<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
KLA-Tencor Corporation
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] 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-TENCOR CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 10, 2000
To the Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
KLA-Tencor Corporation (the "Company"), a Delaware corporation, will be held on
Friday, November 10, 2000 at 11:00 a.m., local time, at the Company's offices
located at One Technology Drive, Milpitas, California 95035, for the following
purposes:
1. To elect three Class II directors to each serve for a three year term
and until their successors are duly elected.
2. To approve an amendment to the Certificate of Incorporation to increase
the number of shares of Common Stock reserved for issuance thereunder by
250,000,000 shares to 500,000,000 shares.
3. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending June 30, 2001.
4. To transact such other business as may properly come before the meeting
or any adjournment or adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on September 27, 2000
are entitled to notice of, and to vote at the meeting and any adjournment
thereof.
Sincerely,
/s/ Larry W. Sonsini
Larry W. Sonsini
Secretary
San Jose, California
October 6, 2000
YOUR VOTE IS IMPORTANT
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON,
HOWEVER, TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED
ENVELOPE OR FOLLOW THE INSTRUCTIONS ON THE ENCLOSED PROXY CARD TO VOTE
TELEPHONICALLY OR VIA THE INTERNET. ANY STOCKHOLDER ATTENDING THE MEETING MAY
VOTE IN PERSON EVEN IF HE OR SHE RETURNED A PROXY.
<PAGE> 3
2000 ANNUAL MEETING OF STOCKHOLDERS
OF
KLA-TENCOR CORPORATION
TO BE HELD ON NOVEMBER 10, 2000
------------------------
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
KLA-Tencor Corporation (the "Company") for use at the Annual Meeting of
Stockholders to be held on Friday, November 10, 2000 at 11:00 a.m., local time,
or at any adjournment(s) thereof (the "Annual Meeting"), for the purposes set
forth herein and in the accompanying Notice of Annual Meeting of Stockholders.
The Annual Meeting will be held at the Company's offices at One Technology
Drive, Milpitas, California 95035. The Company's principal executive offices are
located at 160 Rio Robles, San Jose, California 95134 and its telephone number
is (408) 875-3000.
These proxy solicitation materials were mailed on or about October 6, 2000
to all stockholders entitled to vote.
RECORD DATE
Only stockholders of record at the close of business on September 27, 2000
are entitled to notice of and to vote at the Annual Meeting. As of September 27,
2000 shares of the Company's Common Stock, $0.001 par value, were
issued and outstanding.
REVOCABILITY OF PROXIES
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 a duly executed proxy bearing a later date or by
attending the meeting and voting in person.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting
is a majority of the votes eligible to be cast by holders of shares of Common
Stock issued and outstanding on the record date. Shares that are voted "FOR,"
"AGAINST," "ABSTAIN" or "WITHHELD FROM" a matter are treated as being present at
the Annual Meeting for purposes of establishing a quorum and are also treated as
shares entitled to vote at the Annual Meeting (the "Votes Cast") with respect to
such matter.
Abstentions will be counted for purposes of determining both (i) the
presence or absence of a quorum for the transaction of business and (ii) the
total number of Votes Cast with respect to a proposal (other than the election
of directors). Accordingly, abstentions will have the same effect as a vote
against the proposal.
Broker non-votes will be counted for purposes of determining the presence
or absence of a quorum for the transaction of business, but will not be counted
for purposes of determining the number of Votes Cast with respect to the
particular proposal on which the broker has expressly not voted. Accordingly,
broker non-votes will not affect the outcome of the voting on a proposal that
requires a majority of the Votes Cast.
VOTING AND SOLICITATION
On all matters to be voted upon, each share has one vote.
<PAGE> 4
The cost of soliciting proxies will be borne by the Company. The Company
has retained the services of Morrow & Co. to aid in the solicitation of proxies
from brokers, bank nominees and other institutional owners. The Company
estimates that it will pay Morrow & Co a fee not to exceed $5,000 for its
services and will reimburse it for certain out of pocket expenses estimated to
be $4,000. In addition, the Company may reimburse brokerage firms and other
persons representing beneficial owners of shares for their expenses in
forwarding solicitation material to such beneficial owners. Proxies may be
solicited by certain of the Company's directors, officers and regular employees,
without additional compensation, personally or by telephone or telegram.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the Company's annual meeting in 2001 must be received by
the Company no later than June 8, 2001 and otherwise be in compliance with
applicable laws and regulations in order that such proposals may be included in
the proxy statement and form of proxy relating to that meeting.
The attached proxy card grants the proxy holders discretionary authority to
vote on any matter raised at the Annual Meeting. If a stockholder intends to
submit a proposal at the Company's annual meeting in 2001, which is not eligible
for inclusion in the proxy statement and form of proxy relating to that meeting,
the stockholder must give appropriate notice no later than August 22, 2001. If
such a stockholder fails to comply with the foregoing notice provision the
Company intends to draft the proxy so that the proxy holders will be allowed to
use their discretionary voting authority if the proposal is raised at the
Company's annual meeting in 2001.
SECURITY OWNERSHIP
PRINCIPAL STOCKHOLDERS
During the last fiscal year, the following persons were known to the
Company to be beneficial owners of more than 5% of the Company's Common Stock:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NAME AND ADDRESS SHARES OWNED TOTAL(1)
---------------- ------------ ----------
<S> <C> <C>
Capital Research and Management Company(2).................. 14,490,000 7.74%
333 Hope Street
Los Angeles, CA 90071
Fidelity Management and Research(3)......................... 13,983,000 7.52%
82 Devonshire Street
Boston, MA 02109
Capital Group International, Inc.(4)........................ 13,294,880 7.10%
11100 Santa Monica Blvd.
Los Angeles, CA 90025
Putnam Investments, Inc.(5)................................. 9,745,800 5.21%
One Post Office Square
Boston, MA 02109
</TABLE>
---------------
(1) Based on 187,231,682 outstanding shares of Common Stock as of August 31,
2000.
(2) The number of shares owned is based on information provided pursuant to
Schedule 13G filed with the Securities and Exchange Commission (the "SEC")
on February 11, 2000.
(3) The number of shares owned is based on information provided pursuant to
Schedule 13F filed with the SEC on June, 2000.
(4) The number of shares owned is based on information provided pursuant to
Schedule 13G filed with the SEC on February 14, 2000.
2
<PAGE> 5
(5) The number of shares owned is based on information provided pursuant to
Schedule 13G filed with the SEC on February 17, 2000. This share amount
includes 4,539,970 shares held by Putnam Investment Management, Inc. and
332,930 shares held by The Putnam Advisory Company, Inc.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of
the Company as of September 27, 2000 (the most recent practicable date) by all
directors and nominees, each of the named executive officers set forth in the
Summary Compensation Table and by all directors and current executive officers
as a group:
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT PERCENTAGE
NAME OWNED OWNED*
---- ------ -----------
<S> <C> <C>
Kenneth Levy(1).............................................
Kenneth L. Schroeder(2)..................................... **
Edward W. Barnholt(3)....................................... **
H. Raymond Bingham(4)....................................... **
Robert T. Bond(5)........................................... **
Richard J. Elkus, Jr.(6).................................... **
Dean O. Morton(7)........................................... **
Jon D. Tompkins(8)..........................................
Lida Urbanek(9).............................................
Gary E. Dickerson(10)....................................... **
Dennis J. Fortino(11)....................................... **
Edward C. Grady(12)......................................... **
Samuel A. Harrell(13)....................................... **
John H. Kispert(14)......................................... **
Maureen Lamb(15)............................................ **
Stuart J. Nichols(16)....................................... **
Neil Richardson(17)......................................... **
Arthur P. Schnitzer(18)..................................... **
Richard P. Wallace(19)...................................... **
All directors and executive officers as a group (19
persons)(20).............................................. %
</TABLE>
---------------
* Based on outstanding shares of the Common Stock of the
Company as of September 27, 2000.
** Less than 1%.
(1) Includes shares, options for which are presently exercisable
or will become exercisable within 60 days of September 27, 2000 and
shares which are held in trust for the benefit of Mr. Levy's
children.
(2) Includes shares, options for which are presently exercisable
or will become exercisable within 60 days of September 27, 2000.
(3) Includes shares, options for which are presently exercisable
or will become exercisable within 60 days of September 27, 2000.
(4) Includes shares, options for which are presently exercisable
or will become exercisable within 60 days of September 27, 2000.
(5) Includes shares, options for which are presently exercisable
or will become exercisable within 60 days of September 27, 2000.
(6) Includes shares, options for which are presently exercisable
or will become exercisable within 60 days of September 27, 2000.
3
<PAGE> 6
(7) Includes shares, options for which are presently exercisable
or will become exercisable within 60 days of September 27, 2000.
(8) Includes shares, options for which are presently exercisable
or will become exercisable within 60 days of September 27, 2000.
(9) Includes shares, options for which are presently exercisable
or will become exercisable within 60 days of September 27, 2000.
(10) Includes shares, options for which are presently exercisable
or will become exercisable within 60 days of September 27, 2000.
(11) Includes shares, options for which are presently exercisable
or will become exercisable within 60 days of September 27, 2000.
(12) Includes shares, options for which are presently exercisable
or will become exercisable within 60 days of September 27, 2000.
(13) Includes shares, options for which are presently exercisable
or will become exercisable within 60 days of September 27, 2000.
(14) Includes shares, options for which are presently exercisable
or will become exercisable within 60 days of September 27, 2000.
(15) Includes shares, options for which are presently exercisable
or will become exercisable within 60 days of September 27, 2000.
(16) Includes shares, options for which are presently exercisable
or will become exercisable within 60 days of September 27, 2000.
(17) Includes shares, options for which are presently exercisable
or will become exercisable within 60 days of September 27, 2000.
(18) Includes shares, options for which are presently exercisable
or will become exercisable within 60 days of September 27, 2000.
(19) Includes shares, options for which are presently exercisable
or will become exercisable within 60 days of September 27, 2000.
(20) Includes shares, options for which are presently exercisable
or will become exercisable within 60 days of September 27, 2000.
PROPOSAL ONE
TO ELECT THREE CLASS II DIRECTORS TO EACH SERVE FOR A
THREE YEAR TERM AND UNTIL THEIR SUCCESSORS ARE DULY ELECTED.
NOMINEES
The Company has a classified board comprised of nine director positions
consisting of three Class I directors (Kenneth Levy, Jon D. Tompkins and Lida
Urbanek), three incumbent Class II directors (Richard J. Elkus, Jr., H. Raymond
Bingham and Robert T. Bond) and three incumbent Class III directors (Edward W.
Barnholt, Dean O. Morton, and Kenneth L. Schroeder). The Class III directors and
the Class I directors will serve until the annual meetings of stockholders to be
held in 2001 and 2002 respectively, or until their respective successors are
duly elected and qualified. At each annual meeting, directors are elected for a
full term of three years to succeed those directors whose terms expire at the
annual meeting.
The term of one of the three Class II directors will expire on the date of
the Annual Meeting. Earlier in the year, Leo J. Chamberlain resigned as a Class
II director. Samuel Rubinovitz, a Class I director, and James W. Bagley, a Class
III director, also resigned earlier in the year. A majority vote of the
directors in office appointed H. Raymond Bingham and Robert T. Bond following
the resignations of Mr. Chamberlain and Mr. Rubinovitz. Following that meeting,
Dag Tellefsen, a Class II director passed away. Pursuant to the
4
<PAGE> 7
authority granted under Article II, Section 2 of the Company's Bylaws, the Board
unanimously adopted a resolution reducing the total number of authorized
directors of the Company from eleven to nine.
Three Class II directors of the Board of Directors are to be elected at the
Annual Meeting. The nominees for election by the stockholders to these three
positions are Richard J. Elkus, Jr., H. Raymond Bingham and Robert T. Bond. If
elected, the nominees will serve as directors until the Company's annual meeting
of stockholders in 2003, or until their successors are elected and qualified. If
any of the nominees declines to serve or becomes unavailable for any reason, or
a vacancy occurs before the election, the proxies may be voted for such
substitute nominees as management may designate. The proxy holders also have
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 additional
persons are nominated for election as directors, the proxy holders intend to
vote all proxies received by them in such a manner as will assure the election
of as many of the nominees as possible and, in such event, the specific nominees
to be voted for will be determined by the proxy holders.
If a quorum is present and voting, the three nominees for Class II
directors receiving the highest number of votes will be elected as Class II
directors. Abstentions and shares held by brokers that are not 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 sets forth certain information with respect to the
Company's Board of Directors.
<TABLE>
<CAPTION>
NAME OF DIRECTOR AGE POSITION DIRECTOR SINCE
---------------- --- -------- --------------
<S> <C> <C> <C>
Kenneth Levy......................... 57 Chairman of the Board 1975
Kenneth L. Schroeder................. 54 President and Chief Executive 1991
Officer
Edward W. Barnholt................... 57 Director 1995
H. Raymond Bingham................... 54 Director 2000
Robert T. Bond....................... 57 Director 2000
Richard J. Elkus, Jr. ............... 65 Director 1997
Dean O. Morton....................... 68 Director 1997
Jon D. Tompkins...................... 60 Director 1997
Lida Urbanek......................... 55 Director 1997
</TABLE>
There are no family relationships between or among any directors or
executive officers of the Company.
Kenneth Levy is a co-founder of KLA-Tencor and since July 1, 1999 has been
Chairman of the Board and a Director. From July 1998 until June 30, 1999 he was
the Chief Executive Officer and a Director. From April 30, 1997 until June 30,
1998 he was Chairman of the Board. From 1975 until April 30, 1997 he was
Chairman of the Board and Chief Executive Officer. He currently serves on the
boards of directors of Ultratech Stepper, Inc., SpeedFam-IPEC, Inc. and is a
Director Emeritus of SEMI, an industry trade association.
Kenneth L. Schroeder has been President and Chief Executive Officer and a
Director of KLA-Tencor since July 1, 1999. From November 1991 until June 30,
1999, he was President and Chief Operating Officer and a Director. He currently
serves on the boards of directors of GaSonics International and SEMI, an
industry trade association.
Edward W. Barnholt has been a Director of the Company since 1995. Since May
1999, he has been President and Chief Executive Officer and a director of
Agilent Technologies, Inc. Mr. Barnholt served as General Manager of
Hewlett-Packard's Measurement Organization from 1998 to 1999, which included
Hewlett-Packard's Electronic Instruments Group, the Microwave and Communications
Group, the Communications Test Solutions Group, the Automated Test Group, the
Chemical Analysis Group, the Components Group and the Medical Products Group.
From 1990 to 1998, he served as General Manager of Hewlett-Packard's Test and
Measurement Organization. He was elected a Senior Vice President of
Hewlett-Packard in 1993 and an Executive Vice President in 1996.
5
<PAGE> 8
H. Raymond Bingham has been a Director of the Company since August 2000. He
has been President and Chief Executive Officer of Cadence Design Systems, Inc.
since April 1999. Mr. Bingham has been a director of Cadence since November
1997. From 1993 to April 1999, Mr. Bingham served as Executive Vice President
and Chief Financial Officer of Cadence. Prior to joining Cadence, Mr. Bingham
was Executive Vice President and Chief Financial Officer of Red Lion Hotels and
Inns, an owner and operator of a chain of hotels, for eight years. Mr. Bingham
is a director of Legato Systems, Inc., Onyx Software Corporation, TenFold
Corporation and a director and Chairman of Integrated Measurement Systems, Inc.
Robert T. Bond has been a Director of the Company since August 2000. From
April 1996 to January 1998, Mr. Bond served as Chief Operating Officer of
Rational Software Corporation. Prior to that, he held various executive
positions at Rational Software Corporation. Mr. Bond was employed by
Hewlett-Packard Company from 1967 to 1983 and held various management positions
during his tenure there. He is on the Advisory Board of Cyntric Corporation and
is also a director. He also serves on the Advisory Board of Grid Data
Corporation.
Richard J. Elkus, Jr. has been a Director of the Company since April 1997.
He was Executive Vice President and Vice Chairman of the board of directors of
Tencor from February 1994 until April 1997. He is the Chairman of the Board and
a director of Voyan Technology. He currently serves on the boards of directors
of Sopra, S.A., a semiconductor equipment company, Lam Research Corporation, and
Virage Logic Corp.
Dean O. Morton has been a Director of the Company since April 1997. From
June 1993 until April 1997 he was a Director of Tencor. In October 1992 Mr.
Morton retired as Executive Vice President, Chief Operating Officer and a
Director of Hewlett-Packard Company. Mr. Morton held various positions at
Hewlett-Packard Company from 1960 until his retirement. Mr. Morton currently
serves on the boards of directors of ALZA Corporation, The Clorox Company, BEA
Systems Inc., Cepheid Inc., and Pharsight Corporation. Mr. Morton is also a
trustee of the Metropolitan Series Fund and State Street Research Funds Group
and Portfolios Inc.
Jon D. Tompkins has been a Director of the Company since April 1997. He was
Chairman of the Board from July 1998 to June 1999, when he retired his position
as Chairman of the Board. Mr. Tompkins has continued to serve as a Director.
From April 1997 until July 1998 he was Chief Executive Officer and a Director of
KLA-Tencor. From April 1991 until April 1997 he was President and Chief
Executive Officer of Tencor prior to its merger with KLA. He was a Director of
Tencor from 1991 until April 1997 and was appointed Chairman of the Board of
Directors of Tencor in November 1993. He currently serves on the boards of
directors of Cymer, Inc., Electro Scientific Industries, Inc., Credence Systems,
Corp., and Community Foundation of Silicon Valley.
Lida Urbanek has been a Director of the Company since April 30, 1997. She
is a private investor. She was a director of Tencor from August 1991 until April
30, 1997.
For additional information required by this item see "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" in the Proxy Statement,
which is incorporated herein by reference.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of five meetings during
the fiscal year ended June 30, 2000. The Board of Directors has an Audit
Committee, a Compensation Committee and a Nominating Committee.
The Audit Committee, which consists of Mr. Morton, Mr. Elkus and Mr.
Bingham, held six meetings during the last fiscal year. The Audit Committee
recommends engagement of the Company's independent accountants, and is primarily
responsible for approving the services performed by the Company's independent
accountants and for reviewing and evaluating the Company's accounting principles
and its system of internal accounting controls. The Compensation Committee,
which consists of Mr. Barnholt, Mrs. Urbanek and Mr. Bond, held one meeting
during the last fiscal year. The Compensation Committee reviews and approves the
Company's executive compensation policy and makes recommendations concerning the
Company's employee benefit plans. The Nominating Committee, which consists of
Mr. Barnholt, Mr. Morton, Mr. Levy
6
<PAGE> 9
and Mr. Schroeder held no formal meetings during the last fiscal year. A
unanimous group of the disinterested members of the board of directors nominated
the three Class II directors for election. The Nominating Committee is primarily
responsible for 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 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 the fiscal year ended June 30, 2000, all incumbent Directors, except
for Mr. Bagley, attended at least 75% of the aggregate number of meetings of the
Board of Directors and meetings of the committees of the Board on which they
served.
COMPENSATION OF DIRECTORS
Members of the Board of Directors who are not employees of the Company
receive benefits under the 1998 Outside Director Plan ("1998 Director Plan"),
which was approved by the stockholders at the 1998 Annual Meeting of
Stockholders. Under this plan, each non-employee Director ("Outside Director")
receives an annual fee of $20,000 and $1,000 for each meeting they attend ($500
if participation is by telephone), plus expenses. Committee members receive $500
per committee meeting they attend ($250 if participation is by telephone). Each
Outside Director also receives a nonstatutory option to purchase 20,000 shares
of Common Stock as of the date on which such director first becomes an Outside
Director (the "First Option"). In addition, each Outside Director is
automatically granted a nonstatutory option to purchase an additional 10,000
shares of Common Stock on the date of the Subsequent annual meetings on which he
or she remains an Outside Director (the "Subsequent Option"). The term of
options granted under the 1998 Director Plan may not exceed 10 years. The 1998
Director Plan provides that the exercise price shall be equal to the fair market
value of the Common Stock on the date of grant of the option. Options granted
under the 1998 Director Plan become exercisable immediately upon the date of
grant.
REQUIRED VOTE
Directors shall be elected by a plurality of the votes of the shares of the
Company's Common Stock entitled to vote and represented in person or by proxy at
the Annual Meeting. Votes against, votes withheld and broker non-votes have no
legal effect on the election of directors due to the fact that such elections
are by a plurality.
MANAGEMENT RECOMMENDS A VOTE FOR EACH OF THE CLASS II NOMINEES LISTED
ABOVE.
PROPOSAL TWO
APPROVAL OF AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR
ISSUANCE THEREUNDER BY 250,000,000 SHARES TO 500,000,000 SHARES.
GENERAL
On August 15, 2000, the Board of Directors approved an amendment (the
"Amendment") to the Certificate of Incorporation to increase the number of
authorized shares of Common Stock from 250,000,000
7
<PAGE> 10
to 500,000,000. Under the Amendment, subject to stockholder approval, Article
Four of the Certificate of Incorporation would be amended and restated to read
as follows:
"FOURTH: The aggregate number of shares of stock which the corporation
shall have authority to issue shall be 501,000,000 shares, with the par
value of each of such shares being $0.001. These shares shall be divided
into the following classes:
(1) 500,000,000 shares shall be designated as Common Stock; and
(2) 1,000,000 shares shall be designated as Preferred Stock.
The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable
law of the State of Delaware, to establish from time to time the number
of shares to be included in each such series, and to fix the
designation, powers, preferences, and rights of the shares of each such
series, and any qualifications, limitations or restrictions thereof. The
number of authorized shares of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding)
by the affirmative vote of the holders of a majority of the then
outstanding shares of Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such
holders is required pursuant to the certificate or certificates
establishing the series of Preferred Stock".
As of September 27, 2000, there were 251,000,000 shares of Common Stock
authorized, of which approximately shares were issued and outstanding
and approximately 4,861,843 of which were reserved for issuance under the
Company's stock benefit plans, leaving only approximately authorized
shares of Common Stock available for future issuance.
Although the Company has no specific plans to use the additional authorized
shares of its Common Stock other than as described above, the Board of Directors
believes that it is prudent to increase the number of authorized shares of
Common Stock to the proposed level in order to provide a reserve of shares
available for issuances in connection with possible future actions. Such actions
may include increases in the number of shares available for issuance pursuant to
the Company's stock option plans, stock splits or stock dividends if the Board
of Directors were to determine that such would be desirable to facilitate a
broader base of stockholders. The Company's Board of Directors also believes
that the increased number of shares will provide the flexibility to effect other
possible actions including, but not limited to, financings, corporate mergers,
acquisitions of property, employee benefit plans and other general corporate
matters. Having such additional authorized Common Stock available for issuance
in the future would allow the Board of Directors to issue shares of Company
Common Stock without the delay and expense associated with seeking stockholder
approval. Elimination of such delays and expense occasioned by the necessity of
obtaining stockholder approval will better enable the Company to, among other
things, engage in financing transactions and acquisitions as well as to take
advantage of changing market and financial conditions on a more competitive
basis as determined by the Company's Board.
The increase in the authorized number of shares of Common Stock could have
an anti-takeover effect. Shares of authorized and unissued Common Stock could
(within the limits imposed by applicable law) be issued in one or more
transactions that would make a takeover of the Company more difficult, and
therefore less likely. Any such issuance of additional stock could have the
effect of diluting the earnings per share and book value per share of
outstanding shares of Common Stock, and such additional shares could be used to
dilute the stock ownership or voting rights of persons seeking to obtain control
of the Company.
In addition, the Company has previously adopted certain measures that may
have the effect of helping it to resist an unfriendly takeover attempt,
including the KLA-Tencor Rights Plan ("Rights Plan"), providing for the
distribution of rights to purchase additional shares of Company Stock in the
event of certain attempts to acquire control of the Company. The increase in the
authorized number of shares facilitates the issuance of shares in the event the
provisions of the Rights Plan are triggered.
8
<PAGE> 11
The increase in authorized Common Stock will not have any immediate effect
on the rights of existing stockholders. To the extent that the additional
authorized shares are issued in the future, they will decrease the existing
stockholders' percentage equity ownership and, depending on the price at which
they are issued, could be dilutive to the existing stockholders.
The stockholders are being asked to approve such amendment. The affirmative
vote of the holders of a majority of the shares of Common Stock issued and
outstanding on the Record Date will be required to approve the amendment of the
Certificate of Incorporation. The effect of an abstention and broker non-vote is
the same as that of a vote against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO
THE CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF SHARES OF COMMON
STOCK RESERVED FOR ISSUANCE THEREUNDER BY 250,000,000 SHARES TO 500,000,000
SHARES.
PROPOSAL THREE
TO RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT
ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR ENDING JUNE 30, 2001.
The Board of Directors has selected PricewaterhouseCoopers LLP, independent
accountants, to audit the consolidated financial statements of the Company for
its 2001 fiscal year and recommends that the stockholders vote for ratification
of such appointment. If there is a negative vote on such ratification, the Board
of Directors will reconsider its selection. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting with
the opportunity to make a statement if they desire to do so, and are expected to
be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT ACCOUNTANTS OF THE
COMPANY FOR THE FISCAL YEAR ENDING JUNE 30, 2001.
EXECUTIVE COMPENSATION
The following table shows, as to the person who served as Chief Executive
Officer during the fiscal year ended June 30, 2000 and each of the five other
most highly compensated executive officers whose salary plus bonus exceeded
$100,000, information concerning all reportable compensation awarded to, earned
by or paid to each for services to the Company in all capacities during the
fiscal year ended June 30, 2000, as well as such compensation for each such
individual for the Company's previous two fiscal years.
9
<PAGE> 12
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
AWARDS PAYOUTS
OTHER ---------- -------
ANNUAL RESTRICTED SECURITIES
ANNUAL COMPENSATION COMPEN- STOCK UNDERLYING LTIP ALL OTHER
-------------------- SATION AWARD(S) OPTIONS/ PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS ($)1 ($)(2) SARS(#)(3) ($)(4) ($)(5)
--------------------------- ---- --------- -------- ------- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kenneth Levy.............. 2000 $341,483 $439,379 $N/A -0- 90,000 -0- $79,681
Chairman of the Board 1999 $456,097 $429,597 $N/A -0- 102,136 -0- $10,005
1998 $467,769 $262,314 $N/A -0- 62,500 -0- $44,430
Kenneth L. Schroeder...... 2000 $505,246 $647,487 $N/A -0- 150,000 -0- $95,600
President & 1999 $445,723 $420,492 $N/A -0- 102,136 -0- $ 9,804
Chief Executive Officer 1998 $455,992 $256,757 $N/A -0- 62,500 -0- $43,545
Gary E. Dickerson......... 2000 $366,288 $370,751 $N/A -0- 100,000 -0- $58,504
Chief Operating Officer 1999 $304,387 $189,587 $N/A -0- 62,882 -0- $ 6,844
1998 $312,115 $161,364 $N/A -0- 42,500 -0- $29,984
Robert J. Boehlke......... 2000 $317,364 $299,948 $N/A -0- 60,000 -0- $55,303
Chief Financial
Officer(6) 1999 $289,892 $191,133 $N/A -0- 54,435 -0- $ 6,541
1998 $297,115 $116,708 $N/A -0- 33,500 -0- $28,604
Arthur P. Schnitzer....... 2000 $338,499 $311,591 $N/A -0- 50,000 -0- $55,656
Executive Vice President, 1999 $294,443 $214,414 $N/A -0- 54,435 -0- $ 6,761
Customer Group 1998 $285,500 $129,902 $N/A -0- 33,500 -0- $26,494
Jon D. Tompkins........... 2000 $482,573 $618,862 $N/A -0- 10,000 -0- $43,392
Director(7) 1999 $291,478 $214,797 $N/A -0- 50,809 -0- $ 5,977
1998 $467,769 $262,314 $N/A -0- -0- -0- $44,430
</TABLE>
---------------
(1) The amounts paid during the fiscal year to the named executive officers were
less than the lesser of (a) $50,000 or (b) 10% of the executive officers
total reported salary and bonus.
(2) The Company has not granted any restricted stock rights.
(3) The Company has not granted any stock appreciation rights.
(4) The Company does not have any Long Term Incentive Plans as that term is
defined in the regulations.
(5) "All Other Compensation" is itemized as follows:
- In fiscal 2000, Mr. Levy received $20,758 in cash profit sharing; $6,919
in profit sharing was contributed by the Company to the 401(k) Plan;
$51,004 was contributed by the Company to the Excess Profit Stock Plan;
$1,000 was contributed by the Company as a matching contribution to the
401(k) Plan.
- In fiscal 2000, Mr. Schroeder received $33,225 in cash profit sharing;
$11,075 in profit sharing was contributed by the Company to the 401(k)
Plan; $50,300 was contributed by the Company to the Excess Profit Stock
Plan; $1,000 was contributed by the Company as a matching contribution to
the 401(k) Plan.
- In fiscal 2000, Mr. Dickerson received $24,401 in cash profit sharing;
$8,134 in profit sharing was contributed by the Company to the 401(k)
Plan; $24,969 was contributed by the Company to the Excess Profit Stock
Plan; $1,000 was contributed by the Company as a matching contribution to
the 401(k) Plan.
- In fiscal 2000, Mr. Boehlke received $21,117 in cash profit sharing;
$7,039 in profit sharing was contributed by the Company to the 401(k)
Plan; $26,147 was contributed by the Company to the Excess Profit Stock
Plan; $1,000 was contributed by the Company as a matching contribution to
the 401(k) Plan.
- In fiscal 2000, Mr. Schnitzer received $22,173 in cash profit sharing;
$7,391 in profit sharing was contributed by the Company to the 401(k)
Plan; $25,092 was contributed by the Company to the Excess Profit Stock
Plan; $1,000 was contributed by the Company as a matching contribution to
the 401(k) Plan.
10
<PAGE> 13
- In fiscal 2000, Mr. Tompkins received $31,794 in cash profit sharing;
$10,598 in profit sharing was contributed by the Company to the 401(k)
Plan; $1,000 was contributed by the Company as a matching contribution to
the 401(k) Plan.
(6) Mr. Boehlke retired as Chief Financial Officer of the Company effective June
30, 2000.
(7) Mr. Tompkins retired from his position as Chairman of the Board effective
July 1, 1999. He was previously President and Chief Executive Officer of
Tencor Instruments until April 1997. As a result of the merger of Tencor
Instruments into a wholly-owned subsidiary of the Company, he became Chief
Executive Officer of the Company effective April 30, 1997 and remained in
that position until July 1, 1998, when he became Chairman of the Board. Mr.
Tompkins is paid salary and bonus pursuant to an agreement with the Company,
the terms of which are set forth in "Certain Transactions."
STOCK OPTION GRANTS AND EXERCISES
The following tables set forth the stock options granted to the named
executive officers under the Company's stock option plans and the options
exercised by such named executive officers during the fiscal year ended June 30,
2000.
The Option/SAR Grant Table sets forth hypothetical gains or "option
spreads" for the options at the end of their respective ten-year terms, as
calculated in accordance with the rules of the Securities and Exchange
Commission. Each gain is based on an arbitrarily assumed annualized rate of
compound appreciation of the market price at the date of grant of 5% and 10%
from the date the option was granted to the end of the option term. Actual
gains, if any, on option exercises are dependent on the future performance of
the Company's Common Stock and overall market conditions.
OPTION/SAR(1) GRANTS IN LAST FISCAL YEAR
KLA-TENCOR CORPORATION 1982 STOCK OPTION PLAN(2)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
----------------------------------------------------------- ------------------------
PERCENT OF
TOTAL OPTIONS/
SARS GRANTED EXERCISE OR
OPTIONS/SARS TO EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED(#) IN FISCAL YEAR ($/SHARE) DATE 5% 10%
---- ------------ -------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth Levy.......... 90,000 1.10% $33.750 10/27/09 $1,910,267 $4,840,993
Kenneth L.
Schroeder........... 150,000 1.84% $33.750 10/27/09 $3,183,779 $8,068,321
Gary E. Dickerson..... 100,000 1.22% $33.750 10/27/09 $2,122,519 $5,378,881
Robert J. Boehlke..... 60,000 0.73% $33.750 10/27/09 $1,273,512 $3,227,328
Arthur P. Schnitzer... 50,000 0.61% $33.750 10/27/09 $1,061,260 $2,689,440
Jon D. Tompkins....... 10,000 0.12% $33.750 10/27/09 $ 212,252 $ 537,888
</TABLE>
---------------
(1) The Company has not granted any stock appreciation rights.
(2) The material terms of the grants (other than those set forth in the table)
are: (a) The exercise price of the options is the fair market value of
Common Stock as of the date of grant; (b) The options vest on a four year
schedule with 25% after one year and the remaining option shares vesting
1/36 per month for the remainder of the vesting term; (c) To the extent
unexercised, the options lapse after ten years; (d) The options are
non-transferrable and are only exercisable during the period of employment
of the optionee and for 30 days following termination of employment, subject
to limited exceptions in the cases of certain terminations, death or
permanent disability of the optionee.
11
<PAGE> 14
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR-END VALUE(1)
KLA-TENCOR CORPORATION 1982 STOCK OPTION PLAN
<TABLE>
<CAPTION>
TOTAL VALUE OF
TOTAL NUMBER OF UNEXERCISED, IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS HELD OPTIONS HELD
SHARES AT FISCAL YEAR END AT FISCAL YEAR END(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth Levy............ 336,000 $21,622,853 500,593 379,407 $29,315,978 $22,219,022
Kenneth L. Schroeder.... 270,000 $13,930,567 550,593 493,407 $32,244,103 $25,732,772
Gary E. Dickerson....... 249,599 $11,730,114 28,458 283,343 $ 1,666,572 $16,593,274
Robert J. Boehlke....... 185,000 $ 8,606,460 21,611 203,013 $ 1,265,594 $11,888,949
Arthur P. Schnitzer..... 330,832 $19,846,073 150,987 193,013 $ 8,842,176 $11,303,324
Jon D. Tompkins......... 82,872 $ 5,540,055 25,529 151,599 $ 1,495,042 $ 8,878,016
</TABLE>
---------------
(1) The Company has not granted any stock appreciation rights.
(2) Total value of vested options based on fair market value of Company's Common
Stock of $58.563 per share as of June 30, 2000.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR-END VALUE(1)
TENCOR INSTRUMENTS 1993 EQUITY INCENTIVE PLAN
<TABLE>
<CAPTION>
TOTAL VALUE OF
TOTAL NUMBER OF UNEXERCISED, IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS HELD OPTIONS HELD AT
SHARES AT FISCAL YEAR END FISCAL YEAR END(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth Levy(3)........... -0- -0- -0- -0- -0- -0-
Kenneth L. Schroeder(3)... -0- -0- -0- -0- -0- -0-
Gary E. Dickerson(3)...... -0- -0- -0- -0- -0- -0-
Robert J. Boehlke(3)...... -0- -0- -0- -0- -0- -0-
Arthur P. Schnitzer(3).... -0- -0- -0- -0- -0- -0-
Jon D. Tompkins........... 71,488 $2,644,687 41,676 -0- $2,440,651 -0-
</TABLE>
---------------
(1) The Company has not granted any stock appreciation rights.
(2) Total value of vested options based on fair market value of Company's Common
Stock of $58.563 per share as of June 30, 2000.
(3) Messrs. Levy, Schroeder, Boehlke, Dickerson and Schnitzer have been
executive officers of the Company and accordingly have never received
options under the Tencor Instruments 1993 Equity Incentive Plan. The
information under this table is inapplicable to them.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE
The Committee is comprised of three of the independent, non-employee
members of the Board of Directors, none of whom have interlocking relationships
as defined by the Securities and Exchange Commission. The Committee is
responsible for setting and administering the policies governing annual
compensation of executive officers, considers their performance and makes
recommendations regarding their cash compensation and stock options to the full
Board of Directors. The Committee periodically reviews its approach to executive
compensation and makes changes as appropriate.
COMPENSATION PHILOSOPHY
The Committee of the Board of Directors establishes the overall executive
compensation strategies of the Company and approves compensation elements for
the chairman of the board, the chief executive officer and other executive
officers. The goals of the Company's compensation policy are to attract, retain
and reward
12
<PAGE> 15
executive officers who contribute to the overall success of the Company by
offering compensation that is competitive in the industry, to motivate executive
officers to achieve the Company's business objectives and to align the interests
of executive officers with the long term interests of stockholders. The Company
currently uses salary, a management incentive plan and stock options to meet
these goals.
The compensation philosophy of the Committee is to provide a comprehensive
compensation package for each executive officer that is well suited to support
accomplishment of the Company's business strategies, objectives and initiatives.
For incentive-based compensation, the Committee considers the desirability of
structuring such compensation arrangements so as to qualify for deductibility
under Section 162(m) of the Internal Revenue Code. As the Committee applies this
compensation philosophy in determining appropriate executive compensation levels
and other compensation factors, the Committee reaches its decisions with a view
towards the Company's overall financial performance.
CHIEF EXECUTIVE OFFICER COMPENSATION
For fiscal year 2000, Kenneth L. Schroeder served as Chief Executive
Officer. In setting Mr. Schroeder's compensation for fiscal year 2000, the
Committee considered the Company's revenue and profit in the prior fiscal year,
the Company's market capitalization and data from comparable companies supplied
by the Company's compensation consultants. Base salary for Mr. Schroeder for
fiscal year 2001 has been set at $564,267.13, based on the recommendations
provided by the Company's Human Resources Compensation staff. Options to
purchase 52,385 shares of the Common Stock of the Company were granted to Mr.
Schroeder, with standard four year vesting terms. For fiscal 2000 a bonus of
$647,486.86 was paid to Mr. Schroeder, based on the formula approved by the
Compensation Committee and the Board of Directors last year.
EXECUTIVE OFFICER COMPENSATION
The Committee's approach is based upon a belief that a substantial portion
of aggregate annual compensation for executive officers should be contingent
upon the Company's performance and an individual's contribution to the Company's
success. In addition, the Committee strives to align the interests of the
Company's executive officers with the long-term interests of stockholders
through stock option grants that can result in ownership of the Company's Common
Stock. The Committee endeavors to structure each executive officer's overall
compensation package to be consistent with this approach and to enable the
Company to attract, retain and reward personnel who contribute to the success of
the Company.
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. The Committee considers market
information from published survey data provided to the Committee by the
Company's human resources staff. The market data consists primarily of base
salary and total cash compensation rates, as well as incentive bonus and stock
programs of other companies considered by the Committee to be peers in the
Company's industry.
For the Company's previous fiscal year, the Committee reviewed and
recommended a compensation structure which had as an important component, the
substantial economic and business challenges in the semiconductor and
semiconductor capital equipment industries worldwide.
BASE SALARY. Salaries for executive officers are set with reference to
salaries for comparable positions among other companies in the Company's
industry or in industries that employ individuals of similar education and
background to the executive officer based on data provided by the Company's
human resources staff.
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 approved by the
Committee and submitted to the Board of Directors for ratification. For fiscal
1999 the Incentive Plan sets goals for profitability, achievement of
13
<PAGE> 16
measurable objectives aimed at strategic corporate goals and achievement of
objectives relating to managing the ratio of assets to sales.
OUTSTANDING CORPORATE PERFORMANCE EXECUTIVE BONUS PLAN. The Company
continued to utilize its incentive plan (the "Outstanding Corporate Performance
Plan") which allows for an additional bonus in years when the Company achieves
certain levels of profitability and growth. For those executive officers that do
not manage operating divisions, the matrix is based on the Company's pre-tax
margin and the growth of the Company compared to a peer group. The target
percentage for the Outstanding Corporate Performance Plan is the same target
percentage as utilized in determining the Incentive Plan bonus. For those
executive officers who manage operating divisions, the matrix is based on
certain specified growth objectives for that division, the Company's net
operating margin, and a comparison of the Company's aggregate revenues over the
prior 36 months against a target group of public U.S. companies over the same
period.
Half of each annual amount under the Outstanding Corporate Performance Plan
is payable at the end of the fiscal year. The other half of each annual amount
payable under the plan is contributed by the Company to the Executive Deferred
Savings Plan (the "EDSP"). That vests over a one year period. At the end of the
year period, the executive officer has the choice of taking a cash payment or
leaving the contribution in the EDSP. If the executive officer leaves during
that one year period, the contribution by the Company is forfeited. Although the
executive officer is eligible to participate in both the Company's profit
sharing plan and the Outstanding Corporate Performance Plan, any amounts
contributed by the Company pursuant to the Outstanding Corporate Performance
Plan will be reduced by the amount of profit sharing paid during the fiscal
year.
PROCESS MODULE CONTROL SOLUTIONS PROGRAM (THE "PMCS PROGRAM"). During
fiscal year 2000, the Company continued to utilize its PMCS Program which
encourages teamwork through the Company. Each participant in the PMCS Program
receives a stock option upon the achievement of certain revenue goals from
customers outlined on a list of potential capital equipment investment
opportunities in the semiconductor industry. The percentage of achievement of
the revenue goal determines the number of stock options received, which in turn
depends on the salary and performance level of the participant. The stock option
grants are made at the end of the fiscal year, after the determination of the
level of goal achieved. The Committee does not plan to continue this program
during fiscal year 2001.
LONG-TERM INCENTIVES. Longer term incentives are provided through the Stock
Option Plan and the Excess Profit Stock Plan, each of which reward executive
officers through the growth in value of the Company's Common 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 executive
officer's relative position, responsibilities, historical and expected
contributions to the Company, and the executive officer's existing stock
ownership and previous option grants, with primary weight given to the executive
officer's relative rank and responsibilities. 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.
APPROVAL OF FISCAL YEAR 2001 BONUS PLAN AND OUTSTANDING CORPORATE PERFORMANCE
PLAN
The Committee approved a fiscal year 2001 bonus plan incentive formula
which is based on two components of equal weight. The first component is
performance against certain financial objectives and the second is achievement
of certain non-financial strategic objectives. The bonuses for the Chairman of
the Board, the Chief Executive Officer, the Chief Operating Officer and the
Chief Financial Officer are based on the performance of the managers reporting
to the executive officers. The Committee also approved the fiscal year
Outstanding Corporate Performance Plan which is based on a matrix of the
Company's net operating margin and certain growth objectives. The Outstanding
Corporate Performance Plan does not require any contributions by the Company
until the Company achieves a Pre-Tax Margin Factor of 14%. The Pre-Tax Margin
Factor is calculated by taking the pre-tax, pre-profit sharing income, excluding
non-recurring charges, and dividing it by total revenue. Under the PMCS Program,
certain of the stock options which would be
14
<PAGE> 17
granted under the Stock Option Plan will be dependent upon the achievement of
certain revenue targets from specified customers.
MEMBERS OF THE COMPENSATION COMMITTEE
Edward W. Barnholt
Robert T. Bond
Lida Urbanek
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are set forth in the preceding
section. There are no members of the Compensation Committee who were officers or
employees of the Company or any of its subsidiaries during the fiscal year,
formerly officers of the Company, or had any relationship otherwise requiring
disclosure hereunder.
15
<PAGE> 18
PERFORMANCE GRAPH
The stock price performance shown on the graph following is not necessarily
indicative of future price performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG KLA-TENCOR CORPORATION,
THE NASDAQ -- US INDEX AND THE HAMBRECHT & QUIST TECHNOLOGY INDEX*
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
KLA-Tencor
Corporation 100.00 60.19 126.21 71.68 167.96 303.23
The Nasdaq-US Index 100.00 127.07 155.88 205.14 292.18 432.23
Hambrecht & Quist
Technology Index 100.00 116.57 151.92 192.17 310.59 543.13
--------------------------------------------------------------------------------
</TABLE>
* Assumes $100 invested on June 30, 1995. The Company's fiscal year end is June
30.
16
<PAGE> 19
CERTAIN TRANSACTIONS
In connection with the merger between KLA Instruments Corporation and
Tencor Instruments (effective April 30, 1997) the Company entered into identical
employment arrangements, subsequently amended, with Kenneth Levy, Jon D.
Tompkins and Kenneth L. Schroeder, all executive officers of the Company. The
arrangements, as amended, provide that certain benefits would be paid if certain
events took place after April 30, 1997. The purpose of these arrangements was to
retain the services of Messrs. Levy, Tompkins and Schroeder to ensure the
continued smooth transition associated with the Merger. The terms of those
arrangements provide that if an individual were to leave the Company after April
30, 1998, subject to releasing the Company from all claims, and in connection
with working part-time for 36 months, he will receive (i) his base salary for
the first 24 months of part-time employment, (ii) a mutually agreeable level of
compensation per month for the final 12 months of part-time employment, (iii) an
annual bonus (based on an achievement of 100% of bonus objectives) in the fiscal
year of his transition to part-time employment, (iv) a bonus paid in the fiscal
year following the payment of the annual bonus above, (based on achievement of
100% of his individual bonus objectives) and (v) a pro-rated bonus for the
fiscal year in which part-time employment ended. During the periods of part-time
employment, all options to exercise stock of the Company which were granted more
than 12 months prior to the termination of full-time employment will continue to
vest. The same benefits shall be payable in the event the Company terminates his
employment without cause. If he is terminated for cause (defined as (i) gross
negligence or willful misconduct in connection with the performance of duties,
(ii) conviction of or plea of nolo contendere to any felony, or (iii) the
embezzlement or misappropriation of Company property) then he will receive a
lump-sum payment equal to 25% of his base salary.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's executive
officers, directors, and persons who own more than ten percent of a registered
class of the Company's equity securities to file reports of ownership and
changes in ownership with the SEC. Executive officers, directors and greater
than ten percent stockholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file. The following
individuals filed a Form 4 for the month ending November 30, 1999: Robert J.
Boehlke, Gary E. Dickerson, Samuel A. Harrell, Neil Richardson, Richard P.
Wallace, and Dennis Fortino. The Forms were filed late due to a processing
error. The following individuals filed a Form 4 for the month ending December
31, 1999: Jon D. Tompkins, Kenneth L. Schroeder, Robert J. Boehlke, and Samuel
A. Harrell. The Forms were filed late due to a processing error.
OTHER MATTERS
The Company knows of no other matters to be submitted to the stockholders
at the Annual Meeting. If any other matters properly come before the Annual
Meeting, it is the intention of the persons named in the enclosed form of Proxy
to vote the shares they represent as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
October 6, 2000
17
<PAGE> 20
PROXY
KLA-TENCOR CORPORATION
Proxy for 2000 Annual Meeting of Stockholders
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints Kenneth Levy and
John H. Kispert, and each of them, as Proxies with full power of substitution,
to represent and vote as designated in this proxy any and all shares of the
common stock of KLA-Tencor Corporation (the "Company"), held or owned by or
standing in the name of the undersigned on the Company's books on September 27,
2000, at the Annual Meeting of Stockholders of the Company to be held at the
Company's offices at One Technology Drive, Milpitas, California 95035, at 11:00
a.m. local time on Friday, November 10, 2000, 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) 10K for
the year ending June 30, 2000.
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
<PAGE> 21
--------------------------------------------------------------------------------
VOTE BY TELEPHONE
--------------------------------------------------------------------------------
Call Toll-Free on a Touch-Tone Phone
1-877-PRX-VOTE (1-877-779-8683).
--------------------------------------------------------------------------------
Follow these four easy steps:
1. Read the accompanying Proxy Statement/Prospectus and Proxy Card.
2. Call the toll-free number
1-877-PRX-VOTE (1-877-779-8683).
3. Enter your 14-digit Voter Control Number located on you Proxy Card above
your name.
4. Follow the recorded instructions.
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YOUR VOTE IS IMPORTANT!
Call 1-877-PRX-VOTE anytime!
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VOTE BY INTERNET
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Follow these four easy steps:
1. Read the accompanying Proxy Statement/Prospectus and Proxy Card.
2. Go to the Website
http://www.eproxyvote.com/klac
3. Enter your 14-digit Voter Control Number located on you Proxy Card above
your name.
4. Follow the instructions provided.
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YOUR VOTE IS IMPORTANT!
Go to http://www.eproxyvote.com/klac anytime!
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET
[X] PLEASE MARK
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.
1. To elect three Class II directors to each serve for a three year term and
until their successors are duly elected.
NOMINEES: (01) Richard J. Elkus, Jr., (02) H. Raymond Bingham and
(03) Robert T. Bond
FOR WITHHELD
[ ] [ ]
[ ] ______________________________________
For all nominees except as noted above
2. To approve an amendment to the Certificate of Incorporation to increase
the number of shares of common stock reserved for issuance thereunder by
250,000,000 shares to 500,000,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending June 30, 2001.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
In their discretion, the proxy holders are authorized to vote on all such other
matters as may properly come before the meeting or any adjournment thereof.
MARK HERE MARK HERE
FOR ADDRESS [ ] IF YOU PLAN [ ]
CHANGE AND TO ATTEND
NOTE AT LEFT THE MEETING
Please sign exactly as you name appears on your stock certificate(s), date and
return this Proxy promptly in the reply envelope provided. Please correct your
address before returning this Proxy. Persons signing in a fiduciary capacity
should so indicate. If shares are held by joint tenants or as community
property, both should sign.
Signature: _________________________________________ Date: __________________
Signature: _________________________________________ Date: __________________
