1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(Mark One)(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 19961997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ________________ TO ________________
COMMISSION FILE NO. 0-9992
KLA INSTRUMENTS------------------------
KLA-TENCOR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-2564110
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
160 RIO ROBLES SAN JOSE, CALIFORNIA 95134
SAN JOSE, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 468-4200875-4200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b)12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------------------------------------------------------------------------------------------
NONE NONE
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g)12(G) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE
COMMON STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
------------------------
Indicate by check mark whether the Registrant:registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrantregistrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X[X] No --- ---[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrantregistrant based upon the average bid and asked pricesclosing price of the registrant's stock, as of
August 31, 1996,1997, was $761,763,320.$5,095,010,757. Shares of common stock held by each
officer and director and by each person or group who owns 5% or more of the
outstanding common stock have been excluded in that such persons or groups may
be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The registrant had 51,050,00584,318,173 shares of Common Stock outstanding as of
August 31, 1996.
21997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended
June 30, 19961997 ("19961997 Annual Report to Stockholders" ) are incorporated by
reference into Parts I, II and IV of this Report. Portions of the Proxy
Statement for the Annual Meeting of Stockholders ("Proxy Statement" ) to be held
on November 18, 1996,1997, and to be filed pursuant to Regulation 14A within 120 days
after registrant's fiscal year ended June 30, 1996,1997, are incorporated by
reference into Part III of this Report.
================================================================================
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
AND ITS PRODUCTSMerger. Effective April 30, 1997, Tencor Instruments ("Tencor") merged
into a wholly-owned subsidiary of KLA Instruments Corporation ("KLA"). Following
the Merger, KLA changed its name to KLA-Tencor Corporation (the "Company"). In
the Merger, shares and options for Tencor common stock were exchanged on a
one-for-one basis for the common stock of KLA. The transaction was accounted for
as a pooling of interests for financial reporting purposes and structured to
qualify as a tax-free reorganization. The stockholders of each of KLA and Tencor
approved the transaction and the transaction was effective April 30, 1997.
The Merger brought together two companies with largely complementary
product lines which provide customers with yield management solutions and
process monitoring products throughout the semiconductor manufacturing process.
As the complexity of the sub-micron semiconductor manufacturing process
increases, the need for more, and more effective, process monitors also
increases. Quickly attaining and then maintaining high yields is one of the most
important determinants of profitability in the semiconductor industry. The
importance of high yields from the manufacturing process has grown dramatically
as wafer sizes increase and process geometries decrease. Total yield management
solutions have taken on a significance which has not been experienced in the
past. The Company, as a result of the Merger, is in a unique position to be the
single source for total yield management solutions with a portfolio of
applications-focused technologies and dedicated yield consulting expertise.
General. The Company was incorporated in Delaware in July 1975. The
Company'sIts
headquarters are located at 160 Rio Robles, San Jose, California, 95134,
telephone (408) 468-4200. Unless the text requires otherwise, the
"Company" or "KLA" refers to KLA Instruments Corporation and its subsidiaries.
KLA875-4200.
The Company is the leader in the design, manufacture, marketing and
service of yield management and process monitoring systems for the semiconductor
industry. KLA believes that it isThe Company uses its technical expertise and understanding of customer
needs to supply unique yield management solutions and one of the world's largest supplier to thebroadest lines
of wafer inspection, thin film measurement, metrology and reticle inspection
and optical metrology equipment markets. KLA'ssystems available in the semiconductor industry. The Company's systems are used
to analyze product and process quality at critical steps in the manufacture ofmanufacturing
process for integrated circuits and to provide feedback soto our customers in
order that fabrication problems can be identified, addressed and contained. This
understanding of defect sources and how to contain them enables semiconductor
manufacturers to increase yields.
Quickly attainingSemiconductor fabrication facilities are increasingly expensive to build
and then maintaining high yields is oneequip. Yield management and process monitoring systems, which typically
represent a small percentage of the most important
determinants of profitability intotal investment required to build and equip
a fabrication facility, enable integrated circuit manufacturers to leverage
these expensive facilities and improve their returns on investment.
The Company's principal market is the semiconductor industry. The Company
believes that its customers typically experience rapid paybacks on their
investments in the Company's systems. The Company sellsindustry, marketing
and selling products worldwide to virtually all of the world'smajor semiconductor
manufacturersmanufacturers. The Company's revenues are derived primarily from product sales,
principally through its direct sales force, and has achieved very high market shares in
its principal businesses.to a lesser extent, through
distributors. The Company's technological strength has enabled it to develop and
introduce major new product families in each of its business units during the
past four years for the following
three business units: WISARD, which addresses semiconductor wafer inspection;
RAPID, which addresses reticle inspection; and Metrology, which addresses
overlay registration and linewidth measurement. The Company believes that its
WISARD and RAPID product families incorporate proprietary technologies which
provide greater sensitivity to defects than any competing systems.last year.
YIELD MANAGEMENT SOLUTIONS
Maximizing yields, or the number of good die per wafer, is a key goal of
modern semiconductor manufacturing. Higher yields increase the revenue a
manufacturer can obtain for each semiconductor wafer processed. As geometry
linewidths decrease, yields become more sensitive to the size and density of
defects. Semiconductor manufacturers use yield management and process monitoring
systems to improve yields by identifying defects, by analyzing them to determine
process problems, and, after corrective action has been taken, by monitoring
subsequent results to ensure that the problem has been contained. Monitoring and
analysis often takes place at various points in the fabrication process as
wafers move through a production cycle consisting of hundreds of separate
process steps.
Semiconductor factories are increasingly expensive to build and equip.
Yield management and process monitoring systems, which typically represent a
small percentage of the total investment required to build and equip a
fabrication facility, enable integrated circuit manufacturers to leverage these
expensive facilities and improve their returns on investment.
The most significant opportunities for yield improvement generally occur
when production is started at new factories and when new products are first
built. Equipment that helps a manufacturer quickly increase new product yields
enables the manufacturer to offer these new products in volume at a time when
they are likely to generate the greatest profits.
2
3
The following are some of the methods used to manage yield, all of which
require the capture and analysis of data gathered through many measurements:
- 3
- Engineering analysis is performed off the manufacturing line to
identify and analyze defect sources. Engineering analysis
equipment operates with very high sensitivity to enable
comprehensive analysis of wafers. Because they operate off-line,
engineering analysis systems do not require high speeds of
operation.
-
- In-line monitoring is used to review the status of circuits
during production steps. Information generated is used to
determine whether the fabrication process steps are within
required tolerances and to make any necessary process
adjustments in real-time before wafer lots move to subsequent
process stations. Because the information is needed quickly to
be of greatest value, in-line monitoring requires both high
throughput and high sensitivity.
- - Pass/fail tests are used at several steps in the manufacturing
process to evaluate products. For example, a pass/fail test is
used to determine whether reticles used in photolithography are
defect-free; electrical pass/fail testing is performed at the
end of the manufacturing process to determine whether products
meet performance specifications.
YIELD MANAGEMENT AND PROCESS MONITORING SYSTEMS
KLA's systemsThe most significant opportunities for yield improvement generally occur
when production is started at new factories and when new products are developedfirst
built. Equipment that helps a manufacturer quickly increase new product yields
enables the manufacturer to offer customersthese new products in volume at a time when
they are likely to generate the greatest profits.
WAFER INSPECTION SYSTEMS
The Company created the market for automated inspection of semiconductor
wafers over 12 years ago. The wafer inspection group product offerings include
unpatterned wafer inspection and patterned wafer inspection tools which are used
to find, count and characterize particles and pattern defects on wafers both in
engineering applications and in-line at various stages during the semiconductor
and wafer manufacturing processes. Semiconductor manufacturers use wafer
inspection systems to monitor their manufacturing processes and to refine those
processes to increase the yield of acceptable integrated circuits. Accordingly,
semiconductor manufacturers base their purchase of wafer inspection systems on a
variety of criteria, including sensitivity, throughput, total cost of ownership,
ease of use, degree of automation, system repeatability and correlation and its
ability to be integrated into overall yield management systems. The Company
offers two primary product families in the wafer inspection area.
In 1992, the Company introduced the 2130 inspection required for
microprocessors and other logic devices as well as both the logic and repeating
array portions of memory devices. The 2130 was subsequently upgraded with each
new model having greater sensitivity and greater maximum speed compared to its
predecessor. The 2135 was introduced in 1996 with twice the throughput and
higher sensitivity compared to its predecessor. In 1997, the Company introduced
the 2138, a new patterned wafer inspection system specifically designed to
address chemical mechanical planarization (CMP) and other demanding inspection
applications. The 2138 is based on the 2135 inspection platform and combines an
ultra- broadband illumination source and significantly improved bright field
optics with Segmented Auto Thresholding. This combination significantly
increases defect sensitivity and capture, while reducing or eliminating false
defect counts in semiconductor processes. The 2138 extends the Company's full
line of intelligent in-line monitoring solutions.
The Company's Surfscan(R) family of laser-scanning products are widely
used for wafer qualification, process monitoring and equipment monitoring. They
provide the high sensitivity, fast throughput and low cost of ownership required
in a production environment and are used in virtually all semiconductor
manufacturing processes. Surfscans are key components of the defect reduction
strategies of many leading semiconductor manufacturers. The systems use a
standardized file format that allow defect location data to be easily
transferred to off-line review stations for defect classification. The latest
patterned Surfscan, the Surfscan AIT, is the cost/performance leader for in-line
monitoring of deposited films and CMP layers.
The Surfscan AIT and the 2138 are part of the Company's Intelligent Line
Monitoring solution, which includes the full line of patterned wafer inspection
systems, as well as the IMPACT/Online, ADC, CRS/Offline ADC and Quest defect
data analysis systems. This integrated yield management solutions. KLA offersapproach provides
semiconductor device manufacturers with a comprehensive tool set which enables
the acceleration of time-to-yield enhancements and yield goals.
2
4
The SP1 is the Company's first system to address the unique unpatterned
inspection requirements of 300mm wafers. It performs rapid, highly sensitive
inspection of unpatterned 300mm wafers, providing capabilities critical to wafer
and equipment manufacturers who are developing products for emerging 0.25 micron
process technologies and below. It combines a stationary illumination beam,
uniform axi-symmetric collection optics and an optional bright field channel
with a rotating wafer scheme and allows detection of surface defects and
contaminants at speeds of 100 wafers per hour on 300mm wafers, and 150 wafers
per hour on 200mm wafers. The Surfscan 6420 detects submicron defects on metal
films and rough surfaces but still provides sensitivity down to 0.1 micron on
polished silicon. It is effective for detecting defects on non-uniform films, a
critical requirement for CMP applications.
As feature sizes of semiconductor circuits continue to decrease for
leading edge semiconductor products, the Company believes that conventional
optical technologies ultimately will begin to reach physical limits imposed by
the wavelength of light and fail to provide the necessary inspection resolution.
Working closely with those customers with the most advanced inspection
requirements, the Company has developed the SemSPEC, the industry's only fully
automatic electron beam inspection system. This system, comprised of the
industry's fastest scanning electron-optical column and a high speed image
computer, are used for wafer and x-ray mask inspection. The development of these
systems was funded in part by customer-sponsored research and development
programs. The Company expects the market for these inspection systems for key steps in the semiconductor
manufacturing process andto emerge
slowly.
The Company offers analysis systems comprised of database management
hardware and software to translate raw inspection data into patterns which
reveal process problems. The Company's wafer inspection and metrology systems
are used for engineering analysis and in-line monitoring, and its reticle
inspection systems are used for pass/fail tests. The Company's software productivity and analysis
systems collect, store and analyze data collected by test equipment manufactured
by both the Company and others to provide semiconductor manufacturers with an
integrated yield management application. The software systems identify data
sources, show defect trends and help semiconductor manufacturers develop
long-term yield improvement strategies. In 1997, the Company introduced IMPACT,
its automated defect classification (ADC) tool, which will enable semiconductor
manufacturers to match automated defect classification schemes both within and
between fabrication facilities to accelerate the ramp to higher process yields.
With ADC matching, semiconductor manufacturers can develop a defect
classification recipe on one system and then export it to any other system or
fabrication facility running identical processes. The Company has an OEM
agreement with Uniphase Corporation to sell Uniphase Corporation's confocal
review station (CRS) ADC. The CRS interfaces with the Company's principalinspection
systems to collect, store and analyze defect data generated by the Surfscan
systems.
The PRISM group, formed in April 1994 to address the market for software
products that can be utilized in semiconductor fabrication applications for
yield management and productivity improvement, has developed and is marketing
two software product lines - Discovery and CIMA. Discovery is an enterprise-wide
yield management system that collects, stores and correlates yield information
from multiple data sources in a fabrication facility. This product was the
result of a cooperative development project with Motorola. CIMA is a test floor
automation product that collects test data from, and automates the operation of,
the wafer floor.
OPTICAL METROLOGY
Lithography for sub-micron semiconductor fabrication requires
increasingly stringent overlay and critical dimension tolerances. In particular,
decreasing linewidths, larger die sizes, and additional layers have made overlay
mis-registration errors a crucial cause of yield loss. To address these
challenges, the Company offers the 5000 series metrology systems: the 5100 for
overlay, and the 5105 for both overlay and critical dimension measurement. In
1996, the Company introduced the 5200 overlay system, which has performance and
usability enhancements compared to the 5100.
The Company, utilizing its expertise in digital image processing, has
developed sophisticated measurement algorithms that are more tolerant of process
variations. Using coherence probe microscopy, the system scans the image-forming
coherence region through the wafer plane, only gathering information from
in-focus surfaces. As a result, measurements are more tolerant of process and
substrate reflectivity variations than those from ordinary optical systems. The
precision measurements from the 5000 series identify the magnitude and direction
of overlay mis-registration errors arising from the stepping process and from
optical distortion inherent in the stepper lens. Based upon these measurements,
3
5
users can fine-tune the stepper program to compensate for these errors, and
improve process yield.
E-BEAM METROLOGY
The Company broadened its portfolio of metrology products in December
1994 with the acquisition of Metrologix, Inc., a manufacturer of advanced
electron beam measurement equipment. With this acquisition, the Company's E-Beam
metrology business units are: Wafer Inspection Systems (WISARD);
Reticle Inspection Systems (RAPID); Metrology, including Optical Metrology and
E-Beam Metrology; Software Productivity and Analysis Systems (PRISM);gained an established position in the Critical Dimension
Scanning Electron Microscope Inspection Systems (SEMSpec);(CD-SEM) inspection market, a market which the
Company believes is larger than the optical overlay market, and ATS Watcher Division
(ATS).
WISARD-WAFER INSPECTION SYSTEMS
KLA's WISARD business unit createdone which it
believes will grow as semiconductor manufacturers continue to produce more
complex semiconductor devices.
The Company's first generation E-Beam metrology system features high
throughput and automated setup. One major U.S. memory manufacturer and two major
U.S. microprocessor manufacturers have purchased multiple systems for use in
both production and research and development. The Company has made substantial
investments in engineering and manufacturing to bring to market the
market for automated inspectionnext-generation tool, the 8100-R CD-SEM. Production shipments of semiconductor wafers withthis product
began in June 1996.
FILM MEASUREMENT
The Company's film measurement division produces both film thickness and
resistivity measurement tools. The film thickness products are used to measure a
variety of optical properties of thin films, while the introductionresistivity products
measure the resistivity of the KLA 2000 seriesvarious layers used to make integrated circuits.
These products are used to control a wide range of wafer fabrication steps,
where within-wafer and wafer-to-wafer uniformity of the process is of paramount
importance to semiconductor manufacturers achieving high yields at the lowest
possible cost.
The Company has been a leader in the thin film market since entering it
over eleven12 years ago. KLA continuesIn 1995, the Company introduced the UV-1250SE, which brought
a powerful new technology, spectroscopic ellipsometry, to have a predominant market shareproduction. Continuing
innovations resulted in the UV-1280SE with its current
generation of wafer inspection systems, the 2100 series.
The 2100 series of inspection systems offers an increase in inspection
speed of up to 2,000 times over that of KLA's original wafer inspection system.
This marked increase in speed and sensitivity allows customers to obtain very
prompt feedback on process status by placing wafer inspection systems on the
production line. The selectionone of the technology architecture formost robust measurement
capabilities in the 2100
series was madeindustry. Thin film systems are used throughout the
manufacturing facility which creates significant challenges in measurement
flexibility, recipe management and factory floor computer automation. The
Company's UV product line, which has an installed base of over 500 systems has
addressed these requirements by delivering powerful measurement engines in
reliable, easy to allowuse system designs. The systems also incorporate software
which enables extensive use of host computer operation to control the base unit to support a family of products capable
of performance enhancements through upgrades of various subsystems. The first
model,equipment,
analyze the KLA 2110, was introduced in 1991 with sufficient speeddata and sensitivity to enable in-line inspection of repeating arrays typical in memory
devices. Since then, KLA has introduced three new repeating array models in
succession, the 2111, 2112 and 2115. Each new model has had greater sensitivity
and greater maximum speed compared to its predecessor. The 2115 was introduced
in 1996 with twice the throughput and higher sensitivity comparedfeedback to the 2112.
In 1992, KLA introducedprocess equipment, all steps which are
critical for effective process control and maintaining high yields.
The Company's resistivity products have lead their markets since the
KLA 2130 whichCompany first entered this market in 1983. The high end product, the RS75te, is
capableused today in diffusion, implant and metal deposition for equipment monitoring
and control.
SURFACE METROLOGY
Stylus profilers are used to measure the surface topography of "all pattern"
inspection required for microprocessorsfilms
and other logic devicesetched surfaces and are used in basic research and development as well as
bothproduction and quality control areas. In addition, the logicCompany produces stress
measurement systems which detect reliability related problems such as film
cracking, voiding and repeating array portions of memory devices. Since then, KLA has
introduced three new all pattern inspection models in succession, the 2131, 2132
and 2135. Each new model has had greater sensitivity and greater maximum speed
compared to its predecessor. The 2135 was introduced in 1996 with twice the
throughput and higher sensitivity compared to the 2132.lifting. The Company believes
that there are further opportunitiesrecently introduced a new
high-resolution profiler (HRP) product which significantly increased the
potential applications for surface profilers. The HRP-200 is the first metrology
system to expandoffer the 2100 seriescombined monitoring capability traditionally achieved by two
different instruments, an in-line profiler for measuring wide spatial problems
such as dishing and has several
new models under development.
3
4
RAPID-RETICLEerosion and the off-line atomic force microscope for the
nanoscale problem of plug recess. The data storage industry is an emerging
market for the Company's metrology systems. Recent achievements in utilization
efficiencies in this industry have increased the need to monitor surface
topography.
RETICLE INSPECTION SYSTEMS
RAPID, KLA'sthe Company's first business unit, created the market for
automated inspection of reticles and photomasks
4
6
for the semiconductor manufacturing industry over 1819 years ago and continues to
have a predominant market share. KLAshare of this market. The Company has delivered over 750800
reticle and photomask inspection systems worldwide. During photolithography, a
stepper projects a circuit pattern from a reticle onto a wafer. Error-free
reticles are the first step in ensuring high yields in the manufacturing process
because defects in reticles can translate into millions of ruined die.
In 1992, KLA introduced a new generation of reticle inspection systems, the
300 series. The KLA 301 Reticle Inspection System and the KLA 50 Reference Data
Computer together form the KLACompany's 351 Inspection System, which represents a major
advance in speed, sensitivity and flexibility. The KLA 351 offers the highest
inspection sensitivity available in the marketplace, which the Company believes
is vital to meet reticle inspection requirements for today's more complex
microprocessors and larger DRAMs. This dedicated image processor employs a
flexible system architecture which permits future upgrades and enhancements
through software, rather than hardware changes. Furthermore, the KLA 351's
optics include a rotating telescope turret to provide three sensitivities in one
system. The KLA 351 offers flexibility for users who need a versatile inspection
system to address the inspection needs of both the most demanding and the more
routine semiconductor manufacturing processes. Users may obtain higher
throughput by selecting lower sensitivity inspections.
The KLA 351product incorporates a reference database generator
and data preparation system which gives full die-to-database functionality to
the inspection, permitting inspection against the ideal reticle pattern as
specified by the user's CAD program. The Company is continuing to develop
enhancements to the KLA 351 inspection system to improve performance, serviceability
and reliability. In 1995, the Company introduced a new reticle inspection
product, STARlight, which uses reflected and transmitted light detection
techniques simultaneously to identify reticle contaminants, including particles.
STARlight permits users to identify defects which previously had not been
detectable. The Company believes STARlight will be appliedused by mask manufacturers
and semiconductor manufacturers. STARlight is offered as an option on the KLA
351 inspection system and as a stand-alone unit. METROLOGY GROUP
Optical Metrology Business Unit. Lithography for sub-micron semiconductor
fabrication requires increasingly stringent overlayIn 1997, the Company introduced
two new reticle and critical dimension
tolerances. In particular, decreasing linewidths, larger die sizes, and
additional layers have made overlay mis-registration errors a crucial cause of
yield loss. To address these challenges, KLA offersphotomask inspection enhancements, the KLA 5000 series
metrology systems: the 5100 for overlay;Advanced Performance
Algorithm (APA) and the 5105 for both overlaySTARlight High Resolution option. These enhancements
enable highly accurate and critical dimension measurement. In June 1996, KLA introduced the 5200 overlay
system, which has performance and usability enhancements compared to the 5100.
KLA estimates that during fiscal 1994, 1995 and 1996, it had the leading share
in the worldwide market for overlay registration systems.reliable inspection of next-generation 0.25 micron
reticles, including reticles with complex optical proximity correction
geometries.
CUSTOMERS
The KLA 5000 series uses a patented coherence probe microscopy technology
which permits fast autofocus and precision critical dimension measurements.
Applying its expertise in digital image processing, KLA has developed
sophisticated measurement algorithms that are more tolerant of process
variations. With coherence probe microscopy, the system scans the image-forming
coherence region through the wafer plane, only gathering information from
in-focus surfaces. As a result, measurements are more tolerant of process and
substrate reflectivity variations than those from ordinary optical systems.
The precision measurements from the KLA 5000 series identify the magnitude
and direction of overlay mis-registration errors arising from the stepping
process and from optical distortion inherent in the stepper lens. Based upon
these measurements, users can fine-tune the stepper program to compensate for
these errors, and improve process yield.
The disk drive manufacturing industry is an emerging market for KLA's
metrology systems. Disk drive manufacturers use a semiconductor photolithography
process to produce thin film heads. The Company's coherence probe technology is
particularly well-suited to handle the complex topography characteristics
encountered in the thin film head process. The Company believes that its
solution to these requirements has allowed it to achieve the major share of the
thin film head metrology market.
4
5
E-Beam Metrology Business Unit. KLA broadened its portfolio of metrology
products in December 1994 with the acquisition of Metrologix, Inc., a
manufacturer of advanced electron beam measurement equipment. With this
acquisition, KLA's E-Beam Metrology business gained an established position in
the CD SEM inspection market, a market which KLA believes is larger than the
optical overlay market, and one which it believes will grow as semiconductor
manufacturers continue to produce more complex semiconductor devices.
KLA's first generation E-Beam metrology system features high throughput and
automated setup. One major U.S. memory manufacturer and two major U.S.
microprocessor manufacturers have purchased multiple systems for use in both
production and research and development. The Company has made substantial
investments in engineering and manufacturing to bring to market the
next-generation tool, the KLA 8100. Production shipments of this product began
in June 1996.
PRISM-SOFTWARE PRODUCTIVITY AND ANALYSIS SYSTEMS
The PRISM division was formed in April 1994 to address the market for
software products that can be utilized in semiconductor fabrication applications
for yield management and productivity improvement. The PRISM division is
developing and marketing two software product lines, Discovery and CIMA.
Discovery is an enterprise-wide yield management system that collects, stores
and correlates yield information from multiple data sources in a fabrication
facility. This product was the result of a cooperative development project with
Motorola. The Company released production versions of Discovery in early fiscal
1996. CIMA is a test floor automation product that was developed by the Company
and introduced in August 1994. CIMA collects test data from, and automates the
operation of, the wafer floor. CIMA is currently in production and is installed
in several modern fabrication facilities. PRISM has formed a client services
organization to provide system integration and consulting services to assist its
customers in the integration of its software products into the facility's
information systems.
SEMSPEC-SCANNING ELECTRON MICROSCOPE INSPECTION SYSTEMS
As feature sizes of semiconductor circuits continue to decrease for leading
edge semiconductor products, the Company believes that conventional optical
technologies ultimately will begin to reach physical limits imposed by the
wavelength of light and fail to provide the necessary inspection resolution.
Working closely with those customers with the most advanced inspection
requirements, KLA has developed the world's only fully automatic electron beam
inspection systems. These systems, comprised of the world's fastest scanning
electron-optical column and a high speed image computer, are used for wafer and
x-ray mask inspection. The development of these systems was funded in part by
customer-sponsored research and development programs. KLA expects the market for
these inspection systems to emerge slowly.
ATS WATCHER DIVISION-IMAGE PROCESSING SUBSYSTEMS
The ATS Watcher division develops and manufactures the image processing
electronics and optical subsystems sold to Tokyo Electron, Limited ("TEL") for
inclusion in TEL's wafer probers. TEL manufactures the prober's mechanical
chassis and incorporates the KLA electronics and subsystems.
On April 30, 1996, TEL and KLA reached agreement to transfer all of KLA's
prober distribution operations to TEL. Under the agreement, KLA transferred all
prober related assets to TEL, and KLA is no longer selling or servicing prober
systems.
CUSTOMERS AND APPLICATIONS
The Company believes that it is one of the few suppliers which sells its systems to virtually all of the world's
semiconductor manufacturers. In fiscal 1994,1997, 1996 and 1995, and 1996, no single customer
accounted for more than 10% of the Company's revenues.
5
6INTERNATIONAL REVENUES
The Company has wholly-owned foreign subsidiaries or foreign branches of
domestic subsidiaries in Japan, Korea, Taiwan, Europe, Israel, Singapore and
Malaysia for marketing, sales and service of products. In addition, the Company
has manufacturing operations in Israel for its metrology products. International
sales accounted for approximately 65% of the Company's revenues for each of
1997, 1996 and 1995. For information regarding the Company's revenues from
foreign operations for the Company's last three fiscal years, see Note 9 of
Notes to Consolidated Financial Statements incorporated herein by reference to
Exhibit 13.1 hereto.
The Company believes that foreign sales will continue to be a
significant percentage of revenues. The future performance of the Company will
be dependent upon, in part, its ability to continue to compete successfully in
Asia, one of the largest areas for the sale of yield management services in
process monitoring equipment. The Company's ability to compete in this area in
the future is dependent upon the continuation of favorable trading relationships
between the region (especially Japan and Korea) and the United States and the
continuing ability of the Company to maintain satisfactory relationships with
leading semiconductor companies in the region. International sales and
operations may be adversely affected by imposition of governmental controls,
restrictions on export technology, political instability, trade restrictions,
changes in tariffs and the difficulties associated with staffing and managing
international operations. In addition, international sales may be adversely
affected by the economic conditions in each country. The revenues from the
Company's international business may be affected by fluctuations in currency
exchange rates. Although the Company attempts to manage near term currency risks
through "hedging," there can be no assurance that such efforts will be adequate.
These factors could have a material adverse effect on the Company's future
business and financial results.
SALES, SERVICE AND MARKETING
The Company believes that the size and location of its field sales,
service and applications engineering organization represents a competitive
advantage in its served markets. In the United States, Europe, Asia Pacific and
Japan the Company has a direct sales force locatedalthough in major geographical markets. The
Company'sthe past it has used a
mix of direct sales service and applications facilities throughout the world
employ over 600 sales, service and applications engineers.
In fiscal 1996, the Company sold its systems in Japan, Singapore and Taiwan
through local sales representatives. Starting in July 1996, KLA began selling
direct in these countries and no longer uses a local distributor/sales representative except in Japan. In Japan, thearrangements. The
Company took over the majority of the sales
duties in July 1996, but will be phasing out its distributor (TEL) through
December 1996.
KLA maintains an export compliance program that fully meets the requirements
of the U.S. Department of Commerce. KLA has never been denied
approvalCommerce and the Department of State. The Company does
not consider its business to ship against a purchase order.
For information regardingbe seasonal in nature, but it is cyclical with
respect to the Company's revenues from foreign operations
forcapital equipment procurement practices of major semiconductor
manufacturers and is impacted by the Company's last three fiscal years, see Note 10 on page 22investment patterns of the 1996
Annual Report to Stockholders, incorporated herein by reference.
TECHNOLOGYsuch manufacturers
in different global markets.
5
7
The Company's inspectionsales, service and metrology systems precisely capture trillions
of features on wafersapplications facilities throughout the
world employ over 1500 sales, service and reticles that are as small as 10 millionths of an inch
on a side and analyze each of these features for possible defects through the
use of the following technologies:
Image Acquisition. The Company's systems acquire images of sub-micron
features on wafers and reticles. The quality and brightness of the images
greatly influence the speed and sensitivity of the final inspection system.applications engineers. The Company
has developed a wide range of optical imaging systems, such as laser
scanners, interference microscope systems,maintains sales and conventional white lightservice offices throughout the United States and deep
UV optical systems. To satisfy the future sensitivity requirements of advanced
lithography, the Company has developed an electron beam system which
incorporates the world's fastest scanning electron-optical column.
Image Conversion. The Company's equipment converts the photon or electron
image to an electronic digital format. The Company has been a pioneer in the use
of time-delay-integration sensors. The Company also utilizes other image
conversion technologies such as avalanche diode detectors, photo multiplier
systemsJapan,
Korea, Taiwan, Singapore, Europe and fixed frame pickups.
Precision Mechanics. In the most common configuration of an inspection
system, the reticle or the wafer is moved at a constant speed through the field
of the imaging system. Since areas of interest are as small as 5 millionths of
an inch, and vibrations in the scanning system of one-tenth of the area of
interest can degrade system performance, the mechanical stage must be extremely
smooth and precise. To address these requirements, the Company has ten years of
experience in the design and manufacture of air-bearing linear drive stages.
Proprietary Algorithms. To perform the inspection or measurement task, the
Company's equipment examines the properties of the digitized images using a set
of logical steps (algorithms) which measure the desired image property. The
Company's engineers develop sets of algorithms that are specifically tailored to
obtain optimum performance for its wafer, reticle and metrology systems. These
algorithms are largely responsible for the state-of-the-art performance of the
Company's systems.
Image Computers. The combination of proprietary algorithms and special
purpose computers allows the Company's equipment to have a high performance to
cost ratio. While general purpose computers are capable of executing the
Company's algorithms, very few computer architectures can sustain the computing
speed that is required in the Company's systems. To address this requirement,
the Company develops and builds special purpose image computers designed to
execute its algorithms.
Database Analysis. Many of the inspections that the Company's reticle
inspection systems perform require a digital image representation of the ideal
pattern obtained from the data used to manufacture the reticle. This capability
allows inspection systems to compare the actual circuit with its design
specifications. The Company has been developing database systems for over 16
years to satisfy this objective. Its present generation of special purpose
database computers is capable of generating simulated images at the same high
speeds at which the Company's image conversion systems generate the digital
image from the actual reticle.
6
7
Statistical Process Control. Integrated circuit yield management and
process monitoring systems generate hundreds of thousands of data items each
day. To enhance the utility of this data, the Company has a team of software
engineers who build systems containing statistical process control software to
simplify data and present this data in a useful manner. The Company is
continuing to work on new software to enhance its statistical process control
systems.Israel.
RESEARCH AND DEVELOPMENT
The market for yield management and process monitoring systems is
characterized by rapid technological development and product innovation. The
Company believes that continued and timely development of new products and
enhancements to existing products are necessary to maintain its competitive
position. Accordingly, the Company devotes a significant portion of its
personnel and financial resources to research and development programs and seeks
to maintain close relationships with customers to remain responsive to their
needs. In order to meet continuing developments in the semiconductor industry
and to broaden the applications for its image processing technology, the Company
is committed to significant engineering efforts for product improvement and new
product development. New product introductions may contribute to fluctuations in
operating results, since customers may defer ordering products from existing
product lines. If new products have reliability or quality problems, reduced
orders, higher manufacturing costs, delays in acceptance of and payment for new
products and additional service and warranty expense may result. On occasion,
the Company has experienced reliability and quality problems in connection with
certain product introductions, resulting in some of these consequences. There
can be no assurance that the Company will successfully develop and manufacture
new hardware and software products or that new hardware and software products
introduced by the Company will be accepted in the marketplace. If the Company
does not successfully introduce new products, its results of operations will be
affected adversely.
The Company reports engineering, research and development
expense net of this funding.
KLA typically receives some external funding from customers,
industry groups, and government sources to augment its engineering, research and
development efforts. The Company reports engineering, research and development
expense net of this funding. Thus, recorded amountsAmounts for engineering, research and development
expense were 9%13.0%, 10%10.6% and 11%10.6% of sales in fiscal 1994,1997, 1996 and 1995, and
1996,
respectively. For information regarding the Company's research and development
expense during the last three fiscal years, see Notes 1Management's Discussion and
8 on
pages 18Analysis of Results of Operations and 22, respectively, of the 1996 Annual Report to StockholdersFinancial Condition incorporated herein by
reference.reference to Exhibit 13.1 hereto.
MANUFACTURING
The Company's principal manufacturing activities take place in San Jose
and Milpitas, California and Migdal Ha'Emek, Israel, and consist primarily of
manufacturing, assembling and testing components and subassemblies which are
acquired from third party vendors and then integrated into the Company's
finished products. Due to the discontinuation of the Wafer Probing Systems agreement with TEL, the
Company discontinued manufacturing operations in Bevaix, Switzerland in
April 1996. The Company isemploys over 1800 manufacturing and engineering
personnel and also cross-trainingcross-trains personnel so that it canin order to respond to changes in
product mix by reallocatingmix. This reallocation of personnel is in addition to hiring.
The Company has been working with key vendors to improve inventory
management. Volume purchase agreements and just-in-time delivery schedules have
helped control both inventory levels and costs. The Company's manufacturing
engineers, in conjunction with key vendors, are improving the manufacturability
and reliability of the new wafer and reticle inspection systems and metrology
systems.hires.
Many of the components and subassemblies are standard products, although
certain items are made to Company specifications. Certain of the components and
subassemblies included in the Company's systems are obtained from a single
source or a limited group of suppliers. Those parts subject to single or limited
source supply are routinely monitored by management and the Company endeavors to
ensure that adequate supplies are available to maintain manufacturing schedules,
should supply for any part be interrupted. Although the Company seeks to reduce
its dependence on sole and limited source suppliers, in some cases the partial
or complete loss of certain of these sources could disrupt scheduled deliveries
to customers and have at least a temporarymaterial adverse effect on the Company's results of
operations and damage customer relationships.
COMPETITION
The worldwide market for yield management and process control systems is
highly competitive. In each of the markets it serves, the Company faces
competition from established and potential competitors, some of which may have
greater financial, engineering, manufacturing and marketing resources than the
Company. The Company believes that to remain competitive it will require
significant financial resources in order to offer a broad range of products, to
maintain customer service and support centers worldwide, and to invest in
product and process research and development. The
6
8
semiconductor equipment industry is becoming increasingly dominated by large
manufacturers such as Applied Materials, Inc. which recently entered the wafer
defect inspection market, Hitachi Electronics Engineering Co., Ltd. and Tokyo
Electron Limited, who have the resources to support customers on a worldwide
basis. Many of these competitors have substantially greater financial resources
and more extensive engineering, manufacturing, marketing and customer service
and support capabilities than the Company. The Company expects its competitors
to continue to improve the design and performance of their current products and
processes and to introduce new products and processes with improved price and
performance characteristics. No assurance can be given that the Company will be
able to continue to compete successfully against its competitors.
Significant competitive factors in the market for yield management and
process control systems include system performance, ease of use, reliability,
installed base and technical service and support. The Company believes that,
while price and delivery are important competitive factors, the customers'
overriding requirement is for systems which easily and effectively incorporate
automated, highly accurate inspection capabilities into their existing
manufacturing processes, thereby enhancing productivity. The Company's yield
management and process control systems for the semiconductor industry are
generally higher priced than those of its present competitors and are intended
to compete based upon performance and technical capabilities. These systems also
compete with less expensive, more labor-intensive manual inspection devices.
In addition, in configuring their fabrication plants, semiconductor
manufacturers increasingly tend to select specific items of manufacturing
equipment for all of the fabrication facilities used to produce each generation
of integrated circuits. As a result of this process, the Company's failure to
have one or more of its products selected by a semiconductor manufacturer for
use in its facilities for a particular generation of integrated circuits may
effectively eliminate sales of that product for all of that manufacturer's
fabrication plants used for that generation of integrated circuits. The Company's wafer and reticle inspection systemsfailure
to have a predominant share
of their respective markets. The Company believes that it is the leading
provider of overlay registration systems.
7
8
Manyone or more of the Company's competitors are investing inproducts selected by a major semiconductor
manufacturer, especially one that is a significant customer of the developmentCompany, for
a particular generation of newits integrated circuit products aimed at applications currently served bycould have a
significant and long-term adverse effect on the Company. The Company's competitors can be expected to continue to improve the design and performanceresults of their products in each product area and to introduce new products with
competitive price/performance characteristics. Competitive pressures often
necessitate price reductions which can adversely affect operating results.operations.
Although the Company believes that it has certain technical and other advantages
overbeen relatively successful to date in these selection
decisions, not all of the Company's products have been selected by each of its
competitors, maintaining such advantages will require a continued high
levelcustomers for fabrication facilities for each generation of investment by the Company in research and development and sales and
marketing. Thereintegrated circuits.
Further, there can be no assurance that the CompanyCompany's products will have sufficient
resources to continue to make such investmentsbe selected
in the future, or that the Company will continue to be ableas successful in
connection with selection processes as it has been to make the technological advances necessary to maintain these competitive
advantages.
The yield management and process control industry is characterized by
rapidly changing technology and a high rate of technological obsolescence.
Development of new technologies that have price/performance characteristics
superior to the Company's technologies could adversely affect the Company's
results of operations. In order to remain competitive, the Company believes that
it will be necessary to expend substantial effort on continuing product
improvement and new product development. There can be no assurance that the
Company will be able to develop and market new products successfully or that the
products introduced by others will not render the Company's products or
technologies non-competitive or obsolete.date.
PATENTS AND OTHER PROPRIETARY RIGHTS
The Company protects its proprietary technology through a variety of
intellectual property laws including patent, copyright and trade secrets law;
however, the Company believes that, due to the rapid pace of innovation within
the yield management and process control systems industry, its protection of
patent and other intellectual property rights is less important than factors
such as its technological expertise, continuing development of new systems,
market penetration and installed base and the ability to provide comprehensive
support and service to customers. There can be no assurance that the Company
will be able to protect its technology or that competitors will not be able to
develop similar technology independently.
The Company protects its proprietary technology through a variety of
intellectual property laws includingcurrently holds 106 U.S. patents copyrights and trade secrets. The
Company's source code is protected as a trade secret and as an unpublished
copyright work. Thehas applied for 33
additional patents in the United States. In addition, the Company has a number of United States24 foreign
patents and applied for 75 additional foreign patents. From time to time the
Company acquires license rights under U.S. and foreign patents and patent applications. The Company's effort to protect its intellectual
propertyother
proprietary rights through trade secret and copyright protection may be impaired ifof third parties are able to copy or otherwise obtain and use the Company's
technology without authorization. Effective intellectual property protection may
be unavailable or limited in certain foreign countries. In addition, the
semiconductor industry is characterized by frequent litigation regarding patent
and other intellectual property rights.parties. No assurance can be given that patents will
be issued on any patent heldof the Company's applications, that license assignments will be
made as anticipated or that the Company's patents, licenses or other proprietary
rights will be sufficiently broad to protect its technology. In addition, no
assurance can be given that any patents issued to or licensed by the Company
will not be challenged, invalidated or circumvented or that the rights granted
thereunder will provide sufficient protection.a competitive advantage to the Company.
BACKLOG
Backlog ordersAt June 30, 1997, the Company's backlog for systems were $250 andtotaled $573
million, compared to $385 million at June 30, 1995 and
1996, respectively.1996. In general, systems ship
within six months to a year after receipt of a customer's purchase order. The
Company expects to fill the present backlog of orders during fiscal 1998. All
orders are subject to cancellation or delay by the customer
7
9
with limited or no penalty. The Company's backlog is not necessarily indicative
of actual sales for any succeeding period.
EMPLOYEES
As of August 31, 1996,June 30, 1997, the Company employed a total of approximately 2,5003,600
persons. None of the Company's employees are represented by a labor union. The
Company has experienced no work stoppages and believes that its employee
relations are good.
Competition in the recruiting of personnel in the semiconductor and
semiconductor equipment industry is intense. The Company believes that its
future success will depend in part on its continued ability to hire and retain
qualified management, marketing and technical employees.
8
9
ITEM 2. PROPERTIES
The Company owns a corporate facility which houses engineering,
manufacturing and administrative functions in San Jose, California, occupying
approximately 232,000 square feet. The Company purchased this facility in 1990Certain information concerning the Company's properties at a total cost of approximately $30 million, including improvements.June 30, 1997
is set forth below:
Location Type Principal use Footage Ownership
- -------- ---- ------------- ------- ---------
San Jose, CA Office, Corporate Headquarters 711,667 lease
plant, Research and Engineering,
warehouse Marketing, Manufacturing,
Sales and Service and
Sales Administration
Milpitas, CA Office, Research and Engineering, 563,565 lease
plant, Marketing, Manufacturing,
warehouse Sales and Service and
Sales Administration
Austin, TX office Sales and Service, Training 27,424 lease
Naruse, Japan office Sales and Service 29,107 lease
Yokohama, Japan office Sales and Service 23,057 lease
Seoul, Korea office Sales and Service 17,558 lease
Hsinchu, Taiwan office Sales and Service 14,892 lease
Migdal Ha'Emek, office Research and Engineering, 53,800 lease
Israel Marketing, Manufacturing,
Sales and Service and
Sales Administration
8
10
The Company leases additional office space for manufacturing, engineering, sales and
service activities, including seven locations in the U.S., eleven in Japan,
eight in Europe, two each in Korea and Israel, and one each in Malaysia and
Taiwan. The Companyseveral other facilities under operating leases three buildings adjacent to its campus facility,
consisting of an aggregate of approximately 87,000 square feet. Two of these
leases have been extended to fiscal 2000 (73,000 square feet).
Inthat
expire at various times through June 1995, the Company entered into a five-year operating lease for a
105,000 square-foot building constructed on land owned by the Company in San
Jose, California. Monthly rent payments for the building commenced on July 1,
1996, and will vary based on the London interbank offering rate (LIBOR). The
Company may, at its option, purchase the building during the term of the lease
for $12.5 million. In August 1995, the Company entered into a five-year
operating lease agreement for an additional 120,000 square feet in two
buildings in San Jose, California. Monthly rent payments for the buildings
commenced on May 1, 1996, and will vary based on the LIBOR rate. The Company
may, at its option, purchase the buildings during the term of the lease for
$18.7 million. If the Company does not purchase any or all of the buildings30, 2012 with renewal options at the end of their respective leases, the Company will guarantee the lessor 85%
of the aforementioned purchase prices of the building or buildings not
purchased. In addition, the lease agreements require the Companyfair
market value for additional periods up to maintain,
among other items, minimum quick ratio, tangible net worth and profitability.
As of June 30, 1996, the Company wasfive years. See Note 4 to Notes to
Consolidated Financial Statements in compliance with all of these covenants.Exhibit 13.1 hereto.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
ItemNone.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.On April 30, 1997 a Special Meeting of the Stockholders was held. At
that meeting, the Company's stockholders approved the following three proposals:
1. Proposal to issue shares of the common stock to the shareholders
of Tencor Instruments in accordance with a merger agreement
among the Company, Tencor Instruments and a wholly-owned
subsidiary of the Company:
FOR: 37,673,729
ABSTAIN: 65,188
AGAINST: 58,776
2. Proposal to amend the Company's Certificate of Incorporation to
change the name of the Company to KLA-Tencor Corporation:
FOR: 38,368,617
ABSTAIN: 73,058
AGAINST: 78,877
3. Proposal to amend the Company's Certificate of Incorporation to
increase the number of authorized shares of the Company from
175,000,000 to 250,000,000 and to eliminate the designation of a
class of junior common stock:
FOR: 37,435,273
ABSTAIN: 79,605
AGAINST: 533,500
9
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
"Common Stock" on page 24 of the 1996 Annual Report to StockholdersThe information required by this Item is incorporated herein by
reference.reference to Exhibit 13.1 hereto.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Financial Data" on page 14FIVE YEAR FINANCIAL HIGHLIGHTS
In thousands, except per share data
Year ended June 30, 1993 1994 1995 1996 1997
- ------------------- ---------- ---------- ---------- ---------- ----------
Revenues $ 261,105 $ 376,454 $ 695,950 $1,094,492 $1,031,824
Net income $ 11,507 $ 40,443 $ 104,811(1) $ 196,634 $ 105,396(2)
Net income per share $ 0.19 $ 0.59 $ 1.34(1) $ 2.34 $ 1.24(2)
Weighted average number
of common shares 60,841 69,076 78,427 84,195 85,203
As of June 30,
Cash, cash equivalents and
marketable securities $ 70,044 $ 174,305 $ 385,040 $ 468,475 $ 687,249
Working capital $ 133,084 $ 277,791 $ 452,350 $ 591,397 $ 535,256
Total assets $ 260,485 $ 430,453 $ 850,406 $1,157,919 $1,343,307
Stockholders equity $ 165,379 $ 307,334 $ 652,222 $ 870,999 $1,014,613
(1) Includes a net charge of the 1996 Annual Report to
Stockholders is incorporated herein by reference.$16.2 million, or $0.33 per share, for
write-off of acquired in-process technology. Net income and net income
per share would have been $121 million and $1.54, respectively,
excluding this charge.
(2) Includes merger, restructuring and other costs of $60.6 million. Net
income and net income per share would have been $151.3 million and
$1.78, respectively, excluding these costs.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
"Management'sManagement's Discussion and Analysis of Results of Operations and
Financial Commentary" on pages 12 and 13 of the 1996
Annual Report to StockholdersCondition is incorporated herein by reference.reference to Exhibit 13.1 hereto.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by
reference to Exhibit 13.1 hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements together with the report thereon of
Price Waterhouse LLP dated August 7, 1996, appearing on pages 14 through 24 of
the 1996 Annual Report to Stockholders are incorporated herein by
reference.
With the exception of the aforementioned information and the information
incorporated in Items 5, 6, 7 and 8, the 1996 Annual Reportreference to Stockholders is
not to be deemed filed as part of this Form 10-K Annual Report.Exhibit 13.1 hereto.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
910
1012
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names of the present directors and executive
officers of the Company, their ages and positions held with the Company.
Additional information required by Item 405 of Regulation S-K of the Securities
Act of 1933, as amended, is incorporated herein by reference to the Company's
Proxy Statement.
Name Age Position
- ---- --- --------
Kenneth Levy 5355 Chairman of the Board of Directors
andJon D. Tompkins 57 Chief Executive Officer and Director
Kenneth L. Schroeder 5051 President, Chief Operating Officer and Director
Robert J. Boehlke 5556 Executive Vice President, of Finance and Administration, Chief Financial Officer and
Assistant Secretary
Frank L. Brienzo 45Frederick A. Ball 35 Vice President Asia Operations
Virginia J. DeMars 54Finance and Accounting
Lisa C. Berry 39 Vice President, Human ResourcesGeneral Counsel and Assistant Secretary
Gary E. Dickerson 38 Group40 Executive Vice President Wafer InspectionYield Management Group
Samuel A. Harrell 5657 Senior Vice President, Strategic Business Development
Michael W. Morrissey 51 GroupNeil Richardson 42 Executive Vice President CustomerMetrology Group
Neil Richardson 41 Vice President, Metrology
Magnus O. W. Ryde 4042 Vice President U.S. and European Sales OrganizationsWorldwide Field Operations
Arthur P. Schnitzer 53 Group54 Executive Vice President Christopher Stoddart 40 Treasurer
Bin-Ming Ben Tsai 38Human Resources
Graham J. Siddall 51 Executive Vice President Chief Technical Officer
William Turner 40 Vice President, Corporate FinanceWafer Group
James W. Bagley 58 Director
Edward W. Barnholt 5354 Director
Leo J. Chamberlain 6667 Director
Robert E. Lorenzini 59Richard J. Elkus, Jr. 62 Director
Dean O. Morton 65 Director
Yoshio Nishi 5657 Director
Samuel Rubinovitz 6667 Director
Dag Tellefsen 55 Director
Lida Urbanek 54 Director
Mr.Kenneth Levy co-founded the Company in July 1975 and served as President and
Chief Executive Officer andis a Directorco-founder of the Company and is Chairman of the
Board. From 1975 until November 1991, whenApril 30, 1997 he becamewas Chairman of the Board of Directors and Chief
Executive Officer. Since
May 1993, Mr. Levy has been a DirectorHe currently serves on the boards of directors 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 chemical, mechanical, polishing and cleaning equipment which is used in the manufacturing of advanced semiconductor
devices.
Mr. Schroeder rejoined the Company in November 1991 as President, Chief
Operating Officer and Director. Mr. Schroeder had worked previously at KLA from
1979 through 1987, during which time he held the positions of Vice President of
Operations (1979); Vice President and General Manager, RAPID (1982); Vice
President and General Manager, WISARD (1983); and Senior Vice President (1985).
In July 1988, he became President andTrikon Technologies, Inc.
Jon D. Tompkins has been Chief Executive Officer of Photon
Dynamics, Inc.,the Company since
April 30, 1997. From April 1991 until April 30, 1997 he was president and chief
executive officer of Tencor Instruments, a manufacturer of electro-optic test equipment. In mid-1990, hewafer inspection,
film measurement and metrology systems for the semiconductor industry. He was a
director of Tencor Instruments from 1991 until 1997 and was appointed chairman
of the board of directors of Tencor Instruments in November 1993. He currently
serves on the board of directors of Varian Corporation as well as SEMI/SEMATECH,
a private research and development consortium of U.S. semiconductor equipment
and materials companies.
Kenneth L. Schroeder has been President, Chief Operating Officer and
Director of Genus, Inc.,the Company since November 1991. He currently serves on the board of
directors of GaSonics International.
Robert J. Boehlke has been Vice President and Chief Financial Officer of
the Company since July 1990. In April 1997 he was promoted to Executive Vice
President. He currently serves on the board of directors of LTX Corporation.
Frederick A. Ball became Vice President Finance and Accounting of the
Company on April 30,1997. He joined Tencor Instruments, a manufacturer of CVD chemical vapor depositionwafer
inspection, film measurement and ion implant equipment. He left
Genusmetrology systems for the semiconductor
industry, as corporate controller in October 1991,March 1995 and was promoted to rejoin KLA. Since July, 1993,corporate
vice president and appointed corporate secretary in January of 1996. Prior to
Tencor Instruments, Mr. Schroeder has been a
director of SEMI/SEMATECH, an organization of American equipment companies
supporting SEMATECH and its mission; since August, 1995, Mr. Schroeder has been
a director of GaSonics, International, a supplier of resist stripping, cleaning,
etching and deposition equipment.
Mr. BoehlkeBall was with Price Waterhouse LLP for ten years.
11
13
Lisa C. Berry joined the Company in April 1983September 1996 as Vice President and
General ManagerCounsel. Ms. Berry joined the Company from LSI Logic Corporation, a
manufacturer of application specific integrated circuits, where she held the
RAPID Division. Subsequently, he was General Managerpositions of several
divisionsassociate general counsel from October 1994 until September 1996
and groups of divisions at KLA. In June 1985, Mr. Boehlke was elected
to Senior Vice President and to Executive Vice President in January 1989, and to
Chief Operating Officer inassistant general counsel from August 19891991 until July 1990, when he became Chief
Financial Officer. From 1988 until 1993 he served on the Board of Directors of
SEMI/SEMATECH, where he was a member of the executive committee.
Mr. BrienzoOctober 1994.
Gary E. Dickerson joined the Company in MarchJanuary 1986 as Directorand has held a
series of Quality
Assurance and Customer Acceptance, WISARD Division. In Sept. 1986, he became
Vice President of Operations, WISARD Division. In October 1990, he was named
President of KLA Acrotec. He served there until September 1994, when he took the
position of Vice
10
11
President Operations, KLA Japan.positions. In July 1995,1990 he was promoted to Vice
President, Asia Operations and General Manager, KLA Japan.
Ms. DeMars joined KLA in 1988 as Director of Human Resources after a 13
year career in Employee Relations at Monolithic Memories, Inc. and Advanced
Micro Devices. In November 1991, KLA promoted Ms. DeMars to Vice President of
Human Resources, worldwide.
Mr. Dickerson joined KLA in January 1986 as a Senior Applications Engineer
in the Wafer Inspection Division. In July 1987 he was promoted to Manager of
Applications Engineering for the Wafer Inspection Division, followed by Manager
of Product Planning in July 1989, Director of Marketing in July 1990, and
Vice President of Marketing in July 1992. In July 1993, he was promoted to Vice
President and Director of the Wafer Inspection Business Unit.Group. In July 1994,January 1996, he was
electedpromoted to Group Vice President. In 1997, Mr. Dickerson became Executive Vice
President of the Company and promoted to Group Vice President
in January, 1996.newly formed Yield Management Solutions Group.
Dr. Samuel A. Harrell joined the Company in September 1995 as Senior
Vice President and Chief Strategy Officer.of Strategic Business Development. Dr. Harrell is responsible for
strategic corporate development. Dr. Harrell served from October 1992 to
December 1995 as the Senior
Vice Presidentsenior vice president and Chief Strategy Officerchief strategy officer of
SEMATECH. From August 1987 to September 1992 he served as Presidentpresident of
SEMI/SEMATECH.
Mr. Morrissey joined KLA in April 1996 as Group Vice President for the
Customer Group, after a 26 year career with NCR and AT&T. He was Vice President
of NCR's Workstation Product Division from July 1993 to April 1996 and Vice
President of the Microelectronics Division from March 1991 to June 1993. Mr.
Morrissey has also served on the Board of Directors for SEMATECH.
Dr. Neil Richardson joined KLAthe Company in June 1993 as Vice President
and General Manager of the Metrology Division, and was electedDivision. He became Executive Vice
President of the Metrology Group (of the combined operations of the Company and
Tencor Instruments as a result of the Merger) in July 1994.1997. He served as Vice Presidentvice
president and Generalgeneral Manager of the Diagnostic Systems Group of Schlumberger
Technologies from September 1985 to November 1991, and was the Corporate Technology Advisercorporate
technology adviser for Schlumberger Ltd., a manufacturer of electronic test
equipment, from November 1991 to May 1993.
Mr.Magnus O.W. Ryde joined KLAthe Company in June 1980 as Production Control Manager.and has held a series
of positions. In May 1981
he was promoted to Materials Manager, followed by Production Manager in January
1982 and Manager, Advance Manufacturing - KLA208 in May 1984. In March 1985, he
became Product Marketing Manager for the RAPID Division. In December 1988, after
leaving KLA for 6 months to pursue other interests, he returned as Director of
EMMI Business within the ATS Division. In January 1989, he was promoted to
Director of Operations - Europe, and in January 1991, Mr. Ryde became Vice President of Operations for the
Company's ATS Division.division. He was promoted to Vice President and General Manager of
the Customer Support Divisiondivision in July 1992 and was elected to Vice
President of the Company in July 1994.1992. In July 1995, he became Vice
President offor the U.S.United States and European Sales Organizations. Mr.In July 1997
he was promoted to Vice President of Worldwide Field Operations.
Arthur P. Schnitzer joined the Company in July 1978 as Software Engineering
Manager, was promoted to Directorand has held a
series of Engineering of the RAPID Division in July
1982, andpositions. In 1989 he was promoted to Vice President in July 1983. He became Vice President
of Technology and Marketing of RAPID in May 1987, and Vice President of Advanced
Inspection in January 1989. In October 1989, he was promoted to General
Manager of the WISARD Division and, additionally, was elected to Vice President of the
Company in July 1990.Wisard division. In July 1993, he became Group Vice President
and is
presently responsible for RAPID, SEMSpecSEMSPEC, PRISM and PRISM.
Mr. Stoddart joined the Company in December 1991 as Treasurer. Prior to
joining the Company, Mr. Stoddart was Treasurer of General Cellular Corporation,
a cellular telephone service provider, from October 1989 to September 1991manufacturing for WISARD and previously with The Cooper Companies, Inc., a manufacturer of pharmaceuticals
and medical and implant equipment, as Assistant Treasurer from August 1986 to
July 1988, and then Treasurer from July 1988 to September 1989.
Dr. Tsai joined the Company inRAPID. In
June 1984 as a member of the WISARD
Technical Staff and was promoted to Manager of Algorithm Development for the
WISARD Division. From August 1989 until September 19901997 he served as Director of
Engineering for WISARD. In October 1990, he was promoted tobecame Executive Vice President, of
Engineering for KLA Acrotec, and in July 1994 heHuman Resources.
Dr. Graham J. Siddall was electedappointed Executive Vice President of the
Company and promoted to Chief Technical Officer.
Mr. Turner joinedWafer Group (of the Company in September 1983 as a Financial Analyst.
After serving as Controller for the Rapid, ATS and International divisions, he
was named Corporate Controller in December 1989 and was elected Vice Presidentcombined operations of the Company and Tencor as a result of
the Merger) in July 1990.April 1997. In August 1996,December 1995, he was named Vice Presidentappointed executive vice
president and chief operating officer of Corporate Finance.
11
12
Mr. BarnholtTencor Instruments, a manufacturer of
wafer inspection, film measurement and metrology systems for the semiconductor
industry. Previously Dr. Siddall served as senior vice president for the Tencor
Instruments Wafer Inspection Division from November 1994 to December 1995 and
has served asbeen a vice president since joining Tencor Instruments in 1988.
James W. Bagley has been a Director of the Company since SeptemberApril 30, 1997.
He was a director of Tencor Instruments, a manufacturer of wafer inspection,
film measurement and metrology systems for the semiconductor industry, from June
1993 until April 30, 1997. He has been chief executive officer and a director of
Lam Research Corporation, a manufacturer of semiconductor processing equipment,
since August 1997. From May 1996 until August 1997 he was chairman of the board
and chief executive officer of OnTrak Systems, Inc. until its merger with Lam
Research Corporation in August 1997. From December 1987 until December 1993 Mr.
Bagley was president and chief operating officer for Applied Materials, Inc.,
a manufacturer of wafer fabrication systems to the semiconductor industry.
From January 1994 until October 1995 he was vice chairman and chief operating
officer of Applied Materials, Inc., and vice chairman from November 1995 until
May 1996. Mr. Bagley currently serves on the boards of directors of Teradyne,
Inc., Kulicke & Soffa Industries, Inc., Micron Technology, Inc. and
Semi/SEMATECH.
Edward W. Barnholt has been a Director of the Company since 1995. Mr.
Barnholt joined Hewlett-Packard Company, a manufacturer of electronic and
computer equipment in December 1966. From October1988 to 1990 to Octoberhe was general manager of
the Electronics Instruments Group of the Hewlett Packard Company. In July 1988,
he was elected vice president and in November 1993 he served as Vice Presidentwas elected senior vice
president. Mr. Barnholt is currently executive vice president and General
Managergeneral
manager of the Test and Measurement Organization for Hewlett-Packard. In
November 1993 he was promoted to Senior Vice President and General Manager of the Test and Measurement Organization.
Mr.Hewlett Packard Company.
Leo J. Chamberlain has served asbeen a Director of the Company since 1982. He has
also served asis
a Directorprivate investor. Mr. Chamberlain currently serves on the board of directors
of Octel Communications Corporation, a manufacturer of
high performance voice processing systems since March 1989.
Mr. LorenziniCorporation.
Richard J. Elkus, Jr. has served asbeen a Director of the Company since 1976.April 30,
1997. He has
served since January 1993 as Chairmanwas executive vice president and vice chairman of SunPower Corporation,the board of
directors of Tencor Instruments, a manufacturer of optoelectronic devices,wafer inspection, film
measurement and metrology systems for the semiconductor industry, from October 1988 to January 1993,February
1994 until April 30, 1997. Previously, he served as
Presidentwas with Prometrix Corporation from
September 1983 until February 1994 where he held the positions of chairman and
Chief Executive Officer. Since July 1993, hechief executive
12
14
officer until its merger with Tencor Instruments in February 1994. He currently
serves on the boards of directors of Voyan Technology and Lam Research
Corporation.
Dean O. Morton has also been a
Principal in Dalton Partners, a turn-around management company. He was a founder
and, until December 1986, Chairman of the Board of Siltec Corporation, a
manufacturer of semiconductor materials and manufacturing equipment. Since
October 1986, Mr. Lorenzini has also served as a Director of FSI International,
a semiconductor process equipment manufacturer.
Dr. Nishi has served as a Director of the Company since April 30, 1997.
From June 1993 until April 30, 1997 he was director of Tencor Instruments, a
manufacturer of wafer inspection, film measurement and metrology systems for the
semiconductor industry. In October 1992 Mr. Morton retired as executive vice
president and chief operating officer and as a director of the Hewlett Packard
Company, a manufacturer of electronic and computer equipment, where he held
various positions from 1960 until his retirement. Mr. Morton currently serves as
chairman of the board of Centigram Communications Corporation and as a director
of ALZA Corporation, The Clorox Company, BEA Systems Inc. and Raychem
Corporation. Mr. Morton is also a trustee of the Metropolitan Series Fund and
State Street Research Funds Group and Portfolio, Inc.
Yoshio Nishi has been a Director since 1989. HeSince May 1995 he has served
as Senior Vice Presidentbeen
director of research and Directordevelopment and senior vice president of Research and Development for the
Semiconductor Group of Texas Instruments since May 1995. Mr. Nishi served asIncorporated, a Directormanufacturer of
numerous research laboratories at Hewlett-Packard fromintegrated circuits and electronic equipment. From January 1986 to April 1995.1995 he
was director of Silicon Process Laboratory for Hewlett-Packard Laboratories, a
semiconductor technology research facility affiliated with the Hewlett-Packard
Company.
Samuel Rubinovitz has been a Director since 1990. He is a consulting professor in the Stanford University
Department of Electrical Engineering and teaches at Waseda University in Japan
as a visiting Professor of the Materials Science and Engineering Department and
the Electronic Communication Engineering Department.
Mr. Rubinovitz previously served
as a Director of the Company from October 1979 to January 1989, and rejoined the Company as a Director in 1990.1989. From April 1989
throughto January 1994 he served as Executive Vice Presidentwas executive vice president of EG&G, Inc., a diversified
manufacturer of scientific instruments and electronic, optical and mechanical
equipment, and previously as Senior Vice Presidentequipment. He currently serves on the boards of EG&G, Inc.
between April 1986 and April 1989. From April 1989 to April 1996, Mr. Rubinovitz
served as a Director of EG&G. Since October 1984, he has served as Directordirectors of Richardson
Electronics, Inc., a manufacturer and distributor of electron tubes
and semiconductors and, since October 1986, Director of Kronos, Inc., a
manufacturer of electronic time keeping systems. Since December 1994, he has
served as a Director of LTX Corporation a manufacturer of Semiconductor Test
Equipment.
Mr.and Kronos, Inc.
Dag Tellefsen has served asbeen a Director of the Company since 1978. He is Managing Partnerthe
general partner of the Investment Manager of Glenwood Management, aVentures I and II, venture
capital firm. Since January
1983, hefunds. He currently serves on the boards of directors of Iwerks
Entertainment Corporation, Aptix and Metorex International.
Lida Urbanek has served asbeen a Director of Iwerks Entertainment,the Company since April 30, 1997.
She is a producer of
movie-based specialty theaters, and since 1982, asprivate investor. She was a director of Octel
Communications Corporation.Tencor Instruments, a
manufacturer of wafer inspection, film measurement and metrology systems for the
semiconductor industry, from August 1991 until April 30, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
"EXECUTIVE COMPENSATION" in the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
"SECURITY OWNERSHIP -- Principal Stockholders and Security Ownership of
Management" in the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding Executive Compensation"Certain Relationships and Related
Transactions" as it appears in the Proxy Statement is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding Security Ownership of Certain Beneficial Owners
and Management as it appears in the Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding Certain Relationships and Related Transactions as
it appears in the Proxy Statement is incorporated herein by reference.13
15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORT ON FORM 8-K
(a) (1) Financial Statements: See IndexFINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
1. FINANCIAL STATEMENTS.
Consolidated Balance Sheets - As of June 30, 1997 and 1996
Consolidated Statements of Operations - For the Three Years Ended June 30, 1997
Consolidated Statement of Stockholders' Equity - For the Three Years Ended
June 30, 1997
Consolidated Statements of Cash Flows - For the Three Years Ended June 30, 1997
Notes to Consolidated Financial Statements
page 14.Report of Independent Accountants
2. FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because they are either not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
3. EXHIBITS.
Exhibit No. Description
- ----------- -----------
3.1 Certificate of Incorporation as amended(1)
3.2 Bylaws, as amended(1)
4.1 Amended and Restated Rights Agreement dated as of August 26, 1995,
between the Company and First National Bank of Boston, as Rights
Agent. The Rights Agreement includes as Exhibit A, the form of Right
Certificate and as Exhibit B, the summary of transactions of
Rights.(2)
10.1 Form of Retention and Non-Competition Agreement(3)
10.2 Form of KLA-Tencor Corporation Corporate Officers Retention Plan(3)
10.3 Form of Indemnification Agreement
10.4 1990 Outside Directors Stock Option Plan(4)
10.5 Second Amended and Restated 1981 Employee Stock Purchase Plan, as
amended on November 18, 1996(5)
10.6 1982 Stock Option Plan, as amended on November 18, 1996(6)
10.7 Tencor Instruments Second Amended and Restated 1984 Stock Option
Plan (7)
10.8 Tencor Instruments Amended and Restated 1993 Equity Incentive Plan
(7)
10.9 Tencor Instruments 1993 Nonemployee Directors Stock Option Plan(7)
10.10 1983 Employee Incentive Stock Option Plan of Prometrix Corporation
(7)
10.11 1993 Employee Incentive Stock Option Plan of Prometrix Corporation
(7)
10.12 Lease Agreement, Ground Lease Agreement and Purchase Agreement dated
June 5, 1995, between BNP Leasing Corporation and the Company(8)
10.13 Lease Agreement and Purchase Agreement dated August 10, 1995,
between BNP Leasing Corporation and the Company(8)
10.14 Phase IIA and Phase IIB Leases for Milpitas Facilities dated
December 29, 1995(9)
13.1 1997 Annual Report to Stockholders (deemed to be filed except to
the extent that the information is specifically incorporated by
reference)
21.1 List of Subsidiaries of KLA-Tencor Corporation
14
16
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
(1) Previously filed, with the same exhibit number, to the Registrant's Form
10-Q for the quarter ended March 31, 1997
(2) FinancialPreviously filed as exhibit 1 to the Registrant's report on Form 8-A/A
Amendment No. 1 to the Registration Statement Schedules: See Indexon Form 8-A (filed September
24, 1996, SEC File No. 0-9992)
(3) Previously filed, with the same exhibit number, to Financialthe Registrant's
Registration Statement Schedules, page 14.
(3) Exhibits: See Indexon Form S-4 (filed March 11, 1997, SEC File No.
333-23075)
(4) Previously filed as exhibit 4.6 to Exhibits, pages 15the Registrant's Annual Report on Form
10-K for the year ended June 30, 1997
(5) Previously filed as exhibit 10.75 to the Registrant's Registration
Statement on Form S-8 (filed March 7, 1997, SEC File No. 333-22939)
(6) Previously filed as exhibit 10.74 to the Registrant's Registration
Statement on Form S-8 (filed March 7, 1997, SEC File No. 333-22941)
(7) Previously filed as exhibits 10.1, 10.2, 10.3, 10.6 and 16.10.7,
respectively, to the Registrant's Registration Statement on Form S-8
(filed May 8, 1997, SEC File No. 333-26681)
(8) Previously filed, with the same exhibit number, to the
Registrant's Form 10-Q for the quarter ended December 31, 1995
(9) Previously filed as exhibit 10.27 to Tencor Instruments
Annual Report on Form 10-K for the fiscal year ended December
31, 1995
(b) No reportsREPORT ON FORM 8-K.
The Company filed a Current Report on Form 8-K were filed duringon April 15, 1997 which
incorporated the Company's earnings release for the third quarter of fiscal 1997
ended JuneMarch 31, 1997. The Company amended that Form 8-K by filing an Amendment
to Current Report on Form 8-K setting forth financial statements reflecting 30
1996.
12days of combined earnings of the Company and Tencor Instruments to reflect the
Merger using the pooling of interests method of accounting.
15
1317
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized inon September 25, 1997.
KLA-Tencor Corporation
By: /s/ Kenneth Levy
------------------------------------
Kenneth Levy, Chairman of the City of San
Jose, State of California, on the 26th day of September 1996.
KLA INSTRUMENTS CORPORATION
By /s/ WILLIAM TURNER
------------------------------------
William Turner
Vice President of Corporate FinanceBoard
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of thisthe registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ KENNETH LEVY Director,Kenneth Levy
- -------------------------------- Chairman of the Board and September 26, 199625, 1997
Kenneth Levy Director
/s/ Jon D. Tompkins
- -------------------------------------------------------------------- Chief Executive Officer Kenneth Levyand September 25, 1997
Jon D. Tompkins Director
(Principal Executive Officer)
/s/ KENNETH L. SCHROEDER Director, President September 26, 1996
- ------------------------------------ and Chief Operating Officer Kenneth L. Schroeder
- -------------------------------- President, Chief Operating September 25, 1997
Kenneth L. Schroeder Officer and Director
/s/ ROBERTRobert J. BOEHLKEBoehlke
- -------------------------------- Executive Vice President of Financeand September 26, 1996
- ------------------------------------ and Administration,25, 1997
Robert J. Boehlke Chief Financial Officer
and Assistant Secretary(Principal Accounting Officer)
/s/ EDWARDJames W. BARNHOLTBagley
- -------------------------------- Director September 26, 199625, 1997
James W. Bagley
/s/ Edward W. Barnholt
- -------------------------------------------------------------------- Director September 25, 1997
Edward W. Barnholt
/s/ LEOLeo J. CHAMBERLAINChamberlain
- -------------------------------- Director September 26, 1996
- ------------------------------------25, 1997
Leo J. Chamberlain
/s/ ROBERT E. LORENZINIRichard J. Elkus, Jr.
- -------------------------------- Director September 26, 199625, 1997
Richard J. Elkus, Jr.
/s/ Dean O. Morton
- ------------------------------------
Robert E. Lorenzini
/s/ DR. YOSHIO NISHI-------------------------------- Director September 26, 199625, 1997
Dean O. Morton
/s/ Yoshio Nishi
- ------------------------------------
Dr.-------------------------------- Director September 25, 1997
Yoshio Nishi
/s/ SAMUEL RUBINOVITZSamuel Rubinovitz
- -------------------------------- Director September 26, 1996
- ------------------------------------25, 1997
Samuel Rubinovitz
/s/ DAG TELLEFSENDag Tellefsen
- -------------------------------- Director September 26, 199625, 1997
Dag Tellefsen
/s/ Lida Urbanek
- ------------------------------------
Dag Tellefsen-------------------------------- Director September 25, 1997
Lida Urbanek
1316
14
KLA INSTRUMENTS CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS18
Page(s) in
1996 Annual
Report*
------------EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
Consolidated Statement3.1 Certificate of OperationsIncorporation as amended(1)
3.2 Bylaws, as amended(1)
4.1 Amended and Restated Rights Agreement dated as of August 26, 1995,
between the Company and First National Bank of Boston, as Rights
Agent. The Rights Agreement includes as Exhibit A, the form of Right
Certificate and as Exhibit B, the summary of transactions of
Rights.(2)
10.1 Form of Retention and Non-Competition Agreement(3)
10.2 Form of KLA-Tencor Corporation Corporate Officers Retention Plan(3)
10.3 Form of Indemnification Agreement
10.4 1990 Outside Directors Stock Option Plan(4)
10.5 Second Amended and Restated 1981 Employee Stock Purchase Plan, as
amended on November 18, 1996(5)
10.6 1982 Stock Option Plan, as amended on November 18, 1996(6)
10.7 Tencor Instruments Second Amended and Restated 1984 Stock Option
Plan (7)
10.8 Tencor Instruments Amended and Restated 1993 Equity Incentive Plan
(7)
10.9 Tencor Instruments 1993 Nonemployee Directors Stock Option Plan(7)
10.10 1983 Employee Incentive Stock Option Plan of Prometrix Corporation
(7)
10.11 1993 Employee Incentive Stock Option Plan of Prometrix Corporation
(7)
10.12 Lease Agreement, Ground Lease Agreement and Purchase Agreement dated
June 5, 1995, between BNP Leasing Corporation and the Company(8)
10.13 Lease Agreement and Purchase Agreement dated August 10, 1995,
between BNP Leasing Corporation and the Company(8)
10.14 Phase IIA and Phase IIB Leases for the three years ended June 30, 1996 .......................... 14
Consolidated Balance Sheet at June 30, 1995 and 1996 .................................................. 15
Consolidated Statement of Stockholders' Equity for the three years ended June 30, 1996 ............... 16
Consolidated Statement of Cash Flows for the three years ended June 30, 1996 .......................... 17
NotesMilpitas Facilities dated
December 29, 1995(9)
13.1 1997 Annual Report to Stockholders (deemed to be filed except to
the Consolidated Financial Statements ........................................................ 18-23
Reportextent that the information is specifically incorporated by
reference)
21.1 List of Subsidiaries of KLA-Tencor Corporation
19
23.1 Consent of Independent Accountants
..................................................................... 24
*Incorporated by reference from the indicated pages of the 1996 Annual Report to
Stockholders.
INDEX TO FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules not included in this Form 10-K Annual Report
have been omitted because they are not applicable or the required information is
shown in the consolidated financial statements or notes thereto.
14
15
INDEX TO EXHIBITS
(i) EXHIBITS INCORPORATED BY REFERENCE:
3.1 Certificate of Incorporation as amended(7)
3.2 Bylaws, as amended(7)
4.1 Amended and Restated Rights Agreement dated as of August 26, 1995,
between the Company and First National Bank of Boston, as Rights
Agent. The Rights Agreement includes as Exhibit A, the form of
Right Certificate and as Exhibit B, the summary of transactions of
Rights.(1)
10.15 Statement of Partnership to Triangle Partners dated April 12, 1983(2)
10.16 Lease Agreement and Addendum thereto dated January 10, 1983, between
BB&K Partnership and the Company(2)
10.18 Purchase and Sale Agreement dated January 10, 1983, between BB&K
Partnership, Triangle Partners and the Company(2)
10.35 Research and Development Agreement, Cross License and Technology
Transfer Agreement and Agreement for Option to License and Purchase
Resulting Technology, all dated October 1, 1986, by and between KLA
Development No. 4, Ltd., and the Company(3)
10.45 Distribution Agreement dated July 1990, by and between Tokyo Electron
Limited, a Japanese Corporation, and the Company(4)
10.46 Principal facility Purchase Agreement dated July 1990, including
all exhibits and amendments; Lease Agreement, Termination of Lease,
Lot line adjustment, rights of first refusal, Deeds of Trust(4)
10.47 Joint Venture Agreement between the Company and Nippon Mining Company,
Limited, dated September 18, 1990(5)
10.49 Exercise of Option to Purchase Technology made effective as of January
1, 1990, by and between KLA Development No. 4, and the Company(5)
10.54 Micrion Corporation Series E Preferred Stock Purchase Agreement, dated
September 13, 1991(6)
10.67 Amendment of Credit Agreement between Bank of America NT & SA and the
Company, dated April 30, 1994(9)
10.68 Credit Agreement between Bank of America NT & SA and the Company as
amended, on February 7, 1996(9)
10.71 1990 Outside Directors Stock Option Plan(8)
10.73 Amendment of Credit Agreement between Bank of America NT & SA and the
Company dated December 31, 1994(10)
10.74 1981 Employee Stock Purchase Plan, as amended by the Board of Directors
on October 7, 1994(10)
10.75 1982 Stock Option Plan, as amended on November 15, 1995(10)
10.76 Amendment of Credit Agreement between Bank of America NT & SA and the
Company dated February 15, 1995(10)
10.77 Lease Agreement, Ground Lease Agreement and Purchase Agreement dated
June 5, 1995, between BNP Leasing Corporation and the Company(10)
10.78 Lease Agreement and Purchase Agreement dated August 10, 1995, between
BNP Leasing Corporation and the Company(10)
10.79 Amendment of Credit Agreement between Bank of America NT & SA and the
Company dated December 29, 1995(11)
(ii) EXHIBITS INCLUDED HEREWITH:
10.80 Mortgage Loan Supplement Program between Bank of the West and the
Company dated May 8, 1996.
13.1 1996 Annual Report to Stockholders. This Annual Report shall not be
deemed to be filed except to the extent that the information is
specifically incorporated by reference.
21 List of Subsidiaries of KLA Instruments Corporation
23.1 Consent of Independent Accountants
2727.1 Financial Data Schedule
(1)Filed as exhibit number 1 to Registrant's Form 8-A/A Amendment number
2 to Registration Statement, Previously filed, on September 24, 1996
15
16
(2)Filed aswith the same exhibit number, to the Registrant's Form
10-Q for the quarter ended March 31, 1997
(2) Previously filed as set forth hereinexhibit 1 to the Registrant's report on Form 8-A/A
Amendment No. 1 to the Registration Statement on Form 8-A (filed September
24, 1996, SEC File No. 0-9992)
(3) Previously filed, with the same exhibit number, to the Registrant's
Registration Statement on Form S-4 (filed March 11, 1997, SEC File No.
333-23075)
(4) Previously filed as exhibit 4.6 to the Registrant's Annual Report on Form
10-K for the year ended June 30, 1983
(3)Filed1997
(5) Previously filed as exhibit 10.75 to the sameRegistrant's Registration
Statement on Form S-8 (filed March 7, 1997, SEC File No. 333-22939)
(6) Previously filed as exhibit number10.74 to the Registrant's Registration
Statement on Form S-8 (filed March 7, 1997, SEC File No. 333-22941)
(7) Previously filed as set forth hereinexhibits 10.1, 10.2, 10.3, 10.6 and 10.7,
respectively, to the Registrant's Registration Statement on Form 10-K for the year ended June 30, 1987
(4)Filed as the same exhibit number as set forth herein to Registrant's Form
10-K for the year ended June 30, 1990
(5)Filed as the same exhibit number as set forth herein to Registrant's Form
10-K for the year ended June 30, 1991
(6)Filed as the same exhibit number as set forth herein to Registrant's Form
10-K for the year ended June 30, 1992
(7)Filed asS-8
(filed May 8, 1997, SEC File No. 333-26681)
(8) Previously filed, with the same exhibit number, to Registrant's registration statement
no.33-51819 on Form S-3, dated February 2, 1994
(8)Filed as exhibit number 4.6 as set forth herein to Registrant's Form 10-K for
the year ended June 30, 1991
(9)Filed as the same exhibit number as set forth herein to Registrant's Form
10-K for the year ended June 30, 1994
(10)Filed as the same exhibit number as set forth herein to Registrant's Form
10-K for the year ended June 30, 1995
(11)Filed as the same exhibit number as set forth herein to
Registrant's Form 10-Q for the quarter ended December 31, 1995
16(9) Previously filed as exhibit 10.27 to Tencor Instruments
Annual Report on Form 10-K for the fiscal year ended December
31, 1995