (2) 80,000 $54,414 (4)
and Administration and 1994 $223,808 $152,995 (2) -0- $16,664 (5)
Chief Financial Officer
Arthur P. Schnitzer 1996 $225,826 $154,790 (2) -0- $73,104 (3)
Group Vice President 1995 $199,846 $127,539 (2) 80,000 $49,752 (4)
Wafer and Reticle 1994 $177,154 $110,223 (2) -0- $14,994 (5)
Inspection
Gary E. Dickerson 1996 $221,346 $172,500 (2) 20,000 $73,104 (3)
Vice President 1995 $171,593 $56,532 (2) 60,000 $43,456 (4)
1994 $130,932 $42,184 (2) 10,000 $12,959 (5)
</TABLE>
- -------------------------------
(1) Represents options granted pursuant to 1982 Stock Option Plan.
(2) Total amount of personal benefits paid to this executive officer during
the fiscal year was less than the lesser of (i) $50,000 or (ii) 10% of
such executive officer's total reported salary and bonus.
(3) Consists of (i) cash payments to Messrs. Levy, Schroeder, Boehlke,
Schnitzer and Dickerson pursuant to the Company's profit sharing plan
of $43,809, $42,009, $30,350, $27,605 and $27,605, respectively, (ii)
amounts contributed by the Company to the 401(k) Plan under the profit
sharing plan for the benefit of Messrs. Levy, Schroeder, Boehlke,
Schnitzer and Dickerson of $24,484, $24,330, $22,985, $22,582 and
$22,582, respectively, (iii) amounts contributed by the Company to the
Company's Excess Profit Stock Plan for the benefit of Messrs. Levy,
Schroeder, Boehlke, Schnitzer and Dickerson of $34,230, $31,971,
$17,690, $14,416 and $14,416, respectively, (iv) a matching
contribution of $1,000 made by the Company pursuant to the 401(k) Plan
to each of the above named officers, and (v) a matching contribution of
$7,500 made by the Company pursuant to the Company's Supplemental
Executive Benefit Plan (the "SEBP") to each of the above named
officers.
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<PAGE> 10
(4) Consists of (i) cash payments to Messrs. Levy, Schroeder, Boehlke,
Schnitzer and Dickerson pursuant to the Company's profit sharing plan
of $25,193, $24,184, $20,474, $18,343 and $15,489, respectively, (ii)
amounts contributed by the Company to the 401(k) Plan under the profit
sharing plan for the benefit of Messrs. Levy, Schroeder, Boehlke,
Schnitzer and Dickerson of $31,374, $30,118, $25,440, $22,909 and
$19,467, respectively, (iii) a matching contribution of $1,000 made by
the Company pursuant to the 401(k) Plan to each of the above named
officers, and (iv) a matching contribution of $7,500 made by the
Company pursuant to the SEBP to each of the above named officers.
(5) Consists of (i) payments by the Company pursuant to the profit sharing
plan to Messrs. Levy, Schroeder, Boehlke, Schnitzer and Dickerson,
including amounts contributed to the 401(k) Plan for the benefit of
such person, of $9,791, $9,411, $8,414, $6,744, and $4,709,
respectively, (ii) a matching contribution of $750 made by the Company
pursuant to the Company's 401(k) Plan to each of the above named
officers, (iii) a matching contribution of $7,500 made by the Company
pursuant to the SEBP to each of the above-named officers, and (iv)
payments by the Company to Messrs. Levy and Schroeder of $29,975 and
$23,110, respectively, paid in lieu of their participation in the
Company's 1981 Employee Stock Purchase Plan.
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<PAGE> 11
STOCK OPTIONS GRANTED IN FISCAL 1996
The following table provides the specified information concerning grants of
options to purchase the Company's Common Stock made during the fiscal year ended
June 30, 1996, to the persons named in the Summary Compensation Table:
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1)
Potential Realizable Value
at Assumed Annual Rates
Number of % of Total of Stock Price
Securities Options/SARs Exercise Appreciation for Option
Underlying Granted or Base Term (2)
Options/SARs to Employees Price Expiration --------------------------
Name Granted (1) in Fiscal Year (1) ($/Sh) Date 5% ($) 10% ($)
- ---------------------- ------------ ----------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth Levy -- -- -- -- -- --
Kenneth L. Schroeder -- -- -- -- -- --
Robert J. Boehlke -- -- -- -- -- --
Arthur P. Schnitzer -- -- -- -- -- --
Gary E. Dickerson 20,000 (3) 1.49% $42.50 7/28/05 $534,560 $1,354,681
</TABLE>
- -----------------
(1) Represents options granted pursuant to 1982 Stock Option Plan.
(2) Potential gains are net of exercise price, but before taxes associated
with exercise. These amounts represent certain assumed rates of
appreciation only, based on the Securities and Exchange Commission's
rules. Actual gains, if any, on stock option exercises are dependent on
the future performance of the Company's Common Stock, overall market
conditions and option holders' continued employment through the vesting
period. The amounts reflected in the table may not necessarily be
achieved.
(3) The Option was granted at fair market value on July 28, 1995. The
Option vests in thirty (30) equal monthly installments beginning thirty
(30) months after the date of grant.
OPTION EXERCISES AND FISCAL 1996 YEAR-END VALUES
The following table provides the specified information concerning
exercises of options to purchase the Company's Common Stock in the fiscal year
ended June 30, 1996, and unexercised options held as of June 30, 1996, by the
persons named in the Summary Compensation Table:
9
<PAGE> 12
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES AND
FISCAL YEAR-END VALUES (1)
Number of Securities Value of Unexercised In-the-
Underlying Unexercised Money Options/SARs at
Shares Options/SARs at 6/30/96 (1) 6/30/96 (1)(2)
Acquired Value -------------------------------- ------------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ----------- --------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth Levy 60,700 $2,404,378 194,111 133,889 $3,820,602 $818,023
Kenneth L. Schroeder 20,000 $844,376 138,333 211,667 $2,688,431 $2,334,694
Robert J. Boehlke 24,000 $1,023,248 22,749 92,963 $437,075 $615,487
Arthur P. Schnitzer -- -- 109,212 96,204 $2,141,665 $676,863
Gary E. Dickerson 3,400 $135,775 7,236 94,964 $126,948 $448,811
</TABLE>
- ----------------
(1) Represents options granted pursuant to 1982 Stock Option Plan.
(2) Based on the value of $23.25 per share, which was the closing price of
the Company's Common Stock on June 28, 1996.
CHANGE IN CONTROL ARRANGEMENTS
Options granted under the Company's 1982 Stock Option Plan contain
provisions pursuant to which, under certain circumstances, all outstanding
options and shares granted under such plan shall become fully vested and
immediately exercisable upon a "change in control," as defined in such plan.
In the event of the involuntary termination of Michael W. Morrissey,
Vice President, Customer Group, other than for cause, the Company has agreed to
continue to pay Mr. Morrissey's mortgage differential allowance until an
aggregate of $250,000 has been paid following the termination date. See "Certain
Transactions."
COMPENSATION OF DIRECTORS
During the fiscal year ended June 30, 1996, the Company paid each
non-employee director an annual retainer of $10,000 per year plus $1,000 for
each Board meeting attended and $500 for each Board committee meeting attended.
Effective September 1, 1996, the Company has increased the amount of the annual
retainer, the fee per Board meeting and the fee per committee meeting to
$11,000, $1,100 and $550, respectively, provided that in the event a director
attends a meeting via telephone rather than in person, only 50% of the meeting
fee is payable. The Company reimburses expenses incurred by directors in
attending Board meetings. In addition, the Company reimbursed directors a total
of $6,899 in fiscal 1996 for travel expenses for their spouses to attend one
meeting at a site away from the Company's executive offices.
Under the Directors Plan, each non-employee director (an "Outside
Director") is automatically granted an initial option to purchase 5,000 shares
of the Company's Common Stock upon the effective date of the Directors Plan or
the date of such Outside Director's initial election to the Board of Directors,
and an additional option to purchase 5,000 shares of Common Stock on each
anniversary of the initial grant, each at an exercise price equal to the fair
market value of the Common Stock on the date of grant.
10
<PAGE> 13
CERTAIN TRANSACTIONS
Upon joining the Company in April 1996, Michael W. Morrissey, Vice
President, Customer Group, received a hiring bonus of $100,000, which was paid
in the form of an interest-free loan that will be forgiven in four equal annual
installments, subject to Mr. Morrissey's continuous employment.
In connection with Mr. Morrissey's geographic relocation to join the
Company, the Company has agreed to reimburse Mr. Morrissey for the difference
between the monthly payment for his home mortgage prior to joining the Company
and a mortgage for a home in the San Francisco Bay Area, up to a maximum
differential of $800,000 in the principal amount of the two mortgages. This
allowance will be paid monthly for an initial period of five years, followed by
allowances in years six, seven and eight equal to 75%, 50% and 25%,
respectively, of the original monthly allowance. The allowance will terminate
after year eight. In the event of involuntary termination other than for cause,
the Company will continue to pay Mr. Morrissey's monthly allowance up to an
additional $250,000 paid in the aggregate after the date of termination.
CHANGES TO BENEFIT PLANS
1982 STOCK OPTION PLAN. The Board of Directors has adopted amendments
to the 1982 Stock Option Plan (the "Option Plan"), subject to stockholder
approval, (a) to increase the number of shares reserved for issuance pursuant to
the Option Plan (i) by 1,600,000 shares in fiscal 1997, (ii) on the first day of
each subsequent fiscal year by 3% of the number of shares of Common Stock then
issued and outstanding, and (iii) at any time by the number of shares, if any,
repurchased on the open market for issuance under the Option Plan (all subject
to a limit regarding the number of shares subject to incentive stock options
that may be granted), and (b) to extend the term of the Option Plan to July 29,
2006. See "PROPOSAL NO. 2 -- APPROVAL OF AMENDMENTS TO 1982 STOCK OPTION PLAN."
The New Plan Benefits Table sets forth grants of stock options under the Option
Plan during the fiscal year ended June 30, 1996, to (i) the Chief Executive
Officer of the Company and the four other most highly compensated executive
officers of the Company as of June 30, 1996, (ii) all current executive officers
as a group, and (iii) all employees, including all officers who are not
executive officers, as a group. Non-employee directors are not eligible to
participate in the Option Plan. Grants under the Option Plan are made at the
discretion of the Board of Directors; accordingly, future grants under the
Option Plan are not yet determinable.
1981 EMPLOYEE STOCK PURCHASE PLAN. The Board of Directors has adopted
an amendment to the 1981 Employee Stock Purchase Plan (the "Purchase Plan"),
subject to stockholder approval, to increase the number of shares reserved for
issuance pursuant to the Purchase Plan by 800,000 shares. See "PROPOSAL NO. 3 --
APPROVAL OF AMENDMENT TO 1981 EMPLOYEE STOCK PURCHASE PLAN." The New Plan
Benefits Table sets forth purchases of stock under the Purchase Plan during the
fiscal year ended June 30, 1996 by (i) the Chief Executive Officer of the
Company and the four other most highly compensated executive officers of the
Company as of June 30, 1996, (ii) all current executive officers as a group, and
(iii) all employees, including all officers who are not executive officers, as a
group. Non-employee directors are not eligible to participate in the Purchase
Plan. Purchases of stock under the Purchase Plan are made at the discretion of
the participants; accordingly, future purchases under the Purchase Plan are not
yet determinable.
11
<PAGE> 14
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
1982 Stock Option Plan 1981 Employee Stock Purchase Plan
-------------------------------------- -------------------------------------
Exercise Price Number of Purchase Price Number of
Name and Position (per share) Shares (per share) Shares
- ---------------------------------------- ------------------ ---------------- --------------- --------------
<S> <C> <C> <C> <C>
Kenneth Levy -- -- $19.91 (1) 1,206
Chairman of the Board and Chief
Executive Officer
Kenneth L. Schroeder -- -- $17.03 (1) 1,434
President, Chief Operating Officer and
Director
Robert J. Boehlke -- -- $19.99 (1) 1,156
Vice President, Finance and
Administration and Chief Financial
Officer
Arthur P. Schnitzer -- -- $16.04 1,461
Group Vice President Wafer and Reticle
Inspection
Gary E. Dickerson $42.50 20,000 $20.04 (1) 1,203
Vice President
All Executive Officers as a Group $39.33 (1) 345,000 $18.19 (1) 15,307
Non-Executive Director Group (5 -- -- -- --
persons) (2)
All employees as a group $36.97 (1) 993,100 $18.48 (1) 401,102
(excluding current executive officers)
</TABLE>
- ---------------------
(1) The price per share is a weighted average.
(2) Non-employee directors are not eligible to participate in the 1982
Stock Option Plan or the 1981 Employee Stock Purchase Plan.
EXCESS PROFIT STOCK PLAN.
In April 1996, the Company adopted the Excess Profit Stock Plan (the
"EPSP"), which provides for shares of the Company's Common Stock to be purchased
from time to time for the benefit of employees using profit sharing
contributions that were intended for contribution to the 401(k) Plan for such
employees' benefit but could not be contributed because of provisions of the
Internal Revenue Code of 1986, as amended, that limit the amounts that can be
allocated under the profit sharing plan and the aggregate amount of 401(k) plan
contributions that can be deducted by the Company for federal income tax
purposes. Any employee of the Company or a parent or subsidiary thereof who is
eligible to receive an allocation of the profit sharing contributions made to
the 401(k) Plan for a calendar quarter (a "Contribution Period") is eligible to
receive an allocation of shares purchased under the EPSP with respect to that
Contribution Period. The first Contribution Period under the EPSP was the
quarter ended December 31, 1995.
12
<PAGE> 15
For each Contribution Period, each eligible employee will receive an
allocation of shares equal to his or her contribution for such period divided by
the average acquisition price of the shares allocated with respect to the
Contribution Period. Employees become vested in shares acquired under the EPSP
at the earliest of (i) the third January 1 following the end of the fiscal year
in which the Contribution Period occurred, (ii) age 55, or (iii) termination of
employment due to death, disability or certain categories of involuntary
termination. Any shares remaining unvested after termination are reallocated
among other eligible employees pro rata based on compensation level. Shares are
distributed on the first January 31 after they become vested (subject to the
employee's right to defer distribution for up to 10 years), or, if earlier, as
soon as practicable following the end of the quarter in the event of the
employee's death, disability or involuntary termination (including shares whose
distribution had been deferred).
Shares acquired pursuant to the EPSP are held in a trust until
distributed to the plan participants. In lieu of purchasing stock with respect
to any Contribution Period, the Company may, in its sole discretion, pay each
eligible employee his or her allocation in cash. The Board of Directors may at
any time amend or terminate the EPSP, provided that any such action may not
reduce the number of shares allocated to an employee's account as of the date of
such amendment or termination.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
The goals of the Company's compensation policy are to attract, retain
and reward executive officers who contribute to the overall success of the
Company by offering compensation that is competitive in the industry, to
motivate executives to achieve the Company's business objectives and to align
the interests of officers with the long term interests of stockholders. The
Company currently uses salary, a management incentive plan, and stock options to
meet these goals.
COMPENSATION COMMITTEE
The Compensation Committee is composed of two non-management directors
of the Board of Directors, Leo J. Chamberlain and Dag Tellefsen. The Committee
is responsible for setting and administering the policies governing annual
compensation of executive officers, including cash compensation and grants of
stock options. The Committee reviews compensation levels of executive officers,
considers their performance and makes recommendations regarding their cash
compensation and stock options to the full Board of Directors.
FORMS OF COMPENSATION
The Company provides its executive officers with a compensation package
consisting of base salary, variable incentive pay, and participation in benefit
plans generally available to other employees. In setting total compensation, the
Committee considers individual and Company performance, as well as market
information from published survey data provided to the Committee by the
Company's human resources staff. The market data consist primarily of base
salary and total cash compensation rates, as well as incentive bonus and stock
programs of the companies considered by the Committee to be peer companies in
the Company's industry.
BASE SALARY. Salaries for executive officers are initially set based on
negotiation with individual executive officers at the time of recruitment and
with reference to salaries for comparable positions among
13
<PAGE> 16
companies in the Company's industry or in industries that employ individuals of
similar education and background to the executive officers being recruited. The
Company also gives consideration to the individual's experience, reputation in
his or her industry and expected contributions to the Company.
Salary adjustments are made for each executive officer at the end of
each fiscal year. The size of the annual salary adjustments for each executive
officer is primarily based on the Committee's determination that the officer has
met or exceeded his or her individual goals. These individual goals are
determined in consultation with management, subject to review and approval by
the Board of Directors, and generally relate to strategic goals within the
responsibility of the executive officer. The Chief Executive Officer's goals
also include the Company's financial performance, measured primarily by the
adherence to predetermined revenue and expense levels and maintenance of
adequate cash reserves.
MANAGEMENT INCENTIVE PLAN. Each year since fiscal 1979, the Company has
adopted a management incentive plan (the "Incentive Plan"), which provides for
payments to officers and key employees based on the financial performance of the
Company or the relevant business unit, and on the achievement of the person's
individual performance objectives. The Incentive Plan is generally devised by
the Committee and submitted to the Board of Directors for ratification. In
fiscal 1996 the Incentive Plan set goals for profitability, asset management,
and new product introductions, among other things.
LONG-TERM INCENTIVES. Longer term incentives are provided through the
Option Plan, the Purchase Plan and the Excess Profit Stock Plan, all of which
reward executives through the growth in value of the Company's stock. The
Committee believes that employee equity ownership is highly motivating, provides
a major incentive for employees to build stockholder value and serves to align
the interests of employees with those of stockholders.
Grants of stock options to executive officers are based upon each
officer's relative position, responsibilities, historical and expected
contributions to the Company, and the officer's existing stock ownership and
previous option grants, with primary weight given to the executive officer's
relative rank and responsibilities. Initial stock option grants designed to
recruit an executive officer to join the Company may be based on negotiations
with the officer and with reference to historical option grants to existing
officers. Stock options are granted at market price on the date of grant and
will provide value to the executive officers only when the price of the
Company's Common Stock increases over the exercise price.
OTHER BENEFIT PLANS. Executive officers may participate in several
benefit plans, including the Company's profit sharing plan, 401(k) plan and
Supplemental Executive Benefit Plan (the "SEBP"), a nonqualified deferred
compensation plan. The Company in its discretion may make contributions to the
SEBP and 401(k) plan accounts of the executive officers.
IMPACT OF SECTION 162(m)
Section 162(m) of the Internal Revenue Code of 1986 disallows a tax
deduction by any publicly held corporation for compensation exceeding $1 million
in any taxable year received by any officers named in the Summary Compensation
Table, unless compensation is deemed to be performance based. To enable the
Company to preserve the benefit of receiving a tax deduction for the full amount
of income recognized by the Company's executive officers upon exercise of stock
options, the Company has adopted amendments to the Option Plan that provide that
no optionee may be granted options to purchase in excess of 200,000 shares per
fiscal year, provided that the foregoing limit shall be 600,000 shares with
respect to options granted to any person during the first fiscal year of such
person's employment with the Company. Historically, grants by the Company have
seldom approached these limits.
14
<PAGE> 17
FISCAL 1996 COMPENSATION
Compensation for the Chief Executive Officer and other executive
officers was set according to the Company's established compensation policy
described above. The executive officers of the Company, including the Chief
Executive Officer, received increases in base salary in fiscal 1996 based upon
the Company's successes in fiscal 1995 and the individual executives'
contributions to these successes, including the Company's record profitability,
the successful introduction of new products, particularly in the wafer and
reticle inspection divisions, and increased sales of metrology and prober
equipment.
During fiscal 1996, the Company paid bonuses to the Company's executive
officers pursuant to the Incentive Plan, including a bonus of $413,070 to the
Chief Executive Officer. These payments were based upon both the overall
performance of the Company and the individual officers' performance with respect
to certain objectives. These payments recognized that fiscal 1996 was a banner
year on all fronts, with all of the Company's major businesses growing to record
levels. Concurrent with rapid growth, the Company posted new records for
profitability. Earnings per share for fiscal 1996 of $2.31 were nearly double
fiscal 1995's then-record $1.20. The fiscal 1996 bonuses rewarded the executive
officers for both the current year's financial successes and the operational
successes that should fuel future business.
REPRICING OF STOCK OPTIONS FOLLOWING THE END OF FISCAL 1996
In August 1996, the Committee approved a stock option exchange program
(the "Exchange Program") based on its determination that (i) the purpose of the
Option Plan of providing an equity incentive would not be achieved for employees
holding options with exercise prices above the market price of the Company's
stock, (ii) turnover among key employees was likely to increase in part because
the Company's total compensation package for such employees, made up in
substantial part of underwater options, was less attractive than that of other
companies in the same geographic region granting options providing more
opportunity for appreciation, and (iii) the loss of key employees could have
significant adverse impact on the Company's business. Under the Exchange
Program, holders of underwater options granted since July 1994 were permitted to
elect on or before September 17, 1996 to receive new options in exchange for
cancellation of their underwater options. On September 17, 1996, those optionees
who so elected received new options for 50% of the shares subject to their
canceled underwater options, with an exercise price equal to $21.88, the closing
market price per share of the Company's common stock on that date. The Exchange
Program also provides that on a date prior to March 17, 1997 determined by the
Compensation Committee, each participating optionee will be granted a second new
option for the other 50% of the shares that were subject to the optionee's
canceled underwater options, with an exercise price equal to the closing market
price per share of the Company's common stock on the date of grant. The vesting
of each new option commences on the date of its grant, and, therefore, each
optionee participating in the Exchange Program forfeits any vesting accrued
under the canceled underwater options he or she held. Options for a total of
1,314,100 shares, with exercise prices ranging from $23.25 to $46.56 were
canceled pursuant to the Exchange Program. The options that were repriced in the
Exchange Program included options held by certain executive officers of the
Company. However, none of the persons named in the Summary Compensation Table
received replacement options, nor does the Committee anticipate that any of the
participants in the Exchange Program will be among the five most highly
compensated executive officers of the Company during the fiscal year ending June
30, 1997.
THE COMPENSATION COMMITTEE
Leo J. Chamberlain
Dag Tellefsen
15
<PAGE> 18
COMPARISON OF STOCKHOLDER RETURN
Set forth below is a line graph comparing the annual percentage change
in the cumulative total return on the Company's Common Stock with the cumulative
total return of the CRSP Total Return Index for The Nasdaq Stock Market (U.S.
Companies) and the H&Q Technology Index for the period commencing on June 30,
1991 and ending on June 30, 1996.
COMPARISON OF CUMULATIVE TOTAL RETURN FROM JUNE 30, 1991
THROUGH JUNE 30,1996 (1)(2)
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
6/30/91 6/30/92 6/30/93 6/30/94 6/30/95 6/30/96
<S> <C> <C> <C> <C> <C> <C>
KLA $ 100.0 $ 70.00 $138.00 $300.00 $618.00 $372.00
NASDAQ $ 100.0 $120.13 $151.08 $152.52 $203.59 $261.37
H&Q TECH $ 100.0 $113.63 $138.83 $140.86 $235.88 $279.83
</TABLE>
- ------------------------------------
(1) Assumes that $100.00 was invested on June 30, 1991 in the Company's
Common Stock at the price of $6.25 per share and at the closing sales
price for each index on that date and that all dividends were
reinvested. No cash dividends have been declared on the Company's
Common Stock. Stockholder returns over the indicated period should not
be considered indicative of future stockholder returns.
(2) The information contained in the chart was prepared for the Company by
KPMG Peat Marwick.
16
<PAGE> 19
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who
beneficially own more than 10% of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission (the "SEC")
initial reports of beneficial ownership on Form 3 and reports of changes in
beneficial ownership on Forms 4 and 5 with respect to the Company's Common Stock
and other equity securities. Such officers, directors and greater-than-10%
beneficial owners are also required by SEC rules to furnish the Company with
copies of all Section 16(a) reports they file with the SEC.
Based solely on a review of copies of such forms received by the
Company, and written representations from certain reporting persons that no
other reports were required for such persons, the Company believes that, during
the fiscal year ended June 30, 1996, all Section 16(a) filing requirements
applicable to its officers, directors and greater-than-10% beneficial owners
were complied with.
PROPOSAL NO. 2
APPROVAL OF AMENDMENTS TO 1982 STOCK OPTION PLAN
Under the Company's 1982 Stock Option Plan (the "Option Plan"), the
Company has reserved an aggregate of 14,900,000 shares of the Company's Common
Stock (subject to certain changes in the capital structure of the Company) for
issuance to employees (including officers and employee directors) and
consultants. As of August 30, 1996, options to purchase an aggregate of
5,773,305 shares of Common Stock were outstanding, at a weighted average
exercise price of $18.91 per share, and 6,569,504 shares had been issued under
the Option Plan, leaving 2,557,191 shares available for future option grants.
To provide an adequate reserve of shares to permit the Company to
continue to provide long-term equity incentives under the Option Plan,
stockholder approval is sought for amendments approved by the Board of Directors
on July 29, 1996, increasing the number of shares reserved for issuance under
the Option Plan (i) in the fiscal year ending June 30, 1997 by 1,600,000 to an
aggregate of 16,500,000 shares, (ii) on the first day of each subsequent fiscal
year of the Company during the term of the Option Plan by 3% of the number of
shares of Common Stock issued and outstanding on the last day of the immediately
preceding fiscal year, and (iii) at any time by the number of shares, if any,
repurchased by the Company on the open market for issuance under the Option
Plan. However, in compliance with requirements under the Internal Revenue Code
of 1986, as amended (the "Code"), the maximum number of shares that may be
issued under incentive stock options will remain at 16,500,000, unless further
stockholder approval is obtained. In addition, stockholder approval is sought
for an amendment extending the term of the Option Plan to July 29, 2006.
Without this amendment, the Option Plan would expire on July 20, 2000.
The Board of Directors believes that the Company's stock option program
is an important factor in attracting and retaining the high caliber employees
and consultants essential to the success of the Company and in aligning their
long-term interests with those of the stockholders. Because competition for
highly qualified individuals in the Company's industry is intense, management
believes that to successfully attract the best candidates, the Company must
offer a competitive stock option program as an essential component of its
compensation packages. The Board of Directors further believes that stock
options serve an important role in motivating their holders to contribute to the
Company's continued growth and profitability. The proposed amendments are
intended to ensure that the Option Plan will continue to have available a
reasonable number of shares to meet these needs for the remainder of its term.
17
<PAGE> 20
SUMMARY OF THE PROVISIONS OF THE OPTION PLAN, AS AMENDED
The following summary of the Option Plan, as amended, is qualified in
its entirety by the specific language of the Option Plan, a copy of which is
available to any stockholder upon request.
General. The purpose of the Option Plan is to advance the interests of
the Company and its stockholders by providing an incentive to attract, retain
and reward the Company's employees and consultants and by motivating such
persons to contribute to the Company's growth and profitability. It provides for
the grant of incentive stock options within the meaning of section 422 of the
Code and nonstatutory stock options.
Shares Subject to Plan. The stockholders have previously authorized an
aggregate of 14,900,000 shares of the Company's Common Stock for issuance upon
the exercise of options granted under the Option Plan. As amended, the Option
Plan provides that through the fiscal year ending June 30, 1997, 16,500,000
shares of Common Stock will be reserved for issuance thereunder. On the first
day of each subsequent fiscal year during the term of the Option Plan, the
maximum aggregate number of such shares issuable under the plan will be
increased by an amount equal to 3% of the number of shares of the Company's
Common Stock issued and outstanding on the last day of the immediately preceding
fiscal year. In addition, at any time, the maximum aggregate number of shares
issuable under the Option Plan will be increased by the number of shares of
Common Stock, if any, repurchased by the Company on the open market for issuance
under the Option Plan. However, without additional stockholder approval, the
maximum aggregate number of shares issuable under incentive stock options may
not exceed 16,500,000 shares of Common Stock.
In order to preserve the Company's ability to deduct in full for
federal income tax purposes any compensation expense related to options granted
to employees under the Option Plan, the plan limits the number of shares for
which options may be granted to any employee in any fiscal year. These limits
(the "Grant Limits"), which are 600,000 shares in an employee's first fiscal
year of employment and 200,000 shares in any subsequent fiscal year, are
intended to qualify such compensation as "performance-based compensation" under
Section 162(m) of the Code. Appropriate adjustments will be made to the shares
subject to the Option Plan, to the Grant Limits, and to outstanding options upon
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification, or similar change in the capital structure of the
Company. To the extent that any outstanding option under the Option Plan expires
or terminates prior to exercise in full, the shares of Common Stock for which
such option is not exercised are returned to the Option Plan and become
available for future grant.
Administration. The Option Plan is administered by the Board of
Directors or a duly appointed committee of the Board (hereinafter referred to as
the "Board"). Subject to the provisions of the Option Plan, the Board determines
the persons to whom options are to be granted, the number of shares to be
covered by each option, whether an option is to be an incentive stock option or
a nonstatutory stock option, the timing and terms of exercisability of each
option or the vesting of shares acquired upon the exercise of an option,
including the effect thereon of an optionee's termination of service, the
exercise price of and the type of consideration to be paid to the Company upon
the exercise of each option, the duration of each option, and all other terms
and conditions of the options.
The Option Plan authorizes the Board to amend, modify, extend, renew,
or grant a new option in substitution for, any option, to waive any restrictions
or conditions applicable to any option or any shares acquired upon the exercise
thereof, and to accelerate, continue, extend or defer the exercisability of any
option or the vesting of any shares acquired upon the exercise of an option,
including with respect to the period following an optionee's termination of
service with the Company. Subject to certain limitations, the Option Plan
provides for indemnification by the Company of any director, officer or employee
against all reasonable
18
<PAGE> 21
expenses, including attorneys' fees, incurred in connection with any legal
action arising from such person's action or failure to act in administering the
Option Plan. The Board will interpret the Option Plan and options granted
thereunder, and all determinations of the Board will be final and binding on all
persons having an interest in the Option Plan or any option.
Eligibility. Options may be granted under the Option Plan to employees
(including officers and directors who are also employees) and consultants of the
Company or of any present or future parent or subsidiary corporations of the
Company. As of August 30, 1996, the Company had approximately 2,200 employees
eligible under the Option Plan. While any person eligible under the Option Plan
may be granted a nonstatutory option, only employees may be granted incentive
stock options. Although the Company has granted options to consultants from time
to time, it does not customarily grant options to such persons.
Terms and Conditions of Options. Each option granted under the Option
Plan is evidenced by a written agreement between the Company and the optionee
specifying the number of shares subject to the option and the other terms and
conditions of the option, consistent with the requirements of the plan. The
exercise price of each option granted under the Option Plan must equal at least
the fair market value of a share of the Company's Common Stock on the date of
grant. However, as required by the Code, any incentive stock option granted to a
person who at the time of grant owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any parent or
subsidiary corporation of the Company (a "Ten Percent Stockholder") must have an
exercise price equal to at least 110% of the fair market value of a share of
Common Stock on the date of grant. As of August 30, 1996, the closing price of
the Company's Common Stock, as reported on the Nasdaq National Market, was
$19.75 per share.
The option exercise price may be paid in cash, by check, or in cash
equivalent, by tender of shares of the Company's Common Stock owned by the
optionee having a fair market value not less than the exercise price, by the
assignment of the proceeds of a sale or loan with respect to some or all of the
shares of Common Stock being acquired upon the exercise of the option, by means
of a promissory note, by any other lawful consideration approved by the Board,
or by any combination of these. The Board may nevertheless restrict the forms of
payment permitted in connection with any option grant. No option may be
exercised until the optionee has made adequate provision for federal, state,
local and foreign taxes, if any, relating to the exercise of the option, and the
Company may, at its discretion, withhold from shares otherwise issuable upon the
exercise of an option or accept the tender of shares of the Company's Common
Stock in full or partial payment of any tax withholding obligations.
Options granted under the Option Plan become exercisable and vested at
such times and subject to such conditions as specified by the Board. Generally,
options granted under the Option Plan become exercisable in installments over a
period of time specified by the Board at the time of grant, subject to the
optionee's continued service with the Company. The maximum term of an incentive
stock option granted under the Option Plan is ten years, provided that an
incentive stock option granted to a Ten Percent Stockholder must have a term not
exceeding five years. Consistent with the Code, the Option Plan does not limit
the term of a nonstatutory stock option. Incentive stock options are
nontransferable by the optionee other than by will or by the laws of descent and
distribution, and are exercisable during the optionee's lifetime only by the
optionee. Nonstatutory stock options granted under the Option Plan may be
assignable or transferable to the extent permitted by the Board and set forth in
the option agreement. Unless otherwise determined by the Board, options granted
under the Option Plan will remain exercisable for one month following an
optionee's termination of service, unless such termination results from the
optionee's death or disability, in which case the option will remain exercisable
for 12 months following the optionee's termination of service, provided that in
any event the option must be exercised no later than its expiration date.
19
<PAGE> 22
Change in Control. The Option Plan provides that, in the event of (i) a
merger or consolidation in which the Company is a party, (ii) the sale, exchange
or transfer of all or substantially all of the assets of the Company, or (iii) a
liquidation or dissolution of the Company wherein, upon any such event, the
stockholders of the Company immediately before such event do not retain direct
or indirect beneficial ownership of more than 50% of the total combined voting
power of the voting stock of the Company, its successor, or the corporation to
which the assets of the Company were transferred (a "Change in Control"), any
unexercisable or unvested portion of the outstanding options will become
immediately exercisable and vested in full prior to the Change in Control unless
the acquiring or successor corporation assumes the Company's rights and
obligations under the outstanding options or substitutes substantially
equivalent options for such corporation's stock. To the extent that the options
outstanding under the Option Plan are not assumed, replaced, or exercised prior
to the Change in Control, they will terminate.
Termination or Amendment. As amended, the Option Plan will continue in
effect until July 29, 2006, unless earlier terminated by the Board. The Board
may terminate or amend the Option Plan at any time. However, without stockholder
approval, the Board may not amend the Option Plan to increase the total number
of shares of Common Stock issuable thereunder or change the class of persons
eligible to receive options. No amendment may adversely affect an outstanding
option without the consent of the optionee, unless the amendment is required to
preserve the option's status as an incentive stock option or is necessary to
comply with any applicable law.
SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES
The following summary is intended only as a general guide as to the
U.S. federal income tax consequences under current law of participation in the
Option Plan and does not attempt to describe all possible federal or other tax
consequences of such participation or tax consequences based on particular
circumstances.
Incentive Stock Options. An optionee recognizes no taxable income for
regular income tax purposes as the result of the grant or exercise of an
incentive stock option qualifying under section 422 of the Code. Optionees who
do not dispose of their shares for two years following the date the option was
granted or within one year following the exercise of the option will normally
recognize a long-term capital gain or loss equal to the difference, if any,
between the sale price and the purchase price of the shares. If an optionee
satisfies such holding periods upon a sale of the shares, the Company will not
be entitled to any deduction for federal income tax purposes. If an optionee
disposes of shares within two years after the date of grant or within one year
from the date of exercise (a "disqualifying disposition"), the difference
between the fair market value of the shares on the determination date (see
discussion under "Nonstatutory Stock Options" below) and the option exercise
price (not to exceed the gain realized on the sale if the disposition is a
transaction with respect to which a loss, if sustained, would be recognized)
will be taxed as ordinary income at the time of disposition. Any gain in excess
of that amount will be a capital gain. If a loss is recognized, there will be no
ordinary income, and such loss will be a capital loss. A capital gain or loss
will be long-term if the optionee's holding period is more than 12 months. Any
ordinary income recognized by the optionee upon the disqualifying disposition of
the shares generally should be deductible by the Company for federal income tax
purposes, except to the extent such deduction is limited by applicable
provisions of the Code or the regulations thereunder.
The difference between the option exercise price and the fair market
value of the shares on the determination date of an incentive stock option (see
discussion under "Nonstatutory Stock Options" below) is an adjustment in
computing the optionee's alternative minimum taxable income and may be subject
to an alternative minimum tax which is paid if such tax exceeds the regular tax
for the year. Special rules may
20
<PAGE> 23
apply with respect to certain subsequent sales of the shares in a disqualifying
disposition, certain basis adjustments for purposes of computing the alternative
minimum taxable income on a subsequent sale of the shares and certain tax
credits which may arise with respect to optionees subject to the alternative
minimum tax.
Nonstatutory Stock Options. Options not designated or qualifying as
incentive stock options will be nonstatutory stock options. Nonstatutory stock
options have no special tax status. An optionee generally recognizes no taxable
income as the result of the grant of such an option. Upon exercise of a
nonstatutory stock option, the optionee normally recognizes ordinary income in
the amount of the difference between the option exercise price and the fair
market value of the shares on the determination date (as defined below). If the
optionee is an employee, such ordinary income generally is subject to
withholding of income and employment taxes. The "determination date" is the date
on which the option is exercised unless the shares are subject to a substantial
risk of forfeiture and are not transferable, in which case the determination
date is the earlier of (i) the date on which the shares are transferable or (ii)
the date on which the shares are not subject to a substantial risk of
forfeiture. If the determination date is after the exercise date, the optionee
may elect, pursuant to Section 83(b) of the Code, to have the exercise date be
the determination date by filing an election with the Internal Revenue Service
not later than 30 days after the date the option is exercised. Upon the sale of
stock acquired by the exercise of a nonstatutory stock option, any gain or loss,
based on the difference between the sale price and the fair market value on the
determination date, will be taxed as capital gain or loss. A capital gain or
loss will be long-term if the optionee's holding period is more than 12 months.
No tax deduction is available to the Company with respect to the grant of a
nonstatutory stock option or the sale of the stock acquired pursuant to such
grant. The Company generally should be entitled to a deduction equal to the
amount of ordinary income recognized by the optionee as a result of the exercise
of a nonstatutory stock option, except to the extent such deduction is limited
by applicable provisions of the Code or the regulations thereunder.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the shares present or represented
by proxy and entitled to vote at the Annual Meeting of Stockholders, at which a
quorum representing a majority of all outstanding shares of Common Stock of the
Company is present, either in person or by proxy, is required for approval of
this proposal. Abstentions and broker non-votes will each be counted as present
for purposes of determining the presence of a quorum. Abstentions will have the
same effect as a negative vote. Broker non-votes, on the other hand, will have
no effect on the outcome of the vote.
The Company's management believes that the Option Plan is an important
incentive to attract, retain and motivate qualified employees and consultants
and is essential to the success of the Company. THEREFORE, THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL TO AMEND THE OPTION
PLAN (a) TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE UNDER THE
OPTION PLAN (i) BY 1,600,000 SHARES IN FISCAL 1997, (ii) ON THE FIRST DAY OF
EACH SUBSEQUENT FISCAL YEAR BY 3% OF THE NUMBER OF SHARES OF COMMON STOCK THEN
ISSUED AND OUTSTANDING, AND (iii) AT ANY TIME BY THE NUMBER OF SHARES, IF ANY,
REPURCHASED ON THE OPEN MARKET FOR ISSUANCE UNDER THE OPTION PLAN (ALL SUBJECT
TO A LIMIT REGARDING THE NUMBER OF SHARES SUBJECT TO INCENTIVE STOCK OPTIONS
THAT MAY BE GRANTED), AND (b) TO EXTEND THE TERM OF THE OPTION PLAN TO JULY 29,
2006.
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PROPOSAL NO. 3
APPROVAL OF AMENDMENT TO 1981 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1981 Employee Stock Purchase Plan (the "Purchase Plan")
enables employees of the Company to purchase Common Stock of the Company through
payroll deductions. As of the date hereof, 4,000,000 shares of Common Stock are
reserved for issuance under the Purchase Plan. In July 1996, the Board of
Directors adopted an amendment to the Purchase Plan, subject to stockholder
approval, to increase the number of shares reserved for issuance under the
Purchase Plan by 800,000 shares, to a total of 4,800,000 shares. As of August
30, 1996, 3,702,589 shares of Common Stock had been issued under the Purchase
Plan at an average purchase price of $6.62 per share, and 297,411 shares
remained available for purchase.
SUMMARY OF THE PROVISIONS OF THE EMPLOYEE STOCK PURCHASE PLAN
The following summary of the Purchase Plan is qualified in its entirety
by the specific language of the Purchase Plan, a copy of which is available to
any stockholder upon request.
The Purchase Plan enables employees of the Company to purchase shares
of Common Stock through payroll deductions. The Purchase Plan provides for
offering periods of two years duration (each of which is referred to herein as
an "Offering") commencing on January 1 and July 1 of each year. Each Offering
consists of four consecutive purchase periods of six months duration (each of
which is referred to herein as a "Purchase Period") ending on June 30 and
December 31 of each year. All employees of the Company are eligible to
participate in the Purchase Plan; provided, however, that employees who own or
hold options to purchase or who, as a result of participation in the Purchase
Plan, would own or hold options to purchase, stock of the Company possessing
five percent or more of the voting power of the Company, are not eligible to
participate.
At the beginning of each Offering, employees may elect to participate
in the Purchase Plan by authorizing payroll deductions of up to 10% of their
compensation (as defined in the Purchase Plan), provided that no participant may
purchase more than 2,000 shares during an Offering. At the end of each Purchase
Period, shares of the Company's Common Stock may be purchased by participants at
85% of the lower of the fair market value of the Common Stock on the first day
of the Offering or the fair market value of the Common Stock on the last day of
the applicable Purchase Period. If the fair market value of the Common Stock at
the end of a Purchase Period of an Offering is less than the fair market value
of the Common Stock on the first day of such Offering, every participant in the
Offering is automatically withdrawn from the Offering at the close of the
Purchase Period and enrolled in the Offering commencing concurrently with the
termination of such Purchase Period. Upon termination of employment, all amounts
withheld under the Purchase Plan are refunded in lieu of any right to purchase
shares.
The Purchase Plan is administered by the Board of Directors. All
expenses incurred in connection with the administration of the Purchase Plan are
paid by the Company. It is anticipated that the Purchase Plan will continue
until all shares of Common Stock reserved for issuance thereunder have been
issued, until December 31, 2000 or until otherwise terminated by the Board of
Directors, whichever occurs first.
The Board of Directors may at any time amend or terminate the Purchase
Plan, except that approval by the stockholders of the Company is required if
such amendment would increase the number of shares of Common Stock authorized
for issuance under the Purchase Plan or would change the designation of
corporations whose employees may be eligible to participate in the Purchase
Plan.
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SUMMARY OF THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE EMPLOYEE STOCK
PURCHASE PLAN
The following summary is intended only as a general guide to the U.S.
federal income tax consequences of participation in the Purchase Plan under
current law and does not attempt to describe all possible federal or other tax
consequences of such participation or tax consequences based on particular
circumstances.
If a participant disposes of his shares within two years from the date
the underlying "option" was granted (which is the beginning date of the Offering
Period in which the shares were purchased) or within one year from the date of
purchase (which is the last day of a Purchase Period) (a "disqualifying
disposition"), the participant will realize ordinary income in the year of such
disposition equal to the amount by which the fair market value of the shares on
the date the option was exercised exceeded the purchase price. Such ordinary
income may be subject to withholding of income and employment taxes. The amount
of the ordinary income will be added to the participant's basis in the shares,
and any additional gain or resulting loss will be long-term if the participant's
holding period is more than 12 months.
If the participant disposes of his or her shares more than two years
after the date the underlying "option" was granted and more than one year after
the date of purchase, the participant will realize ordinary income in the year
of such disposition equal to the lesser of (i) the excess of the fair market
value of the shares on the date of disposition over the purchase price, or (ii)
15% of the fair market value of the shares on the date the "option" was granted.
Such ordinary income may be subject to withholding of income and employment
taxes. The amount of any ordinary income will be added to the participant's
basis in the shares, and any additional gain recognized upon the disposition
after such basis adjustment will be long-term capital gain. If the fair market
value of the shares on the date of disposition is less than the purchase price,
there will be no ordinary income and any loss recognized will be a long-term
capital loss.
If the participant still owns the shares at the time of death, the
lesser of (i) the excess of the fair market value of the shares on the date of
death over the purchase price, or (ii) 15% of the fair market value of the
shares on the date the "option" was granted will constitute ordinary income in
the year of death.
The Company will be entitled to a deduction in the year of a
disqualifying disposition equal to the amount of ordinary income recognized by
the participant as a result of the disposition, except to the extent such
deduction is limited by applicable provisions of the Code or the regulations
thereunder. In all other cases, no deduction is allowed the Company.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes present or represented
by proxy and entitled to vote at the Annual Meeting of Stockholders, at which a
quorum representing a majority of all outstanding shares of Common Stock of the
Company is present, either in person or by proxy, is required for approval of
this proposal. Abstentions and broker non-votes will each be counted as present
for purposes of determining the presence of a quorum. Abstentions will have the
same effect as a negative vote. Broker non-votes, on the other hand, will have
no effect on the outcome of the vote.
The Company's management believes that the Purchase Plan is an
important incentive to retain and motivate qualified employees essential to the
success of the Company. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" THIS PROPOSAL TO AMEND THE PURCHASE PLAN TO INCREASE THE SHARES
RESERVED UNDER THE PURCHASE PLAN BY 800,000 SHARES.
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PROPOSAL NO. 4
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board, upon recommendation of the Company's Audit Committee, has
selected Price Waterhouse LLP as the independent accountants of the Company for
the fiscal year ending June 30, 1997. Price Waterhouse LLP has acted in such
capacity since its appointment for fiscal 1977. A representative of Price
Waterhouse LLP, who will be present at the Annual Meeting, will be given the
opportunity to make a statement if he or she so desires and will be available to
respond to appropriate questions.
In the event that ratification by the stockholders of the appointment
of Price Waterhouse LLP as the Company's independent accountants is not
obtained, the Board will reconsider said appointment.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF PRICE
WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR FISCAL 1997. The
affirmative vote of a majority of the votes cast at the Annual Meeting of
Stockholders, at which a quorum representing a majority of all outstanding
shares of Common Stock of the Company is present, either in person or by proxy,
is required for approval of this proposal. Abstentions and broker non-votes will
each be counted as present for purposes of determining the presence of a quorum,
but will not be counted as having been voted on the proposal.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT THE NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next Annual
Meeting of Stockholders of the Company (i) must be received by the Company at
its offices at 160 Rio Robles, San Jose, California 95134 no later than June 21,
1997, and (ii) must satisfy the conditions established by the Securities and
Exchange Commission for stockholder proposals to be included in the Company's
Proxy Statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board
of Directors intends to present or knows that others will present at the meeting
is as set forth above. If any other matter or matters are properly brought
before the meeting, or any adjournment thereof, it is the intention of the proxy
holders named in the accompanying Proxy to vote the Proxy on such matters in
accordance with their best judgment.
Paul E. Kreutz
Secretary
October 11, 1996
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KLA INSTRUMENTS CORPORATION
RESTATED 1982 STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. On October 6, 1981, the KLA Instruments
Corporation 1981 Incentive Stock Option Plan (the "1981 Plan") was adopted. The
1981 Plan was amended and restated in its entirety and renamed the KLA
Instruments Corporation 1982 Stock Option Plan (the "1982 Plan"). The 1982 Plan
was amended and restated in its entirety in 1985 (the "1985 Restatement"). The
1985 Restatement was amended and restated in its entirety effective January 1,
1987 (the "1987 Restatement"). The 1981 Plan, 1982 Plan, the 1985 Restatement
and the 1987 Restatement are hereinafter referred to collectively as the "Prior
Plan." The Prior Plan is hereby amended and restated in its entirety as the KLA
Instruments Corporation Restated 1982 Stock Option Plan (the "PLAN") effective
as of July 29, 1996 (the "EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan is to advance the
interests of the Participating Company Group and its stockholders by providing
an incentive to attract, retain and reward persons performing services for the
Participating Company Group and by motivating such persons to contribute to the
growth and profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed. However, all Options
shall be granted, if at all, prior to July 29, 2006.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms
shall have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee or
other committee of the Board duly appointed to administer the Plan and having
such
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powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(d) "COMPANY" means KLA Instruments Corporation, a
Delaware corporation, or any successor corporation thereto.
(e) "CONSULTANT" means any person, including an
advisor, engaged by a Participating Company to render services other than as an
Employee or a Director.
(f) "DIRECTOR" means a member of the Board or of the
board of directors of any other Participating Company.
(g) "DISABILITY" means the permanent and total
disability of the Optionee within the meaning of Section 22(e)(3) of the Code.
(h) "EMPLOYEE" means any person treated as an
employee (including an officer or a Director who is also treated as an employee)
in the records of a Participating Company; provided, however, that neither
service as a Director nor payment of a director's fee shall be sufficient to
constitute employment for purposes of the Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
(j) "FAIR MARKET VALUE" means, as of any date, the
value of a share of stock or other property as determined by the Board, in its
sole discretion, or by the Company, in its sole discretion, if such
determination is expressly allocated to the Company herein.
(k) "INCENTIVE STOCK OPTION" means an Option intended
to be (as set forth in the Option Agreement) and which qualifies as an incentive
stock option within the meaning of Section 422(b) of the Code.
(l) "INSIDER" means an officer or a Director of the
Company or any other person whose transactions in Stock are subject to Section
16 of the Exchange Act.
(m) "NONSTATUTORY STOCK OPTION" means an Option not
intended to be (as set forth in the Option Agreement) or which does not qualify
as an Incentive Stock Option.
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(n) "OPTION" means a right to purchase Stock (subject
to adjustment as provided in Section 4.2) pursuant to the terms and conditions
of the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory
Stock Option.
(o) "OPTION AGREEMENT" means a written agreement
between the Company and an Optionee setting forth the terms, conditions and
restrictions of the Option granted to the Optionee and any shares acquired upon
the exercise thereof.
(p) "OPTIONEE" means a person who has been granted
one or more Options.
(q) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(r) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.
(s) "PARTICIPATING COMPANY GROUP" means, at any point
in time, all corporations collectively which are then Participating Companies.
(t) "RULE 16b-3" means Rule 16b-3 under the Exchange
Act, as amended from time to time, or any successor rule or regulation.
(u) "SECTION 162(m)" means Section 162(m) of the
Code, as amended by the Revenue Reconciliation Act of 1993 (P.L. 103-66).
(v) "SECURITIES ACT" means the Securities Act of
1933, as amended.
(w) "SERVICE" means an Optionee's employment or
service with the Participating Company Group, whether in the capacity of an
Employee, a Director or a Consultant. An Optionee's Service shall not be deemed
to have terminated merely because of a change in the capacity in which the
Optionee renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. An Optionee's
Service shall be deemed to have terminated either upon an actual termination of
Service or upon the corporation for which the Optionee performs Service ceasing
to be a Participating Company. An Optionee's Service with the Participating
Company Group shall not be deemed to terminate if the Optionee takes any
military leave, sick leave, or other bona fide leave of absence approved by the
Company of ninety (90) days or less. In the event of a leave of absence in
excess of ninety (90) days, the Optionee's Service shall be deemed to terminate
on the ninety-first (91st) day of such leave unless the Optionee's right to
return to Service with the Participating Company Group remains
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guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company (or required by law), a leave of absence
shall not be treated as Service for purposes of determining the Optionee's
vesting. Subject to the foregoing, the Company, in its sole discretion, shall
determine whether an Optionee's Service has terminated and the effective date of
such termination.
(x) "STOCK" means the common stock of the Company, as
adjusted from time to time in accordance with Section 4.2.
(y) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.
(z) "TEN PERCENT OWNER OPTIONEE" means an Optionee
who, at the time an Option is granted to the Optionee, owns stock possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of a Participating Company within the meaning of Section 422(b)(6) of the
Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board, including any duly appointed Committee of the Board.
All questions of interpretation of the Plan or of any Option shall be determined
by the Board, and such determinations shall be final and binding upon all
persons having an interest in the Plan or such Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, determination or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, determination or election.
3.2 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3.3 COMMITTEE COMPLYING WITH SECTION 162(M). If a
Participating Company is a "publicly held corporation" within the meaning of
Section 162(m), the Board may establish a Committee of "outside directors"
within the meaning of Section 162(m) to approve the grant of any Option which
might reasonably be anticipated to result in the payment of employee
remuneration that would otherwise exceed the
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limit on employee remuneration deductible for income tax purposes pursuant to
Section 162(m).
3.4 POWERS OF THE BOARD. In addition to any other powers set
forth in the Plan and subject to the provisions of the Plan, the Board shall
have the full and final power and authority, in its sole discretion:
(a) to determine the persons to whom, and the time or
times at which, Options shall be granted and the number of shares of Stock to be
subject to each Option;
(b) to designate Options as Incentive Stock Options
or Nonstatutory Stock Options;
(c) to determine the Fair Market Value of shares of
Stock or other property;
(d) to determine the terms, conditions and
restrictions applicable to each Option (which need not be identical) and any
shares acquired upon the exercise thereof, including, without limitation, (i)
the exercise price of the Option, (ii) the method of payment for shares
purchased upon the exercise of the Option, (iii) the method for satisfaction of
any tax withholding obligation arising in connection with the Option or such
shares, including by the withholding or delivery of shares of stock, (iv) the
timing, terms and conditions of the exercisability of the Option or the vesting
of any shares acquired upon the exercise thereof, (v) the time of the expiration
of the Option, (vi) the effect of the Optionee's termination of Service with the
Participating Company Group on any of the foregoing, and (vii) all other terms,
conditions and restrictions applicable to the Option or such shares not
inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, or renew, or grant a
new Option in substitution for, any Option or to waive any restrictions or
conditions applicable to any Option or any shares acquired upon the exercise
thereof;
(g) to accelerate, continue, extend or defer the
exercisability of any Option or the vesting of any shares acquired upon the
exercise thereof, including with respect to the period following an Optionee's
termination of Service with the Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines
and policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
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(i) to correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Option Agreement and to make all
other determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment
as provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be sixteen million five hundred thousand
(16,500,000), increased (a) on the first day of each fiscal year of the Company
beginning on and after July 1, 1997 by a number of shares equal to three percent
(3%) of the number of shares of Stock issued and outstanding on the last day of
the immediately preceding fiscal year and (b) at any time after the Effective
Date by a number of shares equal to the number of shares of Stock, if any,
repurchased on the open market by the Company for issuance under the Plan.
Notwithstanding the foregoing, except as adjusted pursuant to Section 4.2, in no
event shall more than sixteen million five hundred thousand (16,500,000) shares
of Stock be cumulatively available for issuance pursuant to the exercise of
Incentive Stock Options (the "ISO SHARE ISSUANCE LIMIT"). Subject to adjustment
as provided in Section 4.2, shares issuable under the Plan shall consist of
authorized but unissued or reacquired shares of Stock or any combination
thereof. If any outstanding Option for any reason expires or is terminated or
canceled or shares of Stock acquired, subject to repurchase, upon the exercise
of an Option are repurchased by the Company, the shares of Stock allocable to
the unexercised portion of such Option, or such repurchased shares of Stock,
shall again be available for issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event
of any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan and to any outstanding Options, in the ISO Share Issuance
Limit set forth in Section 4.1, in the Section 162(m) Grant Limit set forth in
Section 5.4, and in the exercise price per share of any outstanding Options. If
a majority of the shares which are of the same class as the shares that are
subject to outstanding Options are exchanged for, converted into, or otherwise
become (whether or not pursuant to an Ownership Change Event, as defined in
Section 8.1) shares of another corporation (the "NEW SHARES"), the Board may
unilaterally amend the outstanding Options to provide that such Options are
exercisable for New Shares. In the event of any such amendment, the number of
shares subject to, and the exercise price per share of, the outstanding Options
shall be adjusted in a fair and equitable manner as determined by the Board, in
its sole discretion. Notwithstanding the foregoing, any fractional share
resulting from an adjustment pursuant to this Section 4.2 shall be rounded up or
down to the nearest whole number, as determined by the Board, and in no event
may the exercise price of any Option be decreased to an amount less than the par
value, if any, of the
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stock subject to the Option. The adjustments determined by the Board pursuant to
this Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY AND OPTION LIMITATIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only
to Employees, Consultants, and Directors; provided, however, that no Director
who is not also an Employee shall be eligible to be granted an Option. Eligible
persons may be granted more than one (1) Option.
5.2 OPTION GRANT RESTRICTIONS. Any person who is not an
Employee on the effective date of the grant of an Option to such person may be
granted only a Nonstatutory Stock Option. An Option granted to a prospective
Employee, Consultant or Director upon the condition that such person commence
Service with the Participating Company Group shall be deemed granted effective
on the date such person's Service commences, with an exercise price determined
as of such date in accordance with Section 6.1.
5.3 FAIR MARKET VALUE LIMITATION. To the extent that options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for stock having a Fair
Market Value greater than One Hundred Thousand Dollars ($100,000), the portion
of such options which exceeds such amount shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5.3, options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of stock shall be determined as of the time the option
with respect to such stock is granted. If the Code is amended to provide for a
different limitation from that set forth in this Section 5.3, such different
limitation shall be deemed incorporated herein effective as of the date and with
respect to such Options as required or permitted by such amendment to the Code.
If an Option is treated as an Incentive Stock Option in part and as a
Nonstatutory Stock Option in part by reason of the limitation set forth in this
Section 5.3, the Optionee may designate which portion of such Option the
Optionee is exercising and separate certificates representing each such portion
shall be issued upon the exercise of the Option. In the absence of such
designation, the Optionee shall be deemed to have exercised the Incentive Stock
Option portion of the Option first.
5.4 SECTION 162(m) GRANT LIMIT. Subject to adjustment as
provided in Section 4.2, at any such time as a Participating Company is a
"publicly held corporation" within the meaning of Section 162(m), no Optionee
shall be granted one or more Options within any fiscal year of the Company which
in the aggregate are for the purchase of more than two hundred thousand
(200,000) shares; provided, however, that such limit shall be six hundred
thousand (600,000) shares in an Optionee's first fiscal year of Service with the
Participating Company Group (the "SECTION 162(m) GRANT LIMIT"). An Option which
is canceled in the same fiscal year
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of the Company in which it was granted shall continue to be counted against the
Section 162(m) Grant Limit for such period.
6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
Option Agreements specifying the number of shares of Stock covered thereby, in
such form as the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
6.1 EXERCISE PRICE. The exercise price for each Option shall
be established in the sole discretion of the Board; provided, however, that (a)
no Option shall have an exercise price per share less than the Fair Market Value
of a share of Stock on the effective date of grant of the Option and (b) no
Incentive Stock Option granted to a Ten Percent Owner Optionee shall have an
exercise price per share less than one hundred ten percent (110%) of the Fair
Market Value of a share of Stock on the effective date of grant of the Option.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a
Nonstatutory Stock Option) may be granted with an exercise price lower than the
minimum exercise price set forth above if such Option is granted pursuant to an
assumption or substitution for another option in a manner qualifying under the
provisions of Section 424(a) of the Code.
6.2 EXERCISE PERIOD.
(a) EXERCISABILITY AND DURATION. Options shall be
exercisable, on or before the date of their expiration (the "OPTION EXPIRATION
DATE"), at such time or times, or upon such event or events, and subject to such
terms, conditions, performance criteria, and restrictions as shall be determined
by the Board and set forth in the Option Agreement evidencing such Option. The
Option Expiration Date for each Option shall be determined by the Board in the
grant of such Option, provided, however, that (a) no Incentive Stock Option
shall be exercisable after the expiration of ten (10) years after the effective
date of grant of such Option and (b) no Incentive Stock Option granted to a Ten
Percent Owner Optionee shall be exercisable after the expiration of five (5)
years after the effective date of grant of such Option. Except as otherwise
provided in this Section 6.2 or by the Board in the grant of an Option, the
Option Expiration Date of any Option granted hereunder shall be the date
occurring ten (10) years after the effective date of grant of the Option.
(b) TERMINATION OF OPTION. An Option shall terminate
and may no longer be exercised on the first to occur of (a) the Option
Expiration Date of such Option, (b) the last date for exercising the Option
following termination of the Optionee's Service as described in Section 6.8, or
(c) a Transfer of Control to the extent provided in Section 8.
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6.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the exercise price for the number of shares
of Stock being purchased pursuant to any Option shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of shares of Stock
owned by the Optionee having a Fair Market Value (as determined by the Company
without regard to any restrictions on transferability applicable to such stock
by reason of federal or state securities laws or agreements with an underwriter
for the Company) not less than the exercise price, (iii) by the assignment of
the proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"CASHLESS EXERCISE"), (iv) in the Company's sole discretion at the time an
Option is exercised, by cash for a portion of the aggregate exercise price not
less than the par value, if any, of the shares being acquired and the Optionee's
promissory note for the balance of the aggregate exercise price in a form
approved by the Company, (v) by such other consideration as may be approved by
the Board from time to time to the extent permitted by applicable law, or (vi)
by any combination thereof. The Board may at any time or from time to time, by
adoption of or by amendment to the standard forms of Option Agreement described
in Section 7, or by other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.
(b) TENDER OF STOCK. Notwithstanding the foregoing,
an Option may not be exercised by tender to the Company of shares of Stock to
the extent such tender of Stock would constitute a violation of the provisions
of any law, regulation or agreement restricting the redemption of the Company's
stock. Unless otherwise provided by the Board, an Option may not be exercised by
tender to the Company of shares of Stock unless such shares either have been
owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. The Company reserves, at any
and all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note
shall be permitted if the exercise of an Option using a promissory note would be
a violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the time the Option is granted. The Board shall
have the authority to permit or require the Optionee to secure any promissory
note used to exercise an Option with the shares of Stock acquired upon the
exercise of the Option or with other collateral acceptable to the Company.
Unless otherwise provided by
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the Board, if the Company at any time is subject to the regulations promulgated
by the Board of Governors of the Federal Reserve System or any other
governmental entity affecting the extension of credit in connection with the
Company's securities, any promissory note shall comply with such applicable
regulations, and the Optionee shall pay the unpaid principal and accrued
interest, if any, to the extent necessary to comply with such applicable
regulations. Except as the Company and an Optionee otherwise agree, no Option
granted to such Optionee may be exercised following termination of the
Optionee's Service by delivery of a promissory note.
6.4 TAX WITHHOLDING. The Company shall have the right, but not
the obligation, to deduct from the shares of Stock issuable upon the exercise of
an Option, or to accept from the Optionee the tender of, a number of whole
shares of Stock having a Fair Market Value, as determined by the Company, equal
to all or any part of the federal, state, local and foreign taxes, if any,
required by law to be withheld by the Participating Company Group with respect
to such Option or the shares acquired upon the exercise thereof. Alternatively
or in addition, in its sole discretion, the Company shall have the right to
require the Optionee, through payroll withholding, cash payment or otherwise,
including by means of a Cashless Exercise, to make adequate provision for any
such tax withholding obligations of the Participating Company Group arising in
connection with the Option or the shares acquired upon the exercise thereof. The
Company shall have no obligation to deliver shares of Stock or to release shares
of Stock from any escrow established pursuant to the Option Agreement until the
Participating Company Group's tax withholding obligations have been satisfied by
the Optionee.
6.5 FRACTIONAL SHARES. The Company shall not be required to
issue fractional shares upon the exercise of any Option.
6.6 CERTIFICATE REGISTRATION. Except in the event the exercise
price of an Option is paid by means of a Cashless Exercise, the certificate for
the shares as to which the Option is exercised shall be registered in the name
of the Optionee, if requested by the Optionee, in the name of the Optionee and
his or her spouse, or, if applicable, in the names of the heirs of the Optionee
or such other person or persons who acquired the right to exercise the Option in
accordance with the terms of the Plan and the Option Agreement.
6.7 REPURCHASE RIGHTS. Shares issued under the Plan may be
subject to a right of first refusal, one or more repurchase options, or other
conditions and restrictions as determined by the Board in its sole discretion at
the time the Option is granted. The Company shall have the right to assign at
any time any repurchase right it may have, whether or not such right is then
exercisable, to one or more persons as may be selected by the Company. Upon
request by the Company, each Optionee shall execute any agreement evidencing
such transfer restrictions prior to the receipt of shares of Stock hereunder and
shall promptly present to the Company any and all certificates representing
shares of Stock acquired hereunder for the
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placement on such certificates of appropriate legends evidencing any such
transfer restrictions.
6.8 EFFECT OF TERMINATION OF SERVICE.
(a) DISABILITY OF OPTIONEE. If an Optionee's Service
with the Participating Company Group is terminated because of the Disability of
the Optionee, any Option granted to such Optionee, to the extent unexercised and
exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee (or the Optionee's guardian, legal representative, or
other person who acquired the right to exercise the option, as the case may be)
at any time prior to the expiration of the Post-Service Exercise Period set
forth in the Option Agreement evidencing such Option or such other longer period
as the Board, in its sole discretion, shall permit, but in any event no later
than the Option Expiration Date. Unless otherwise determined by the Board at the
time an Option is granted, for purposes of this Section 6.8(a), the Post-Service
Exercise Period shall be a period of twelve (12) months after the date on which
the Optionee's Service terminated because of the Disability of the Optionee.
(b) DEATH OF OPTIONEE. If an Optionee's Service with
the Participating Company Group is terminated because of the death of the
Optionee, any Option granted to such Optionee, to the extent unexercised and
exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee's legal representative or other person who acquired
the right to exercise the Option by reason of the Optionee's death at any time
prior to the expiration of the Post-Service Exercise Period set forth in the
Option Agreement evidencing such Option or such longer period as the Board, in
its sole discretion, shall permit, but in any event no later than the Option
Expiration Date. Unless otherwise determined by the Board at the time an Option
is granted, for purposes of this Section 6.8(b), the Post-Service Exercise
Period shall be a period of twelve (12) months after the date on which the
Optionee's Service terminated because of the death of the Optionee. An
Optionee's Service shall be deemed to have terminated because of death if the
Optionee dies within three (3) months after the Optionee's termination of
Service.
(c) OTHER TERMINATION OF SERVICE. If an Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability or death, any Option granted to the Optionee, to the extent
unexercised and exercisable on the date on which the Optionee's Service
terminated, may be exercised by the Optionee (or other person who acquired the
right to exercise the Option) at any time prior to the expiration of the
Post-Service Exercise Period set forth in the Option Agreement evidencing such
Option or such longer period as the Board, in its sole discretion, shall permit,
but in any event no later than the Option Expiration Date. Unless otherwise
determined by the Board at the time an Option is granted, for purposes of this
Section 6.8(c), the Post-Service Exercise Period shall be a period of one (1)
month after the date on which the Optionee's Service terminated for any reason
other than the Disability or death of the Optionee.
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(d) EXTENSION IF EXERCISE PREVENTED BY LAW.
Notwithstanding the foregoing, if the exercise of an Option within the
applicable Post-Service Exercise Period set forth in this Section 6.8 is
prevented by the provisions of Section 11 below, the Option shall remain
exercisable until three (3) months after the date the Optionee is notified by
the Company that the Option is exercisable, but in any event no later than the
Option Expiration Date.
(e) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable Post-Service
Exercise Period set forth in Section this Section 6.8 of shares acquired upon
the exercise of an Option would subject the Optionee to suit under Section 16(b)
of the Exchange Act, the Option shall remain exercisable until the earliest to
occur of (i) the tenth (10th) day following the date on which a sale of such
shares by the Optionee would no longer be subject to such suit, (ii) the one
hundred and ninetieth (190th) day after the Optionee's termination of Service,
or (iii) the Option Expiration Date.
6.9 RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. No person
shall have any rights as a stockholder with respect to any shares covered by an
Option until the date of the issuance of a certificate for the shares for which
the Option has been exercised (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 4.2. Nothing in the Plan or in any Option Agreement shall
confer upon any Optionee any right to continue in the Service of a Participating
Company or interfere in any way with any right of the Participating Company
Group to terminate the Optionee's Service as an Employee or Consultant, as the
case may be, at any time.
7. STANDARD FORMS OF OPTION AGREEMENT.
7.1 INCENTIVE STOCK OPTIONS. Unless otherwise provided by the
Board at the time the Option is granted, an Option designated as an "Incentive
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the form of Incentive Stock Option Agreement adopted by the Board
concurrently with its adoption of the Plan and as amended from time to time.
7.2 NONSTATUTORY STOCK OPTIONS. Unless otherwise provided by
the Board at the time the Option is granted, an Option designated as a
"Nonstatutory Stock Option" shall comply with and be subject to the terms and
conditions set forth in the form of Nonstatutory Stock Option Agreement adopted
by the Board concurrently with its adoption of the Plan and as amended from time
to time.
7.3 AUTHORITY TO VARY TERMS. The Board shall have the
authority from time to time to vary the terms of any of the standard forms of
Option Agreement described in this Section 7 either in connection with the grant
or amendment of an individual Option or in connection with the authorization of
a new standard form or
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forms; provided, however, that the terms and conditions of any such new, revised
or amended standard form or forms of Option Agreement shall be in accordance
with the terms of the Plan. Such authority shall include, but not by way of
limitation, the authority to grant Options which are immediately exercisable
subject to the Company's right to repurchase any unvested shares of Stock
acquired by an Optionee upon the exercise of an Option in the event such
Optionee's Service with the Participating Company Group is terminated for any
reason, with or without cause.
8. TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to
have occurred if any of the following occurs with respect to the Company:
(i) a merger or consolidation in which the
Company is a party;
(ii) the sale, exchange, or transfer of all
or substantially all of the assets of the Company; or
(iii) a liquidation or dissolution of the
Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership
Change Event wherein the stockholders of the Company immediately before such
event do not retain immediately after such event direct or indirect beneficial
ownership of more than fifty percent (50%) of the total combined voting power of
the outstanding voting stock of the Company or the corporation or corporations
to which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of
a Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), shall either assume the Company's rights and obligations under
outstanding Options or substitute for outstanding Options substantially
equivalent options for the Acquiring Corporation's stock. In the event the
Acquiring Corporation elects not to assume or substitute for outstanding Options
in connection with a Transfer of Control, any unexercisable or unvested portion
of the outstanding Options shall be immediately exercisable and vested in full
as of the date ten (10) days prior to the date of the Transfer of Control. The
exercise or vesting of any Option that was permissible solely by reason of this
Section 8.2 shall be conditioned upon the consummation of
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the Transfer of Control. Any Options which are neither assumed or substituted
for by the Acquiring Corporation in connection with the Transfer of Control nor
exercised as of the date of the Transfer of Control shall terminate and cease to
be outstanding effective as of the date of the Transfer of Control.
9. PROVISION OF INFORMATION. Each Optionee shall be given access to
information concerning the Company equivalent to that information generally made
available to the Company's common stockholders.
10. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee or the Optionee's guardian
or legal representative. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.
Notwithstanding the foregoing, a Nonstatutory Stock Option shall be assignable
or transferable to the extent permitted by the Board and set forth in the Option
Agreement evidencing such Option.
11. COMPLIANCE WITH SECURITIES LAW. The grant of Options and the
issuance of shares of Stock upon exercise of Options shall be subject to
compliance with all applicable requirements of federal, state or foreign law
with respect to such securities. Options may not be exercised if the issuance of
shares of Stock upon exercise would constitute a violation of any applicable
federal, state or foreign securities laws or other law or regulations or the
requirements of any stock exchange or market system upon which the Stock may
then be listed. In addition, no Option may be exercised unless (a) a
registration statement under the Securities Act shall at the time of exercise of
the Option be in effect with respect to the shares issuable upon exercise of the
Option or (b) in the opinion of legal counsel to the Company, the shares
issuable upon exercise of the Option may be issued in accordance with the terms
of an applicable exemption from the registration requirements of the Securities
Act. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares hereunder shall relieve
the Company of any liability in respect of the failure to issue or sell such
shares as to which such requisite authority shall not have been obtained. As a
condition to the exercise of any Option, the Company may require the Optionee to
satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by the Company.
12. INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as members of the Board or officers or
employees of the Participating Company Group, members of the Board and any
officers or employees of the Participating Company Group to whom authority to
act for the Board is delegated shall be indemnified by the Company against all
reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act
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under or in connection with the Plan, or any right granted hereunder, and
against all amounts paid by them in settlement thereof (provided such settlement
is approved by independent legal counsel selected by the Company) or paid by
them in satisfaction of a judgment in any such action, suit or proceeding,
except in relation to matters as to which it shall be adjudged in such action,
suit or proceeding that such person is liable for gross negligence, bad faith or
intentional misconduct in duties; provided, however, that within sixty (60) days
after the institution of such action, suit or proceeding, such person shall
offer to the Company, in writing, the opportunity at its own expense to handle
and defend the same.
13. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend
the Plan at any time; provided that without the approval of the Company's
stockholders, there shall be (a) no increase in the maximum aggregate number of
shares of Stock that may be issued under the Plan (except by operation of the
provisions of Section 4.2) and (b) no change in the class of persons eligible to
receive Options. In any event, no termination or amendment of the Plan may
adversely affect any then outstanding Option or any unexercised portion thereof,
without the consent of the Optionee, unless such termination or amendment is
required to enable an Option designated as an Incentive Stock Option to qualify
as an Incentive Stock Option or is necessary to comply with any applicable law,
regulation or rule.
14. CONTINUATION OF PRIOR PLAN AS TO OUTSTANDING OPTIONS. Any other
provision of the Plan to the contrary notwithstanding, the terms of the Prior
Plan shall remain in effect and apply to all Options granted pursuant to the
Prior Plan.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing KLA Instruments Corporation Restated 1982 Stock Option Plan
was duly adopted by the Board on July 29, 1996.
____________________________________
Secretary
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KLA INSTRUMENTS CORPORATION
SECOND AMENDED AND RESTATED
1981 EMPLOYEE STOCK PURCHASE PLAN
(As Amended July 29, 1996)
1. Purpose. On October 6, 1981, the KLA Instruments Corporation 1981
Employee Stock Purchase Plan (the "Initial Plan") was adopted. On July 1, 1984,
the Initial Plan was amended and restated in its entirety and retitled the KLA
Instruments Corporation 1981 Employee Stock Purchase Plan as Amended and
Restated (the "Second Plan"). On July 19, 1989, the Second Plan was amended and
restated in its entirety and retitled the KLA Instruments Corporation Amended
and Restated 1981 Employee Stock Purchase Plan (the "Third Plan"). On August 3,
1993, the Third Plan was amended and restated in its entirety as set forth
herein and retitled the KLA Instruments Corporation Second Amended and Restated
1981 Employee Stock Purchase Plan (the "Plan").
Notwithstanding any other provision of the Plan to the
contrary, the terms and conditions of the Initial Plan, the Second Plan, and the
Third Plan shall remain in full force and effect as to options granted and as to
shares of common stock of KLA Instruments Corporation ("KLA") purchased pursuant
to the Initial Plan, the Second Plan, and the Third Plan, respectively.
Notwithstanding any other provision of the Plan to the
contrary, if an employee participating in the Plan is subject to section 16 of
the Securities Exchange Act of 1934, as amended, (the "Exchange Act") any
provisions of the Plan resulting from the amendment and restatement of the
Second Plan and the Third Plan the application of which to such employee which
would result in a "material increase" in the benefits accruing to such employee
under the Plan such as to require stockholder approval of such provision for
purposes of complying with Rule 16b-3 shall not apply to such employee and,
instead, the applicable provision of the Initial Plan, the Second Plan, or the
Third Plan, as the case may be, if any, shall apply to such employee. The Plan
is established to provide eligible employees of KLA and any current or future
parent and/or subsidiary corporations of KLA (collectively referred to as the
"Company") with an opportunity through payroll deductions to acquire a
proprietary interest in the Company by the purchase of common stock of KLA. (KLA
and any such parent and/or subsidiary corporation of KLA shall be individually
referred to herein as a "Participating Company." For purposes of the Plan, a
parent corporation and a subsidiary corporation shall be as defined in sections
425(e) and 425(f) of the Internal Revenue Code of 1986, as amended (the
"Code").)
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It is intended that the Plan shall qualify as an "employee
stock purchase plan" under section 423 of the Code (including any future
amendments or replacements of such section), and the Plan shall be so construed.
Any term not expressly defined in the Plan but defined for purposes of section
423 of the Code shall have the same definition herein.
An employee participating in the Plan (a "Participant") may
withdraw such Participant's accumulated payroll deductions (if any) therein at
any time during an Offering Period (as defined below). Accordingly, each
Participant is, in effect, granted an option pursuant to the Plan (a "Purchase
Right") which may or may not be exercised at the end of an Offering Period and
which is intended to qualify as an option described in section 423 of the Code.
2. Administration. The Plan shall be administered by the Board of
Directors of KLA (the "Board") and/or by a duly appointed committee of the Board
having such powers as shall be specified by the Board. Any subsequent references
to the Board shall also mean the committee if a committee has been appointed.
All questions of interpretation of the Plan or of any Purchase Right shall be
determined by the Board and shall be final and binding upon all persons having
an interest in the Plan and/or any Purchase Right. Subject to the provisions of
the Plan, the Board shall determine all of the relevant terms and conditions of
Purchase Rights granted pursuant to the Plan; provided, however, that all
Participants granted Purchase Rights pursuant to the Plan shall have the same
rights and privileges within the meaning of section 423(b)(5) of the Code. All
expenses incurred in connection with the administration of the Plan shall be
paid by the Company.
3. Share Reserve. The maximum number of shares which may be issued
under the Plan shall be four million eight hundred thousand (4,800,000) shares
of KLA's authorized but unissued common stock or treasury stock (the "Shares").
In the event that any Purchase Right for any reason expires or is cancelled or
terminated, the Shares allocable to the unexercised portion of such Purchase
Right may again be subjected to a Purchase Right.
4. Eligibility. Any employee of a Participating Company (including
officers and directors who are also employees) is eligible to participate in the
Plan except employees who own or hold options to purchase or who, as a result of
participation in this Plan, would own or hold options to purchase, stock of the
Company possessing five percent (5%) or more of the total combined voting power
or value of all classes of stock of the Company within the meaning of section
423(b)(3) of the Code.
An employee who is also a director may participate in the Plan
but may not purchase shares under the Plan until the Company's stockholders
approve the
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Plan. In the event that stockholder approval of the Plan is not obtained prior
to the last Purchase Date of an Offering Period in which a director who is also
an employee is participating, then any cash balance in such Participant's
account shall be refunded to the Participant as soon as practical after the last
day of the Offering Period.
5. Offering Dates.
(a) Offering Periods. Except as otherwise set forth below, the
Plan shall be implemented by offerings (individually an "Offering") of two (2)
years duration (an "Offering Period"). An Offering Period shall commence on the
first day of January and July of each year. The first Offering Period shall
commence on July 1, 1989. Notwithstanding the foregoing, the Board may establish
a different term for one (1) or more Offerings and/or different commencing
and/or ending dates for such Offerings and/or additional Offerings, including,
without limitation, an Offering commencing October 1, 1989. An employee who
becomes eligible to participate in the Plan after an Offering Period has
commenced shall not be eligible to participate in such Offering but may
participate in any subsequent Offering provided such employee is still eligible
to participate in the Plan as of the commencement of any such subsequent
Offering. The Company shall have the authority to designate the maximum number
of Offerings in which an eligible employee may participate at any one time. The
first day of an Offering Period shall be the "Offering Date" for such Offering
Period. In the event the first and/or last day of an Offering Period is not a
business day, the Company shall specify the business day that will be deemed the
first or last day, as the case may be, of the Offering Period.
(b) Purchase Periods. Each Offering Period shall consist of
four (4) consecutive purchase periods of six (6) months duration (a "Purchase
Period"). The last day of each Purchase Period shall be the "Purchase Date" for
such Purchase Period. Notwithstanding the foregoing, the Board may establish a
different term for one (1) or more Purchase Periods and/or different commencing
dates and/or Purchase Dates for such Purchase Periods. In the event the first
and/or last day of a Purchase Period is not a business day, the Company shall
specify the business day that will be deemed the first or last day, as the case
may be, of the Purchase Period.
(c) Governmental Approval; Stockholder Approval.
Notwithstanding any other provision of the Plan to the contrary, any Purchase
Right granted pursuant to the Plan shall be subject to (i) obtaining all
necessary governmental approvals and/or qualifications of the sale and/or
issuance of the Purchase Rights and/or the Shares, and (ii) in the case of
Purchase Rights with an Offering Date after an amendment of the Plan, obtaining
any necessary approval of the stockholders of the Company required by paragraph
22.
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6. Participation in the Plan.
(a) Initial Participation. An eligible employee shall become a
Participant on the first Offering Date after satisfying the eligibility
requirements set forth in paragraph 4 and delivering to the Company not later
than the close of business on the date seven (7) days prior to such Offering
Date or on a date as may be established by the Company from time to time (the
"Subscription Date") a subscription agreement indicating the employee's election
to participate in the Plan and authorizing payroll deductions. An eligible
employee who does not deliver a subscription agreement to the Company on or
before the Subscription Date shall not participate in the Plan for that Offering
Period or for any subsequent Offering Period unless such eligible employee
subsequently enrolls in the Plan by complying with the provisions of paragraph 4
and by filing a subscription agreement with the Company on or before the
Subscription Date for such subsequent Offering Period. The Company may, from
time to time, change the Subscription Date as deemed advisable by the Company in
its sole discretion for proper administration of the Plan.
(b) Continued Participation. Participation in the Plan shall
continue until (i) the Participant ceases to be eligible as provided in
paragraph 4, (ii) the Participant withdraws from the Plan pursuant to paragraph
11, or (iii) the Participant terminates employment as provided in paragraph 12.
If a Participant is automatically withdrawn from an Offering at the end of a
Purchase Period of such Offering pursuant to paragraph 11(c), then the
Participant shall automatically participate in the Offering Period commencing on
the next business day. At the end of an Offering Period, each Participant in
such terminating Offering Period shall automatically participate in the first
subsequent Offering Period according to the same elections contained in the
Participant's subscription agreement effective for the Offering Period which has
just ended, provided such Participant is still eligible to participate in the
Plan as provided in paragraph 4. However, a Participant may file a subscription
agreement with respect to such subsequent Offering Period if the Participant
desires to change any of the Participant's elections contained in the
Participant's then effective subscription agreement.
7. Right to Purchase Shares. During an Offering Period each Participant
in such Offering Period shall have a Purchase Right consisting of the right to
purchase that number of whole Shares arrived at by dividing Twenty Thousand
Dollars ($20,000) by eighty-five percent (85%) of the fair market value of the
Shares on the Offering Date of such Offering Period; provided, however, that in
no event shall a Participant have a Purchase Right for more than four thousand
(4,000) Shares.
8. Purchase Price. The purchase price at which Shares may be acquired
at the end of an Offering pursuant to the exercise of all or any portion of a
Purchase Right granted under the Plan (the "Offering Exercise Price") shall be
set by the Board;
4
<PAGE> 46
provided, however, that the purchase price shall not be less than eighty-five
percent (85%) of the lesser of (a) the fair market value of the Shares on the
Offering Date of such Offering Period, or (b) the fair market value of the
Shares at the time of exercise of all or any portion of the Purchase Right.
Unless otherwise provided by the Board prior to the commencement of an Offering
Period, the Offering Exercise Price shall be eighty-five percent (85%) of the
lesser of (a) the fair market value of the Shares on the Offering Date of such
Offering Period or (b) the fair market value of the Shares at the time of
exercise of all or any portion of the Purchase Right. For purposes of the Plan,
the fair market value of the Shares at any point in time shall be determined by
the Board based on such factors as the Board deems relevant; including, without
limitation, the mean of the bid and asked price of the Shares on the date in
question (or the immediately preceding business day in the event the date in
question falls on a weekend or legal holiday) as reported on the National
Association of Securities Dealers Automated Quotations system, if available.
9. Payment of Purchase Price. Shares which are acquired pursuant to the
exercise of all or any portion of a Purchase Right for a given Offering Period
may be paid for only by means of payroll deductions from the Participant's
Compensation accumulated during the Offering Period. For purposes of the Plan, a
Participant's "Compensation" with respect to an Offering shall include all
amounts paid in cash and includable as "wages" subject to tax under section
3101(a) of the Code without applying the dollar limitation of section 3121(a) of
the Code. Accordingly, Compensation shall include, without limitation, salaries,
commissions, bonuses, overtime and amounts contributed to the Participant's
Salary Reduction Account, as that term is defined in the Company's Employee
Savings and Investment Plan (the "Savings and Investment Plan"). Compensation
shall not include reimbursements of expenses, allowances, or any amount deemed
received without the actual transfer of cash or any amounts directly or
indirectly paid pursuant to the Plan or any other stock purchase or stock option
plan or credits or benefits under the Savings and Investment Plan (other than as
set forth above) or any other Company contributions or payments to any trust,
fund, or plan to provide retirement, pension, profit sharing, health, welfare,
death, insurance or similar benefits to or on behalf of such Participant or any
other payments not specifically referenced above, except to the extent that the
inclusion of any such item with respect to all Participants on a
nondiscriminatory basis is specifically approved by the Board. Except as set
forth below. the amount of Compensation to be withheld from a Participant's
Compensation during each month shall be determined by the Participant's
subscription agreement.
(a) Election to Decrease Withholding. During an Offering
Period, a Participant may elect to decrease the amount withheld from his or her
Compensation by filing an amended subscription agreement with the Company on or
before the Change Notice Date. The "Change Notice Date" shall initially be the
date fifteen (15)
5
<PAGE> 47
days prior to the end of the first pay period for which such election is to be
effective; provided, however, the Company may change such Change Notice Date
from time to time. A Participant may not elect to increase the amount withheld
from the Participant's Compensation during an Offering Period.
(b) Limitations on Payroll Withholding. The amount of payroll
withholding with respect to the Plan for any Participant shall be at least Ten
Dollars ($10.00) per month but shall not exceed ten percent (10%) of the
Participant's Compensation for any relevant pay period. Amounts shall be
withheld in whole percentages only and shall be reduced by any amounts
contributed by the Participant and applied to the purchase of Company stock
pursuant to any other employee stock purchase plan qualifying under section 423
of the Code.
(c) Payroll Withholding. Payroll deductions shall commence on
the first payday following the Offering Date and shall continue to the end of
the Offering Period unless sooner altered or terminated as provided in the Plan.
(d) Participant Accounts. Individual accounts shall be
maintained for each Participant. All payroll deductions from a Participant's
Compensation shall be credited to such account and shall be deposited with the
general funds of the Company. All payroll deductions received or held by the
Company may be used by the Company for any corporate purpose.
(e) No Interest Paid. Interest shall not be paid on sums
withheld from a Participant's Compensation
(f) Exercise of Purchase Right. On each Purchase Date of an
Offering Period, each Participant who has not withdrawn from the Offering or
whose participation in the Offering has not terminated on or before such last
day shall automatically acquire pursuant to the exercise of the Participant's
Purchase Right the number of whole Shares arrived at by dividing the total
amount of the Participant's accumulated payroll deductions for the Purchase
Period by the Offering Exercise Price; provided, however, that in no event shall
the number of Shares purchased by the Participant exceed the number of Shares
subject to the Participant's Purchase Right. No Shares shall be purchased on
behalf of a Participant whose participation in the Offering or the Plan has
terminated on or before the date of such exercise.
(g) Return of Cash Balance. Any cash balance remaining in the
Participant's account shall be refunded to the Participant as soon as practical
after the last day of the Offering Period. In the event the cash to be returned
to a Participant pursuant to the preceding sentence is an amount less than the
amount necessary to purchase a whole Share, the Company may establish procedures
whereby such cash
6
<PAGE> 48
is maintained in the Participant's account and applied toward the purchase of
Shares in the subsequent Purchase Period or Offering Period.
(h) Withholding. At the time the Purchase Right is exercised,
in whole or in part, or at the time some or all of the Shares are disposed of,
the Participant shall make adequate provision for foreign, federal and state tax
withholding obligations of the Company, if any, which arise upon exercise of the
Purchase Right and/or upon disposition of Shares. The Company may, but shall not
be obligated to, withhold from the Participant's Compensation the amount
necessary to meet such withholding obligations.
(i) Company Established Procedures. The Company may, from time
to time, establish or change (i) a minimum required withholding amount for
participation in any Offering, (ii) limitations on the frequency and/or number
of changes in the amount withheld during an Offering, (iii) an exchange ratio
applicable to amounts withheld in a currency other than United States dollars,
(iv) payroll withholding in excess of or less than the amount designated by a
Participant in order to adjust for delays or mistakes in the Company's
processing of subscription agreements, (v) the date(s) and manner by which the
fair market value of the Shares is determined for purposes of the administration
of the Plan, and/or (vi) such other limitations or procedures as deemed
advisable by the Company in the Company's sole discretion which are consistent
with the Plan.
(j) Expiration of Purchase Right. Any portion of a
Participant's Purchase Right remaining unexercised after the end of the Offering
Period to which such Purchase Right relates shall expire immediately upon the
end of such Offering Period.
10. Limitations on Purchase of Shares; Rights as a Stockholder.
(a) Fair Market Value Limitation. Notwithstanding any other
provision of the Plan, no Participant shall be entitled to purchase Shares under
the Plan at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) in fair
market value, determined as of the Offering Date for each Offering Period (or
such other limit as may be imposed by the Code), for each calendar year in which
the Participant participates in the Plan.
(b) Allocation of Shares. In the event the number of Shares
which might be purchased by all Participants in the Plan exceeds the number of
Shares available in the Plan pursuant to all Offerings which have commenced, the
Company shall make a pro rata allocation of the remaining Shares (and within
each Offering, to each Participant in such Offering) in as uniform a manner as
shall be practicable and as the Company shall determine to be equitable.
7
<PAGE> 49
(c) Rights as a Stockholder and Employee. A Participant shall
have no rights as a stockholder by virtue of the Participant's participation in
the Plan until the date of the issuance of a stock certificate(s) for the Shares
being purchased pursuant to the exercise of the Participant's Purchase Right. No
adjustment shall be made for cash dividends or distributions or other rights for
which the record date is prior to the date such stock certificate(s) are issued.
Nothing herein shall confer upon a Participant any right to continue in the
employ of the Company or interfere in any way with any right of the Company to
terminate the Participant's employment at any time.
11. Withdrawal.
(a) Withdrawal From an Offering. A Participant may withdraw
from an Offering by signing a written notice of withdrawal on a form provided by
the Company for such purpose and delivering such notice to the Company at any
time prior to the end of an Offering Period; provided, however, that if a
Participant withdraws after the Purchase Date for a Purchase Period of an
Offering, the withdrawal shall not affect Shares acquired by the Participant in
such Purchase Period. Unless otherwise indicated by the Participant, withdrawal
from an Offering shall not result in a withdrawal from the Plan or any
succeeding Offering therein. By withdrawing from an Offering on a Purchase Date,
a Participant may have Shares purchased on such Purchase Date and immediately
commence participating in the Offering commencing immediately after such
Purchase Date. A Participant is prohibited from again participating in an
Offering upon withdrawal from such Offering. The Company may impose, from time
to time, a requirement that the notice of withdrawal be on file with the Company
for a reasonable period prior to the effectiveness of the Participant's
withdrawal from an Offering.
(b) Withdrawal from the Plan. A Participant may withdraw from
the Plan by signing a written notice of withdrawal on a form provided by the
Company for such purpose and delivering such notice to the Company. Withdrawals
made after a Purchase Date of an Offering Period shall not affect shares
acquired by the Participant on such Purchase Date. In the event a Participant
voluntarily elects to withdraw from the Plan, the Participant may not resume
participation in the Plan during the same Offering Period, but may participate
in any subsequent Offering under the Plan by again satisfying the requirements
of paragraph 6. The Company may impose, from time to time, a requirement that
the notice of withdrawal be on file with the Company for a reasonable period
prior to the effectiveness of the Participant's withdrawal from the Plan.
(c) Automatic Withdrawal From an Offering. If the fair market
value of the Shares on a Purchase Date of an Offering is less than the fair
market value of the Shares on the Offering Date for such Offering, then every
Participant
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<PAGE> 50
shall automatically (i) be withdrawn from the Offering at the close of the
Purchase Date and after the acquisition of Shares for such Purchase Period, and
(ii) be enrolled in the Offering commencing on the first business day subsequent
to such Purchase Period. A Participant may elect not to be automatically
withdrawn from an Offering pursuant to this paragraph 11(c) by delivering to the
Company not later than the close of business on the last business day before the
date seven (7) days prior to the Purchase Date a written notice indicating such
election; provided, however, that the Company may change the date such notice is
required to be delivered to the Company from time to time.
12. Termination of Employment. Termination of a Participant's
employment with the Company for any reason, including retirement or death or the
failure of a Participant to remain an employee eligible to participate in the
Plan, shall terminate the Participant's participation in the Plan immediately. A
Participant whose participation has been so terminated may again become eligible
to participate in the Plan by again satisfying the requirements of paragraphs 4
and 6.
13. Repayment of Payroll Deductions. In the event a Participant's
interest in the Plan or any Offering therein is terminated for any reason, the
balance held in the Participant's account shall be returned as soon as practical
after such termination to the Participant (or, in the case of the Participant's
death, to the Participant's legal representative) and all of the Participant's
rights under the Plan shall terminate. Such account balance may not be applied
to any other Offering under the Plan. No interest shall be paid on sums returned
to a Participant pursuant to this paragraph 13.
14. Transfer of Control. A "Transfer of Control" shall be deemed to
have occurred in the event any of the following occurs with respect to the
Control Company. For purposes of applying this paragraph 14, the "Control
Company" shall mean the Participating Company whose stock is subject to the
Purchase Right.
(a) the direct or indirect sale or exchange by the
stockholders of the Control Company of all or substantially all of the stock of
the Control Company where the stockholders of the Control Company before such
sale or exchange do not retain, directly or indirectly, at least a majority of
the beneficial interest in the voting stock of the Control Company;
(b) a merger in which the stockholders of the Control Company
before such merger do not retain, directly or indirectly, at least a majority of
the beneficial interest in the voting stock of the Control Company; or
(c) the sale, exchange, or transfer of all or substantially
all of the Control Company's assets (other than a sale, exchange, or transfer to
one (1) or more
9
<PAGE> 51
corporations where the stockholders of the Control Company before such sale,
exchange, or transfer retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the corporation(s) to which the
assets were transferred).
In the event of a Transfer of Control, the Board, in its sole
discretion, shall either (i) provide that Purchase Rights granted under the Plan
shall be fully exercisable to the extent of each Participant's account balance
for the Offering Period as of a date prior to the Transfer of Control, as the
Board so determines or (ii) arrange with the surviving, continuing, successor,
or purchasing corporation, as the case may be, that such corporation assume the
Company's rights and obligations under the Plan. All Purchase Rights shall
terminate effective as of the date of the Transfer of Control to the extent that
the Purchase Right is neither exercised as of the date of the Transfer of
Control nor assumed by the surviving, continuing, successor, or purchasing
corporation, as the case may be.
15. Capital Changes. In the event of changes in the common stock of the
Company due to a stock split, reverse stock split, stock dividend, combination,
reclassification, or like change in the Company's capitalization, or in the
event of any merger, sale or other reorganization, appropriate adjustments shall
be made by the Company in the Plan's share reserve, the number and class of
shares of stock subject to a Purchase Right and in the purchase price per share
of any outstanding Purchase Right, including, without limitation, the number of
Shares subject to a Purchase Right as set forth in paragraph 7.
16. Non-Transferability. A Purchase Right may not be transferred in any
manner otherwise than by will or the laws of descent and distribution and shall
be exercisable during the lifetime of the Participant only by the Participant.
17. Reports. Each Participant who exercised all or part of the
Participant's Purchase Right for a Purchase Period shall receive as soon as
practical after the last day of such Purchase Period a report of such
Participant's account setting forth the total payroll deductions accumulated,
the number of Shares purchased and the remaining cash balance to be refunded or
retained in the Participant's account pursuant to paragraph 9(g), if any.
18. Plan Term. This Plan shall continue until terminated by the Board
or until all of the Shares reserved for issuance under the Plan have been issued
or until December 31, 2000, whichever shall first occur.
19. Restriction on Issuance of Shares. The issuance of shares pursuant
to the Purchase Right shall be subject to compliance with all applicable
requirements of federal or state law with respect to such securities. The
Purchase Right may not be exercised if the issuance of shares upon such exercise
would constitute a violation of
10
<PAGE> 52
any applicable federal or state securities laws or other law or regulations. In
addition, no Purchase Right may be exercised unless (i) a registration statement
under the Securities Act of 1933, as amended, shall at the time of exercise of
the Purchase Right be in effect with respect to the shares issuable upon
exercise of the Purchase Right, or (ii) in the opinion of legal counsel to the
Company, the shares issuable upon exercise of the Purchase Right may be issued
in accordance with the terms of an applicable exemption from the registration
requirements of said Act. As a condition to the exercise of the Purchase Right,
the Company may require the Participant to satisfy any qualifications that may
be necessary or appropriate, to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
20. Legends. The Company may at any time place legends or other
identifying symbols referencing any applicable federal and/or state securities
restrictions and any provision convenient in the administration of the Plan on
some or all of the certificates representing shares of stock issued under the
Plan. The Participant shall, at the request of the Company, promptly present to
the Company any and all certificates representing shares acquired pursuant to a
Purchase Right in the possession of the Participant in order to effectuate the
provisions of this paragraph.
21. Transfer Restrictions. The Company, in its absolute discretion, may
impose such restrictions on the transferability of the shares purchasable upon
the exercise of a Purchase Right as it deems appropriate and any such
restriction shall be set forth in the respective subscription agreement and may
be referred to on the certificates evidencing such shares. The Company may
require the employee to give the Company prompt notice of any disposition of
shares of stock acquired by exercise of a Purchase Right within two years from
the date of granting such Purchase Right or one year from the date of exercise
of such Purchase Right. The Company may direct that the certificates evidencing
shares acquired by exercise of a Purchase Right refer to such requirement to
give prompt notice of disposition.
22. Amendment or Termination of the Plan. The Board may at any time
amend or terminate the Plan, except that (i) such termination shall not affect
Purchase Rights previously granted under the Plan except as permitted by the
Plan, and (ii) no amendment may adversely affect a Purchase Right previously
granted under the Plan (except to the extent permitted by the Plan or as may be
necessary to qualify the Plan as an "employee stock purchase plan" pursuant to
section 423 of the Code). In addition, an amendment to the Plan must be approved
by the stockholders of the Company, within the meaning of section 423 of the
Code, within twelve (12) months of the adoption of such amendment if such
amendment would authorize the sale of more shares than are authorized for
issuance under the Plan or would change the
11
<PAGE> 53
designation of corporations whose employees may be offered Purchase Rights under
the Plan. Notwithstanding any other provision of the Plan to the contrary, in
the event of an amendment to the Plan which affects the rights or privileges of
Purchase Rights to be offered under the Plan, each Participant with an
outstanding Purchase Right shall have the right to exercise such outstanding
Purchase Right on the effective date of the amendment.
IN WITNESS WHEREOF, the undersigned Secretary of KLA Instruments
Corporation certifies that the foregoing Second Amended and Restated 1981
Employee Stock Purchase Plan, as amended, was duly adopted by the Board of
Directors of KLA Instruments Corporation on July 29, 1996.
-----------------------------------------------------
12
<PAGE> 54
KLA INSTRUMENTS CORPORATION
SECOND AMENDED AND RESTATED
1981 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
______ Original Application
______ Change in Percentage of Payroll Deductions
I hereby elect to participate in the Second Amended and Restated 1981
Employee Stock Purchase Plan (the "Stock Purchase Plan") of KLA Instruments
Corporation (the "Company") and subscribe to purchase shares of the Company's
common stock (the "Shares") as determined in accordance with the terms of the
Stock Purchase Plan.
I hereby authorize payroll deductions in the amount of $____________ or
__________ percent of my compensation from each paycheck throughout the
"Offering Period" (as defined in the Stock Purchase Plan) in accordance with the
terms of the Stock Purchase Plan. (The amount deducted each [pay period] [month]
must be at least [$ ] and may be no greater than 10% of compensation for any pay
period (if stated in percentages, must be in whole percentages).) I understand
that these payroll deductions will be accumulated for the purchase of Shares at
the applicable purchase price determined in accordance with the Stock Purchase
Plan. I further understand that, except as otherwise set forth in the Stock
Purchase Plan, Shares will be purchased for me automatically on the last day of
the Purchase Period unless I withdraw from the Stock Purchase Plan or from the
Offering Period by giving written notice to the Company or unless I terminate
employment.
I understand that I will automatically participate in each subsequent
Offering Period under the Stock Purchase Plan until such time as I file with the
Company a notice of withdrawal from the Stock Purchase Plan or any such
subsequent Offering Period on such form as may be established from time to time
by the Company or I terminate employment.
I understand that I will be automatically withdrawn from an Offering
Period and be automatically enrolled in the subsequent Offering Period if the
fair market value of the Shares on the purchase date of an Offering Period is
less than the fair market value of the Shares on the first day of such Offering
Period; provided, however, that I may elect not to be automatically withdrawn if
I notify the Company in writing of such election no later than the close of
business on the last business day before the date 7 days prior to the purchase
date of such Offering Period.
13
<PAGE> 55
Shares purchased for me under the Stock Purchase Plan should be issued
in the name set forth below. I understand that Shares may be issued either in my
name alone or together with my spouse as community property or in joint
tenancy.)
NAME: __________________________________
ADDRESS: _______________________________
_______________________________
_______________________________
MY SOCIAL SECURITY NUMBER: ____________________________
I am familiar with the terms and provisions of the Stock Purchase Plan
and hereby agree to participate in the Stock Purchase Plan subject to all of the
terms and provisions thereof. I understand that the Board reserves the right to
amend the Stock Purchase Plan and my right to purchase stock under the Stock
Purchase Plan as may be necessary to qualify the Plan as an employee stock
purchase plan as defined in section 423 of the Internal Revenue Code of 1986, as
amended. I understand that the effectiveness of this subscription agreement is
dependent upon my eligibility to participate in the Stock Purchase Plan.
Date: _______________________ Signature: _____________________________
14
<PAGE> 56
KLA INSTRUMENTS CORPORATION
SECOND AMENDED AND RESTATED
1981 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I hereby elect to withdraw from the current offering (the "Offering")
of the common stock of KLA Instruments Corporation (the "Company") under the
Second Amended and Restated 1981 Employee Stock Purchase Plan (the "Stock
Purchase Plan"), and hereby request that all payroll deductions credited to my
account under the Stock Purchase Plan with respect to the Offering (if any), and
not previously used to purchase shares of common stock of the Company under the
Stock Purchase Plan, be paid to me as soon as is practical. I understand that
this Notice of Withdrawal automatically terminates my interest in the Offering.
As to participation in future offerings of stock under the Stock
Purchase Plan, I elect as follows:
________ I elect to participate in future offerings under the Stock Purchase
Plan.
I understand that by making the election set forth above I
will automatically participate in each subsequent Offering
under the Stock Purchase Plan until such time as I file with
the Company a notice of withdrawal from the Stock Purchase
Plan or any such subsequent offering on such form as may be
established from time to time by the Company or I terminate
employment.
________ I elect not to participate in future offerings under the Stock Purchase
Plan.
I understand that by making the election set forth above I
terminate my interest in the Stock Purchase Plan and that no
further payroll deductions will be made unless I elect in
accordance with the Stock Purchase Plan to become a
participant in another offering under the Stock Purchase Plan.
I understand that if no election is made as to participation in future
offerings under the Stock Purchase Plan, I will be deemed to have elected to
participate in such future offerings.
Date: _______________________ Signature: _____________________________
15
<PAGE> 57
October 11, 1996
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of KLA
Instruments Corporation (the "Company") to be held at 11:00 a.m. on Monday,
November 18, 1996, at the offices of the Company located at 160 Rio Robles, San
Jose, California. Detailed information as to the business to be transacted at
the meeting is contained in the accompanying Notice of Annual Meeting and
Proxy Statement.
Regardless of whether you plan to attend the meeting, it is important that your
shares be voted. Accordingly, we ask that you sign and return your proxy as
soon as possible in the envelope provided. If you do plan to attend the
meeting, please mark the appropriate box on the proxy.
Sincerely,
Paul E. Kreutz
Secretary
DETACH HERE
Please mark
/ X / votes as in
this example.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
COMPANY. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES
FOR DIRECTOR AND FOR PROPOSALS 2, 3, AND 4.
1. ELECTION OF TWO (2) CLASS I DIRECTORS
NOMINEES: KENNETH LEVY AND SAMUEL RUBINOVITZ.
FOR WITHHELD
/ / / /
/ / ________________________________________
For both nominees, except as noted above
2. To approve amendments to the 1982 Stock Option Plan (a) to increase
the number of shares reserved for issuance thereunder (i) by
1,600,000 shares in fiscal 1997, (ii) on the first day of each
subsequent fiscal year by 3% of the number of shares of Common
Stock then issued and outstanding, and (iii) at any time by the
number of shares repurchased on the open market for issuance
thereunder, and (b) to extend the term to July 29, 2006, all as
described more fully in the Proxy Statement.
FOR AGAINST ABSTAIN
/ / / / / /
3. To approve an amendment to the 1981 Employee Stock Purchase Plan
to increase the number of shares reserved for issuance thereunder
by 800,000 shares.
FOR AGAINST ABSTAIN
/ / / / / /
4. To ratify the appointment of Price Waterhouse LLP as the Independent
accountants of the Company for the fiscal year ending June 30, 1997.
FOR AGAINST ABSTAIN
/ / / / / /
MARK HERE IF YOU PLAN MARK HERE FOR ADDRESS
TO ATTEND THE MEETING CHANGE AND NOTE BELOW
/ / / /
Please sign exactly as your name appears. If more than one name appears, all
must sign.
Signature:___________________________________ Date:_____________
Signature:___________________________________ Date:_____________
<PAGE> 58
DETACH HERE
KLA INSTRUMENTS CORPORATION
Proxy for Annual Meeting of Stockholders
P Solicited by the Board of Directors
R
O The undersigned, revoking all prior proxies, hereby appoints Kenneth
X Levy and Kenneth Schroeder, or either, with full power of substitution as
Y proxies to represent and vote as designated in this proxy any and all shares
of the stock of KLA Instruments Corporation, held or owned by or standing in
the name of the undersigned on the Company's books on September 20, 1996,
at the Annual Meeting of Stockholders of the Company to be held at the
principal executive offices of the Company at 11:00 a.m. on November 18,
1996, and any continuation or adjournment thereof, with all powers the
undersigned would possess if personally present at the meeting.
The undersigned hereby directs and authorizes said proxies and each of
them, or their substitute or substitutes, to vote as specified with respect
to the proposals listed on the reverse side, or, if no specification is
made, to vote in favor thereof.
The undersigned hereby further confers upon said proxies, and each of
them, or their substitute or substitutes, discretionary authority to vote
with respect to all other matters that may properly come before the meeting
or any continuation or adjournment thereof.
The undersigned hereby acknowledges receipt of: (a) Notice of Annual
Meeting of Stockholders of the Company, (b) accompanying Proxy Statement,
and (c) Annual Report to Stockholders for the year ending June 30, 1996.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE / SEE REVERSE /
SIDE
