-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wgm8ylg9n6n9Lt3cSNpDWzxpN2VwfqtdYiX5PlkjiE/1YMgjJlKqJWnR/M7qefoQ K9sH17wRK6qhy80GQxFUHg== 0000950152-99-010011.txt : 19991230 0000950152-99-010011.hdr.sgml : 19991230 ACCESSION NUMBER: 0000950152-99-010011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEITHLEY INSTRUMENTS INC CENTRAL INDEX KEY: 0000054991 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 340794417 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09965 FILM NUMBER: 99783031 BUSINESS ADDRESS: STREET 1: 28775 AURORA RD CITY: SOLON STATE: OH ZIP: 44139 BUSINESS PHONE: 2162480400 10-K 1 KEITHLEY INSTRUMENTS, INC. FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For fiscal year ended, SEPTEMBER 30, 1999 Commission file number 1-9965 ------------------ --------- KEITHLEY INSTRUMENTS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) OHIO 34-0794417 - ---------------------------------------- ------------------------------------ (State of incorporation or organization) (I.R.S. Employer Identification No.) 28775 AURORA ROAD, SOLON, OHIO 44139 - ---------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (440) 248-0400 -------------- Securities registered pursuant to Section 12(b) of the Act: COMMON SHARES, WITHOUT PAR VALUE NEW YORK STOCK EXCHANGE - ---------------------------------------- -------------------------------------- (Title of each class) (Name of exchange on which registered) Indicate by check mark whether the 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 the 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. [ ] As of December 14, 1999 there were outstanding 4,354,386 Common Shares, without par value, and 2,692,028 Class B Common Shares, without par value. At that date, the aggregate market value of the Common Shares of the Registrant held by non-affiliates was $71,394,046 and the aggregate market value of the Class B Common Shares of the Registrant held by non-affiliates was $748,040 for a total aggregate market value of all classes of Common Shares held by non-affiliates of $72,142,086. While the Class B Common Shares are not listed for public trading on any exchange or market system, shares of that class are convertible into Common Shares at any time on a share-for-share basis. The market values indicated were calculated based upon the last sale price of the Common Shares as reported by the New York Stock Exchange on December 14, 1999, which was $17.625. For purposes of this information, the 303,660 Common Shares and 2,649,586 Class B Common Shares which were held by the officers and Directors of the Company were deemed to be voting stock held by affiliates. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement for the registrant's Annual Meeting to Shareholders to be held on February 12, 2000 (the "2000 Annual Meeting") are incorporated by reference in Part III in this Annual Report on Form 10-K (this "Annual Report") and are identified under the appropriate items in this Annual Report. 2 KEITHLEY INSTRUMENTS, INC. 10-K ANNUAL REPORT TABLE OF CONTENTS PART I: PAGE ---- Item 1. Business 1 Item 2. Properties 7 Item 3. Legal Proceedings 7 Item 4. Submission of Matters to a Vote of Security Holders 7 PART II: Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 9 Item 6. Selected Financial Data 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 17 Item 8. Financial Statements and Supplementary Data 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 17 PART III. Item 10. Directors and Executive Officers of the Registrant 18 Item 11. Executive Compensation 18 Item 12. Security Ownership of Certain Beneficial Owners and Management 18 Item 13. Certain Relationships and Related Transactions 18 PART IV: Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 19 3 PART I. ITEM 1 - BUSINESS. -------- General - ------- Keithley Instruments, Inc. is a corporation that was founded in 1946 and organized under the laws of the State of Ohio on October 1, 1955. Its principal executive offices are located at 28775 Aurora Road, Solon, Ohio 44139; telephone (440) 248-0400. References herein to the "Company" or "Keithley" are to Keithley Instruments, Inc. and its subsidiaries unless the context indicates otherwise. Keithley's business is to develop, manufacture and sell measurement systems geared to the specialized needs of electronics manufacturers for high-performance production testing, process monitoring, product development and research. The Company's primary products are computer-based systems or employ computer technology for control, data storage, display or analysis purposes. The Company's customers are engineers, technicians and scientists engaged in manufacturing, product development and research functions within a range of industries. Although the Company's products vary in capability, sophistication, use, size and price, they generally test, measure, and analyze electrical and physical properties. As such, the Company considers its business to be in a single industry segment. Strategy of Focus - ----------------- Several years ago, the Company formulated a strategy to focus its product and market development efforts toward growing markets including the telecommunications, semiconductor, automotive and the electronic components industries, and basic and applied research. In July of fiscal 1998 and November of fiscal 1999, the Company sold two businesses which no longer fit this core strategy. By pruning the organization of these non-strategic businesses, the Company was better able to leverage resources and greatly improve the quality of earnings. The Company's strategy for sales growth consists of a few key points. First, the Company has focused its efforts on identifying specific production test applications within the targeted industries mentioned above. The Company works closely with customers in these industries not only to determine what their measurement needs are today, but also what their new emerging needs might be. A thorough understanding of their applications coupled with the Company's precision measurement technology enables us to add value to our customers' processes; improving the quality, throughput and yield of their products. Forming consultative relationships with customers where the Company can add value is a key part of the strategy. Additionally, the Company recognizes the importance of our traditional research customers. Whether they are doing basic or applied research in a university or an industrial laboratory, these customers give the Company a first-hand look at new industry trends and technologies, as well as establish relationships that last a career. Second, sales growth also requires a steady stream of innovative new products. These products may be designed for very specific production test applications driven by the target industry approach discussed above, or may be used in applications that cross over a variety of industries. The Company refers to its products as "computer-based solutions" because 1 4 regardless of the form factor, they are designed for usage with industry-leading computer hardware and software. The Company utilizes open-architecture software based-on Microsoft's(TM) Component Object Model technology, thus drastically decreasing the start-up time for customers. By continuing to develop new software and computer-based solutions, the Company believes it can capture a greater share of purchases from the broader segments of the overall test and measurement market. Third, with the growth in popularity of the Internet and expanding role of E-commerce, there is a greater opportunity to offer the Company's production test applications knowledge to a wider range of its customers and prospects worldwide. The Company's web site, www.keithley.com, is globally accessible 24 hours a day, and is an excellent, cost effective way to interact with current and potential customers. Additionally, advances in database management allow the Company to do a better job of reaching those people who are more likely to benefit from its product offerings. Product Offerings - ----------------- The Company has more than 1,000 products that basically test, measure, and analyze electrical and physical properties. The products come in three basic form factors: benchtop instruments, PC plug in boards and integrated measurement solution systems. Benchtop instruments generally range in price from $1,000 to $10,000 and PC plug-in boards generally range in price from $100 to $4,000. The price of the Company's integrated measurement solution systems is dependent upon the type of system purchased and can range from $10,000 to $400,000. The major specific product groups are described below: DIGITAL MULTIMETERS. This product line includes a range of instruments that are designed to cover measurements of voltage, resistance, current and temperature for production test, design and development, and research applications. Each digital multimeter has a computer interface for integration into automated test and measurement systems. Typical applications include testing electrical components such as resistors and thermistors, and end products which include cellular telephones, computer disk drives, and pace makers. These products are marketed primarily through direct marketing and personal selling. SENSITIVE INSTRUMENTS. This product group includes electrometers, picoammeters, sensitive digital voltmeters, micro-ohmmeters, and certain other instruments which are distinguished by their extreme sensitivity, resolution and accuracy as compared to the capabilities of conventional meters. Sensitive instruments are used by scientists, engineers, and researchers for the study of materials, semiconductors, and superconductors. Typical customers are industrial and government research laboratories, educational institutions, and electronics manufacturers. These products are marketed primarily through direct marketing and catalog mailings. SWITCHES AND SOURCES. Switching instruments are used to route electrical signals in test systems to measurement and source instrumentation. This allows many devices or test points to be measured with a minimum number of instruments. Switch 2 5 products together with Sensitive, Digital Multimeter, Source, I-V and C-V instruments can be integrated into computer-based systems to provide flexible, automated testing and measurement. The switching product line allows Keithley to provide a complete measurement solution to customers in production test, semi-conductor characterization, and materials research applications. Sources generate the precise voltage and currents needed to test electronic devices and investigate properties of materials. Source products are sold to scientists and engineers in research, semiconductor and electronic manufacturing markets, especially where stable signals of low level current and voltage are needed. These sources can be interfaced with computers as part of an automated test system, or used manually on the laboratory bench. Switches and Sources are marketed primarily through personal selling. PLUG-IN BOARDS. The qualities of these boards include data acquisition capabilities in the form of a board that is installed into a slot of the computer, boards that essentially contain an instrument allowing benchtop engineering and automatic production testing through an expansion slot of almost any personal computer, and IEEE-488 bus interfaces and software for interfacing computers with programmable measurement instrumentation. The boards are marketed worldwide to researchers and scientists engaged in laboratory automation and experimentation, engineers involved with process control and data collection applications, and machine builders and systems integrators involved in production test applications. These products are marketed primarily through direct marketing, catalog mailings, and personal selling. APT PRODUCTS. The Company is one of the leading suppliers of automated parametric test systems (APT) for semiconductor production applications. In production, the systems allow manufacturers to monitor quality control parameters during fabrication of integrated circuits to improve manufacturing yields. In research, the systems are used to analyze the characteristics of semiconductor materials in the development of integrated circuit devices. The systems can also be used to develop integrated circuit manufacturing processes. A typical system incorporates Keithley instrumentation and software, and computer hardware manufactured by others. The system's major components are integrated, and in most cases, customized to customer specification. The systems can also incorporate wafer test structures used for determining the reliability of semiconductor devices at various stages of manufacturing. These test structures allow the Company's APT systems to determine the quality of both the wafer and the manufacturing process much earlier than with previous test methods. Installation and servicing of the equipment and software, and customer training are also provided. Selling prices for these products generally range from $125,000 to $400,000. C-V (CAPACITANCE VERSUS VOLTAGE). C-V systems include high-frequency and quasistatic C-V meters, measurement and analysis software, and computer-based test systems. C-V products are used by scientists and engineers in semiconductor development and manufacturing facilities, industrial and governmental research laboratories, and educational institutions to research, develop, and characterize semiconductor devices, materials and manufacturing processes. 3 6 AGENCY PRODUCTS. The Company markets and distributes certain hardware and software products manufactured by other test and measurement companies. These agency products can be combined with other Company products to meet a wide range of application needs. The agency products are complementary to, but not competitive with, products manufactured by the Company. New Products During Fiscal Year 1999 - ------------------------------------ The Company has shifted its new product development process from a product focus to a market focus. Several new products were introduced for specific targeted markets during fiscal 1999 including the following: The Model 6514 Electrometer was created through a long-standing relationship with the Company's important research customers. This customer group required an electrometer that offered a much more cost-effective means of making fast, low-current measurements. The Model 2430 was developed for production testing of active or passive components for targeted electronic component customers. The area of telecommunications is one of the Company's fastest growing markets and the Model 2306 Battery Simulator/Charger designed to accurately simulate the performance of wireless devices under battery control was introduced to serve those customers. The newest product addition for the telecommunications area is System 41 Microwave Switching which allows RF switching and signal routing over a higher bandwidth and provides more data carrying capability. The Model 5201 Universal Serial Bus-Based Data Acquisition System was designed for invehicle development test applications for the automotive industry. New product offerings directed for the semiconductor industry include the Model S630 APT System, the latest in the Company's award winning S600 series. Additional introductions included the new Wafer Level Reliability (WLR) Software Toolkit that provides semiconductor fabs with a solid foundation for implementing a WLR monitoring program, and upgraded KTE application software for the Company's APT systems that permits customers to decrease their software development time. The Company also introduced new, latest-technology versions of PCI plug-in data acquisition boards for those customers with high performance requirements that demand this method of measurement. A key customer requirement for all the measurement alternatives that the Company offers is ease of installation and usage, and that requires cost-effective software. During the course of 1999, the Company introduced new 32-bit DriverLINX(R) software drivers. This software will gives customers a hardware independent way to write their software and makes it easier for them to migrate to the Company's future hardware. Customers also can take advantage of standard Microsoft Windows 95/NT, visual basic and Active X Controls available through Windows. The Company's data acquisition boards also include LabVIEW(TM) VIs which allow usage with LabVIEW, a proprietary closed software environment that is commonly used in the data acquisition industry. 4 7 Geographic Markets and Distribution - ----------------------------------- During fiscal 1999, all of the Company's products were manufactured in Ohio and were sold throughout the world in over 80 countries. The Company's principal markets are the United States, Europe and the Pacific Basin. In the United States, the Company's products are sold by the Company's sales personnel, independent sales representatives and through direct marketing and catalog mailings. United States sales offices are located in Solon, Ohio and Santa Clara, California. The Company markets its products directly in countries in which it has a sales office and through distributors in other countries. European subsidiaries have sales and service offices located in or near London, Munich, Paris, Amsterdam, Zurich and Milan. The Company also has sales offices in Belgium, China, Taiwan and India. Sales in markets outside the above named locations are made through independent sales representatives and distributors. Sources and Availability of Raw Materials - ----------------------------------------- The Company's products require a wide variety of electronic and mechanical components, most of which are purchased. The Company has multiple sources for the vast majority of the components and materials it uses; however, there are some instances where the components are obtained from a sole-source supplier. If a sole-source supplier ceased to deliver, the Company could experience a temporary adverse impact on its operations; however, management believes alternative sources could be developed quickly. Although shortages of purchased materials and components have been experienced from time to time, these items have generally been available to the Company as needed. Patents - ------- Electronic instruments of the nature the Company designs, develops and manufactures cannot generally be patented in their entirety. Although the Company holds patents with respect to certain of its products, it does not believe that its business is dependent to any material extent upon any single patent or group of patents, because of the rapid rate of technological change in the industry. Seasonal Trends and Working Capital Requirements - ------------------------------------------------ Although the Company is not subject to significant seasonal trends, its business is cyclical and is somewhat dependent upon the semiconductor industry in particular. The Company does not have any unusual working capital requirements. Customers - --------- The Company's customers generally are involved in engineering research and development, product testing, electronic service or repair, and educational and governmental research. During the fiscal year ended September 30, 1999 no one customer accounted for more than 10% of the Company's sales. Management believes that the loss of any one of its customers would not materially affect the sales or net income of the Company. 5 8 Backlog - ------- The Company's backlog of unfilled orders amounted to approximately $19,341,000 as of September 30, 1999 and approximately $9,049,000 as of September 30, 1998. Included in the backlog at September 30, 1998 is $3,015,000 for products relating to the Quantox business which was sold in November 1998. It is expected that the majority of the orders included in the 1999 backlog will be delivered during fiscal 2000; however, the Company's past experience indicates that a small portion of orders included in the backlog may be canceled. Competition - ----------- The Company competes on the basis of quality, performance, service, warranty and price, with quality and performance frequently being dominant. There are many firms in the world engaged in the manufacture of electronic measurement instruments, some of which are larger and have greater financial resources than the Company. The Company's competitors vary between product lines and certain manufacturers compete with the Company in multiple product lines. The Company's principal competitors are Agilent Technologies, Inc. and National Instruments, Inc. Research and Development - ------------------------ The Company's engineering development activities are directed toward the development of new products that will complement, replace or add to the products currently included in the Company's product line. The Company does not perform basic research, but on an ongoing basis utilizes new component and software technologies in the development of its products. The highly technical nature of the Company's products and the rapid rate of technological change in the industry require a large and continuing commitment to engineering development efforts. Product development expenses were $10,745,000 in 1999, $13,139,000 in 1998 and $17,233,000 in 1997, or approximately 11%, 11% and 14% of net sales, respectively, for each of the last three fiscal years. Government Regulations - ---------------------- The Company believes that its current operations and its current uses of property, plant and equipment conform in all material respects to applicable laws and regulations. The Company has not experienced, nor does it anticipate, any material claim or material capital expenditure in connection with environmental laws and other regulations. Employees - --------- As of September 30, 1999, the Company employed 526 persons, 109 of whom were located outside the United States. None of the Company's employees are covered under the terms of a collective bargaining agreement and the Company believes that relations with its employees are good. 6 9 Foreign Operations and Export Sales - ----------------------------------- Information related to foreign and domestic operations and export sales is contained in Note K of the Notes to the Consolidated Financial Statements included in a separate section at the end of this Form 10-K Annual Report. The Company has significant revenues from outside the United States which increase the complexity and risk to the Company. These risks include increased exposure to the risk of foreign currency fluctuations and the potential economic and political impacts from conducting business in foreign countries. With the exception of changes in the value of foreign currencies, which is not possible to predict, the Company believes that its foreign subsidiaries and other larger international markets are in countries where the economic and political climate is generally stable. ITEM 2 - PROPERTIES. ---------- The Company's principal administrative, sales, marketing, manufacturing and development activities are conducted at two Company-owned buildings in Solon, Ohio. The two buildings total approximately 200,000 square feet and sit on approximately 33 acres of land. The Company also owns another 50,000 square foot building on 5.5 acres of land adjacent to its executive offices. This facility is current being leased to others, but is available for expansion should the Company require additional space. The Company also maintains a number of sales and service offices in the United States and overseas. The Company believes that the facilities it owns and leases by it are well maintained, adequately insured and suitable for their present and intended uses. ITEM 3 - LEGAL PROCEEDINGS. ----------------- The Company is not a party to any material litigation. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. ---------------------------------------------------- Not applicable. 7 10 EXECUTIVE OFFICERS OF THE REGISTRANT: - ------------------------------------- The description of executive officers is included pursuant to Instruction 3 to Section (b) of Item 401 of Regulation S-K under the Securities and Exchange Act of 1934. The following table sets forth the names of all executive officers of the Company and certain other information relating to their position held with the Company and other business experience. Executive Officer Age Recent Business Experience - ----------------- --- -------------------------- Joseph P. Keithley 51 Chairman of the Board of Directors since 1991, Chief Executive Officer since November 1993 and President since May 1994. Philip R. Etsler 49 Vice President Human Resources of the Company since 1990. John M. Gherlein 44 Secretary of the Company since July 1999; partner in the law firm of Baker & Hostetler LLP from 1990 to present. David H. Patricy 50 Vice President and General Manager of Test and Measurement of the Company since 1997. Previously General Manager of the Instrument Division from 1994 to 1997. Mark J. Plush 50 Vice President and Chief Financial Officer of the Company since October 1998. Previously, Controller since 1982 and an Officer of the Company since 1989. Gabriel A. Rosica 59 Senior Vice President and General Manager of Semiconductor since February 1996. Previously Chief Operating Officer of Bailey Controls Company from August 1994 to January 1996. D. Sherman Willows 63 Vice President Worldwide Sales since February 1999. Previously General Manager of World Wide Sales from 1997 to 1999 and Eastern Regional Sales Manager from 1993 to 1997. 8 11 PART II. ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED ------------------------------------------------------ STOCKHOLDER MATTERS. -------------------- The Company's Common Shares trade on the New York Stock Exchange under the symbol KEI. The high and low prices shown below are sales prices of the Company's Common Shares as reported on the NYSE. There is no established public trading market for the Company's Class B Common Shares; however, they are readily convertible on a one-for-one basis into Common Shares. Cash Dividends Cash Dividends Per Class B Fiscal 1999 High Low Per Common Share Common Share - ----------- ---- --- ---------------- ------------ First Quarter $9 1/4 $3 3/4 $ .033 $ .0264 Second Quarter 9 11/16 6 1/2 .033 .0264 Third Quarter 9 6 9/16 .033 .0264 Fourth Quarter 14 15/16 8 3/16 .041 .0328 Fiscal 1998 - ----------- First Quarter $12 3/8 $8 1/8 $ .031 $ .025 Second Quarter 9 1/2 7 1/2 .031 .025 Third Quarter 8 9/16 7 5/16 .031 .025 Fourth Quarter 7 6/16 5 .031 .025 The approximate number of shareholders of record of Common Shares and Class B Common Shares, including those shareholders participating in the Dividend Reinvestment Plan, as of December 14, 1999 was 2,394 and 12, respectively. 9 12 ITEM 6 - SELECTED FINANCIAL DATA. ------------------------ The following table sets forth consolidated selected financial data for the Company. The financial data should be read in conjunction with the Financial Statements and Notes thereto, included in a separate section at the end of this Annual Report, and with Management's Discussion and Analysis of Financial Condition and Results of Operations, included in Item 7 of this Annual Report.
For the years ended September 30, (In thousands, except for per share data) 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------- Operating Results Net sales $100,938 $117,776 $123,295 $118,946 $109,574 Income (loss) before income taxes 16,717 8,189 1,211 (6,324) 6,422 Net income (loss) 13,708 5,004 790 (5,440) 4,914 Basic earnings (loss) per share 1.84 0.64 0.10 (0.74) 0.68 Diluted earnings (loss) per share 1.79 0.62 0.10 (0.74) 0.66 Common Stock Information Cash dividends per Common Share 0.140 0.125 0.125 0.125 0.106 Cash dividends per Class B Common Share 0.112 0.100 0.100 0.100 0.085 Weighted average number of shares outstanding- diluted 7,657 8,065 7,867 7,360 7,476 At fiscal year-end: Dividend payout ratio (a) 7.6% 19.5% 125.0% -- 15.6% Price/earnings ratio (a) 7.9 8.2 120.0 -- 23.3 Shareholders' equity per share 6.16 4.92 4.26 4.26 5.11 Closing market price 14.188 5.063 12.000 8.875 14.938 Balance Sheet Data Total assets 74,751 71,017 79,113 73,834 66,109 Current ratio 2.0 1.9 1.9 1.7 2.0 Total debt 3,000 6,099 17,458 13,369 6,113 Total debt-to-capital 6.4% 13.6% 34.8% 29.6% 14.2% Shareholders' equity 43,781 38,742 32,683 31,756 36,902 Other Data Return on average shareholders' equity 33.2% 14.0% 2.5% -15.8% 14.3% Return on average total assets 18.8% 6.7% 1.0% -7.8% 8.2% Return on net sales 13.6% 4.2% 0.6% -4.6% 4.5% Number of employees 526 564 693 716 659 Sales per employee 185.2 187.4 175.0 173.0 170.7 Cash flow Noncash charges to income (b) 3,580 4,709 3,390 7,064 2,573 Net cash provided by (used in) operating activities 9,659 13,033 (1,011) 2,600 2,457 Ten-year compound annual growth rate Net sales 1.3% 5.0% 7.9% 9.6% 8.8% Net income (a) 12.7% -0.8% -13.3% -- 5.7%
(a) These ratios are not meaningful in 1996 due to reported net losses. (b) Noncash charges to income include depreciation, amortization, deferred compensation, deferred taxes and noncash special charges. 10 13 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. ------------------------------------------------- The following discussion should be read in conjunction with the Financial Statements and related Notes included in a separate section at the end of this Annual Report. Overview - -------- The Outlook section of Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projected in the forward-looking statements throughout this documents as a result of a number of important factors. For a discussion of important factors that could affect the Company's results, please refer to the risk factors set forth below in the section entitled Factors That May Affect Future Results. Results of Operations (In Thousands of Dollars Except for Per-Share Data) - ------------------------------------------------------------------------- Percent of net sales for the years ended September 30, 1999, 1998 and 1997
1999 1998 1997 ---- ---- ---- Net sales 100.0 100.0 100.0 Cost of goods sold 39.6 42.7 42.1 Selling, general and administrative expenses 38.5 39.7 41.4 Product development expenses 10.6 11.2 14.0 Gain on sale of business (5.1) (2.4) -- Special charges -- 1.0 0.6 Net financing (income) expenses (0.2) 0.9 0.9 ----- ----- ----- Income before income taxes 16.6 6.9 1.0 Income taxes 3.0 2.7 0.4 ----- ----- ----- Net income 13.6 4.2 0.6 ===== ===== =====
Net income was $13,708, or $1.79 per share on a diluted basis, in 1999 compared to $5,004, or $.62 per share, in 1998, and $790, or $.10 per share, in 1997. Excluding gains on sales of businesses in 1999 and 1998, a favorable tax adjustment in 1999, and special charges and other personnel cost reduction in 1998 and 1997, net income was $8,201, or $1.08 per share, in 1999, $4,679, or $.58 per share, in 1998 and $1,614, or $.20 per share, in 1997. 1999's adjusted net income of $8,201 is a new record high. Net sales were $100,938 in 1999, $117,776 in 1998 and $123,295 in 1997. Excluding sales from divested businesses in all periods, net sales were $100,321 in 1999, $96,840 in 1998 and $105,201 in 1997. (See Note B.) The increase in sales from current businesses in 1999 over 1998 is due to recoveries in the semiconductor industry and Asian markets, as well as continued good growth for the Company's products serving the telecommunications industry. The Company believes it has gained market share for its products serving both the semiconductor industry and the telecommunications industry. The decrease in sales from current businesses in 1998 over 1997 was primarily due to weakness in the semiconductor 11 14 capital equipment industry and the Asian financial situation. Geographically, domestic and export sales from current businesses increased somewhat in 1999 from 1998, but decreased in 1998 from 1997. Net sales from current businesses in Europe were essentially flat in all three years. Cost of goods sold as a percentage of net sales was 39.6 in 1999, 42.7 in 1998 and 42.1 in 1997. The decrease from 1998 to 1999 was due to the absence during all or most of 1999 of the Quantox product line and the Radiation Measurements Division (RMD), whose margins were lower. Further, margins in the remaining businesses improved largely in connection with higher sales. The increase in 1998 from 1997 was due to increased sales of Quantox and a strengthening of the U.S. dollar by 5 percent in 1998. The U.S. dollar had no impact in 1999. Foreign exchange hedging had a minimal effect on cost of goods sold in 1999, 1998 and 1997. Selling, general and administrative expenses decreased 17 percent in 1999 to 38.5 percent of net sales, and decreased 8 percent in 1998 to 39.7 percent of sales from 41.4 percent of sales in 1997. The majority of the decrease in 1999 can be attributed to the absence of RMD and only one month's cost for Quantox. Lower expenses resulting from the cost reduction actions taken over the last two years contributed to the three-year decline. Additionally, 1998 and 1997 expenses include approximately $1,210 pretax, or $.09 per share, and $512 pretax, or $.04 per share, respectively, for personnel cost reductions and officer retirement expenses. Product development expenses decreased $2,394, or 18 percent in 1999 from 1998 and $4,094, or 24 percent, in 1998 from 1997. As a percentage of sales, they were 10.6, 11.2 and 14.0 in 1999, 1998 and 1997, respectively. The decrease in 1999 from 1998 was due to the absence of RMD and only one month's costs for Quantox in 1999. Excluding costs for these divested businesses, product development costs were flat in 1999 compared to 1998 and down 15 percent in 1998 from 1997. The decrease in 1998 from 1997 (excluding the divested businesses) was due primarily to the completion of the Company's new business development efforts for the SmartLink(TM) product line and Model S600 parametric test system, which were notable expenses in 1997. On August 10, 1998, the Company sold certain assets used in the operation of its Radiation Measurements Division to Inovision Radiation Measurements, L.L.C. The sale was effective July 31, 1998, and resulted in a gain of $2,852 pretax, or $.22 per share, recorded in the fourth quarter of fiscal 1998. On November 9, 1998, the Company sold certain assets used in the operation of its Quantox product line to KLA-Tencor Corporation for $9,147 in cash. The agreement was effective October 31, 1998, and resulted in a pretax gain of $4,808, or $.39 per share, recorded in the first quarter of fiscal 1999. During the fourth quarter of fiscal 1999, an additional pretax gain of $345, or $.03 per share, was recorded for the above mentioned sales of businesses. At the time of the sales of these businesses, the Company established liabilities for certain items that were to be settled at future dates. The additional adjustment recorded in the fourth quarter of fiscal 1999 represents the settlement of certain of these issues. (See Note B.) 12 15 An analysis of special charges is as follows:
Accrued at Expense September 30, Description: 1998 1997 1999 1998 Write off of goodwill $ 519 $ -- $ -- $ -- Severance, outplacement and other personnel costs 290 (291) 2 24 Lease and related costs 280 (525) 180 248 Impaired inventory and equipment 122 49 -- -- Relocation of facility and employees 25 1,073 -- -- Recruiting and consulting costs -- 187 -- -- Manufacturing start-up costs -- 282 -- -- European operating subleases (64) (4) 474 540 ------- ------- ------- ------- Totals $ 1,172 $ 771 $ 656 $ 812 ======= ======= ======= =======
The Company did not record any special charges during 1999. Due to continued weakness in the semiconductor capital equipment industry throughout 1998, the Company incurred special charges in 1998 for cost reduction actions taken in the second quarter relative to its semiconductor business. Also, the Company decided to change the methodology of pursuing its WLR business, which was part of the 1996 acquisition of Turner Engineering Technology. As a result of this decision, the Company reviewed the carrying value of the goodwill using the estimated future cash flow method and determined that the goodwill was impaired. 1998 special charges include $519 for the write-off of the remaining balance of the goodwill. Additionally, the Company decided to further consolidate its manufacturing operations. As a result, special charges in 1998 include lease costs accrued on a leased facility the Company will no longer occupy. The reversal of European operating subleases represents a change in circumstances in 1998. The special charges recorded during 1998 of $1,172 pretax, or $.09 per share, include $551 in noncash charges. Special charges of $771 pretax, or $.06 per share, recorded in 1997 include gross costs of $1,902 primarily for the relocation of the Keithley MetraByte operation from Taunton, Massachusetts to Cleveland, Ohio, net of a reversal of $1,131 of expense (noncash) recorded during 1996 primarily for closing the Taunton facility. The reversal of this 1996 expense relates to changes in circumstances that occurred during 1997. $256 of the gross expense represents a noncash charge to reserve for additional impaired inventory. In September 1996, management made the decision to relocate the Keithley MetraByte operation to its Cleveland, Ohio facility due to a lack of growth in sales and poor earnings. The relocation was completed in July 1997, and during 1998, the Keithley MetraByte operation was combined with the Company's Instruments group to form the Test and Measurement business unit. At September 30, 1999 and 1998, $257 and $272, respectively, were accrued in the Consolidated Balance Sheets under the category "Other accrued expenses" and $399 and $540, respectively, were accrued under the category "Other long-term liabilities." The Company generated net financing income of $179 in 1999 compared to expenses of $1,040 and $1,145 in 1998 and 1997, respectively. The improvement was the result of lower interest expense due to lower average debt levels, combined with higher interest income earned on significantly higher cash and cash equivalents during 1999. 13 16 The effective tax rate for 1999 was 18.0 percent and was the combination of several factors: the gain on the sale of businesses recorded at the statutory rate including state and local taxes, a tax benefit resulting from the release of certain valuation reserves due to the settlement of prior years' tax liabilities and improved profitability in the Company's U.S. operations, which enabled the Company to utilize a number of tax credits. The effective tax rate for 1998 was 38.9 percent and reflects an unfavorable adjustment for prior years' taxes. The effective tax rate for 1997 was 34.7 percent. In 1997, foreign sales corporation (FSC) benefits and benefits derived from the remittance of foreign dividends were offset by a deferred tax charge resulting from the Company's decision to terminate corporate owned life insurance policies. At September 30, 1999, the Company had tax credit carryforwards of $1,216. The Company's financial results are affected by foreign exchange rate fluctuations. Generally, a weakening U.S. dollar causes the price of the Company's product to be more attractive in foreign markets and favorably impacts the Company's sales and earnings. A strengthening U.S. dollar has an unfavorable effect. This foreign exchange effect cannot be precisely isolated since many other factors affect the Company's foreign sales and earnings. These factors include product offerings and pricing policies of the Company and its competition, whether competition is foreign or U.S. based, changes in technology and local and worldwide economic conditions. The Company utilizes hedging techniques designed to mitigate the short-term effect of exchange rate fluctuations on operations and balance sheet positions by entering into forward and option currency contracts and by borrowing in foreign currencies. The Company's foreign borrowings are used as a hedge of its net investments and for specified transactions. The Company does not speculate in foreign currencies or derivative financial instruments, and hedging techniques do not increase the Company's exposure to foreign exchange rate fluctuations. Liquidity and Capital Resources - ------------------------------- In 1999, net cash provided by operating activities was $9,659 and cash received from the sale of a business was $9,147. Cash was used to buy back $8,366, or 942,803 shares, of the Company's common stock through its stock repurchase programs, pay down debt by $3,056, purchase $1,545 of property, plant and equipment and pay $955 in dividends. Total cash of $13,426 at September 30, 1999, increased $4,105 from September 30, 1998. The Company plans to use the cash to continue to fund its stock repurchase program. Total debt of $3,000 at September 30, 1999 decreased from $6,099 at September 30, 1998, and the debt-to-capital ratio at year-end was 6.4 percent versus 13.6 percent at the end of fiscal 1998. The Company's credit agreement, which expires March 28, 2002, is a $25,000 debt facility ($3,000 outstanding at September 30, 1999) that provides unsecured, multi-currency revolving credit at various interest rates based on Prime, LIBOR or FIBOR. The Company is required to pay a facility fee of between .175% and .25% on the total amount of the commitment. Additionally, the Company has a number of other credit facilities in various currencies aggregating $5,281. At September 30, 1999, the Company had total unused lines of credit with domestic and foreign banks aggregating $27,281, including short-term and long-term lines of credit of $5,281 14 17 and $22,000, respectively. Under certain long-term debt agreements, the Company is required to comply with various financial ratios and covenants. Principal payments on long-term debt are due in 2002. During 2000, the Company expects to finance capital spending, working capital requirements and the stock repurchase program with cash on hand and cash provided by operations. Capital expenditures in fiscal 2000 are expected to be somewhat higher than they were in 1999. Outlook - ------- Throughout 1999, the Company recognized increasing sales, earnings (before gains on sales and a favorable tax adjustment), orders and backlog. Additionally, order levels and backlog for fiscal 1999's fourth quarter were at record levels. Although there continues to be good activity, order levels for the first quarter of fiscal 2000 will be dependent on continued investment from the Company's customers in the semiconductor, telecommunications and other key electronics industries. However, due to the record backlog level, management does believe that sales and earnings before taxes for the first quarter of fiscal 2000 will be similar to or slightly better than those of the fourth quarter. The effective tax rate for fiscal 1999 was 18.0 percent; however, management expects the Company's effective tax rate will approximate the statutory rate in fiscal 2000. Factors That May Affect Future Results - -------------------------------------- Information included in the Letter to Shareholders and in the Outlook section of Management's Discussion and Analysis of Financial Condition and Results of Operations relating to expectations as to financial performance, revenues, earnings, expenses, the tax rate, annual sales growth, pretax return on sales and return on equity constitute "forward-looking" statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Some of the factors that may affect future results are discussed below. Although the Company operates in a single industry segment, certain of its products and product lines are sold into the semiconductor industry. Growth in demand for semiconductors, new technology and pricing drive the demand for new semiconductor capital equipment. Historically, sales and order levels for this business have been volatile which can affect revenue and earnings for the Company. The Company's business relies on the development of new high technology products and services to provide solutions to customer's complex measurement needs. This requires anticipation of customers' changing needs and emerging technology trends. The Company must make long-term investments and commit significant resources before knowing whether its expectations will eventually result in products that achieve market acceptance. The Company incurs significant expenses developing new products that may or may not result in significant sources of revenue and earnings in the future. 15 18 In many cases the Company's products compete directly with those offered by other manufacturers. If any of the Company's competitors were to develop products or services that are more cost-effective or technically superior, demand for the Company's product offerings could slow. The Company's cost structure is comprised of costs that are directly related to the level of sales, as well as costs that are fixed and do not fluctuate based on quarterly sales levels. The Company's ability to maintain its cost structure or to further improve its cost structure depends on its ability to control those costs that are fixed or semi-variable. The Company pays taxes in several jurisdictions throughout the world. The Company utilizes available tax credits and other tax planning strategies in an effort to minimize the Company's overall tax liability. The Company's actual tax rate for fiscal 2000 could change from what is currently anticipated due to changes in various country's tax laws or changes in the Company's overall tax planning strategy. The Company currently has ten subsidiaries or sales offices located outside the United States, and non-U.S. sales made up half of the Company's revenue in fiscal 1999. The Company's future results could be adversely affected by several factors, including changes in foreign currency exchange rates, changes in a country's or region's political or economic conditions, trade protection measures, import or export licensing requirements, unexpected changes in regulatory requirements and natural disasters. The Company recognizes the need to ensure that Year 2000 hardware and software issues will not adversely impact its operations. With regard to the Company's own information systems, a substantial portion of Year 2000 information technology compliance has been achieved in connection with the Company's ongoing program to upgrade its key information and operational systems. The Company completed the replacement of one remaining key system that was not Year 2000 compliant on October 1, 1999. These costs and any anticipated related costs will not have a material impact on the results of operations, financial condition or cash flows of future periods. With regard to the Company's own products, all products currently being sold have been evaluated for Year 2000 compliance. Most have been found to be ready for the Year 2000 change. Any exceptions have been identified and alternative solutions for continuing use of these products have been noted. The cost of identifying and modifying products for Year 2000 compliance did not have a material effect on the results of operations, financial condition or cash flows of future periods and any future costs are not expected to have a material impact. Lastly, the Company has surveyed its base of key suppliers to determine if their systems (insofar as they relate to the Company's business) comply with Year 2000 requirements. The Company is now monitoring their performance to process orders and deliver products as the Year 2000 approaches. There can be no assurance that the systems of other companies with which Keithley Instruments, Inc. does business will be able to adequately address the Year 2000 issue. If it is determined that any third party may not be ready, the Company will develop a contingency plan. While management does not expect that the failure of any third party to be fully compliant by January 1, 2000 would significantly affect results of operations, financial condition or cash flows of future periods, there can be no assurance that any such failure will not have an adverse effect on the Company's operations. 16 19 The Company has modified its systems to accommodate the Euro. The cost of these modifications was immaterial to the Company's results of operations. Although difficult to predict, any competitive implications and any impact on existing financial instruments are expected to be immaterial to the Company's results of operations, financial condition or cash flows of future periods. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- Response to this item is included in "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" above. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. -------------------------------------------- The response to this Item 8 is included in a separate section at the end of this Annual Report. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. ------------------------------------ None. 17 20 PART III. ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. --------------------------------------------------- See the table listing the nominees for directors under the caption "Election of Directors" in the Company's Proxy Statement to be used in conjunction with the February 12, 2000 Annual Meeting of Shareholders and filed with the Securities and Exchange Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934, which table is incorporated herein by this reference. The information required with respect to the executive officers of the Company is included under the caption "Executive Officers of the Registrant" of this Form 10-K Annual Report and incorporated herein by reference. ITEM 11 - EXECUTIVE COMPENSATION. ----------------------- See the caption "Executive Compensation and Benefits" in the Company's Proxy Statement to be used in conjunction with the February 12, 2000 Annual Meeting of Shareholders and filed with the Securities and Exchange Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934, which section is incorporated herein by this reference. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. --------------------------------------------------------------- See the caption "Principal Shareholders" in the Company's Proxy Statement to be used in conjunction with the February 12, 2000 Annual Meeting of Shareholders and filed with the Securities and Exchange Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934, which section is incorporated herein by this reference. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. ----------------------------------------------- James B. Griswold, a Director and nominee for Director, is a partner in the law firm of Baker & Hostetler LLP. Baker & Hostetler LLP served as general legal counsel to the Company during the fiscal year ended September 30, 1999, and is expected to render services in such capacity to the Company in the future. 18 21 PART IV. ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. ---------------------------------------------------------------- (a)(1) FINANCIAL STATEMENTS OF THE COMPANY See Index to Consolidated Financial Statements at page F-1 of this Form 10-K Annual Report and the Financial Statements and Notes thereto which are included at Pages F-2 to F-27 of this Annual Report. (a)(2) FINANCIAL STATEMENT SCHEDULES The following additional information should be read in conjunction with the Consolidated Financial Statements of the Company described in Item 14(a)(1): Schedule II Valuation and Qualifying Accounts Schedules other than those listed above are omitted because they are not required or not applicable, or because the information is furnished elsewhere in the consolidated financial statements or the notes thereto. 19 22 (a)(3) INDEX TO EXHIBITS Exhibit Number Description ------- ----------- 3(a) Code of Regulations, as amended on February 11, 1985. (Reference is made to Exhibit 3(b) of the Company's Form 10 Registration Statement (File No. 0-13648) as declared effective on July 31, 1985, which Exhibit is incorporated herein by reference.) 3(b) Amended Articles of Incorporation, as amended on February 10, 1996. (Reference is made to Exhibit 3(c) of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996 (File No. 1-9965), which Exhibit is incorporated herein by reference.) 4(a) Specimen Share Certificate for the Common Shares, without par value. 4(b) Specimen Share Certificate for the Class B Common Shares, without par value. (Reference is made to Exhibit 4(b) of the Company's Form 10 Registration Statement (File No. 0-13648) as declared effective on July 31, 1985, which Exhibit is incorporated herein by reference.) 10(a) 1984 Stock Option Plan, adopted in February 1984. (Reference is made to the appropriate Exhibits of the Company's Form 10 Registration Statement (File No. 0-13648) as declared effected on July 31, 1985, which Exhibits are incorporated herein by reference.) 10(b) Keithley Instruments, Inc. Supplemental Deferral Plan as amended. 10(c) Employment Agreement with Mark J. Plush dated April 7, 1994. (Reference is made to Exhibit 10(k) of the Company's Annual Report on Form 10-K for the year ended September 30, 1998 (File No. 1-9965), which Exhibit is incorporated herein by reference.) 10(d) Employment Agreement, as amended, with Joseph P. Keithley. 20 23 Exhibit Number Description ------ ----------- 10(e) Supplemental Executive Retirement Plan. 10(f) 1992 Stock Incentive Plan, as amended. 10(g) 1992 Directors' Stock Option Plan. 10(h) Credit Agreement dated as of May 31, 1994 by and among Keithley Instruments, Inc. and certain borrowing subsidiaries and the Banks named herein, and NBD Bank, N.A., as Agent. (Reference is made to Exhibit 10(u) of the Company's Quarterly Report on form 10-Q for the quarter ended June 30, 1994 (File No. 1-9965) which Exhibit is incorporated herein by reference.) 10(i) 1996 Outside Directors Deferred Stock Plan. (Reference is made to Exhibit 10(x) of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996 (File No. 1-9965), which Exhibit is incorporated herein by reference.) 10(j) First Amendment dated March 28, 1997, to the Credit Agreement dated May 31, 1994. (Reference is made to Exhibit 10(y) of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997 (File No. 1-9965), which Exhibit is incorporated herein by reference.) 10(k) 1997 Directors' Stock Option Plan, adopted in February 1997. (Reference is made to Exhibit 10(z) of the Company's Annual Report on form 10-K for the fiscal year ended September 30, 1997 (File No. 1-9965), which Exhibit is incorporated herein by reference.) 11 Statement Re Computation of Per Share Earnings. 21 Subsidiaries of the Company. 23 Consent of Experts. 27 Financial Data Schedule (EDGAR version only). ITEM 14(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the quarterly period ended September 30, 1999. ITEM 14(c) EXHIBITS: See "Index to Exhibits" at Item 14(a)(3) above. ITEM 14(d) FINANCIAL STATEMENT SCHEDULES: Schedules required to be filed in response to this portion of Item 14 are listed above in Item 14(a)(2). 21 24 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. Keithley Instruments, Inc. (Registrant) By: /s/ Joseph P. Keithley ------------------------------ Joseph P. Keithley, (Chairman, President and Chief Executive Officer) Date: December 3, 1999 ------------------------ Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities on the date indicated.
Signature Title Date - --------- ----- ---- /s/ Joseph P. Keithley Chairman of the Board of Directors, 12/3/99 - -------------------------------- President and Chief Executive Officer Joseph P. Keithley (Principal Executive Officer) /s/ Brian R. Bachman Director 12/3/99 - -------------------------------- Brian R. Bachman /s/ James T. Bartlett Director 12/3/99 - -------------------------------- James T. Bartlett /s/ Arden L. Bement, Jr. Director 12/3/99 - -------------------------------- Dr. Arden L. Bement, Jr. /s/ James B. Griswold Director 12/3/99 - -------------------------------- James B. Griswold /s/ Leon J. Hendrix, Jr. Director 12/3/99 - -------------------------------- Leon J. Hendrix, Jr. /s/ William J. Hudson, Jr. Director 12/3/99 - -------------------------------- William J. Hudson, Jr. /s/ R. Elton White Director 12/3/99 - -------------------------------- R. Elton White
22 25 KEITHLEY INSTRUMENTS, INC. INDEX TO FINANCIAL STATEMENTS Financial Statements: Page No. - --------------------- -------- Report of Independent Accountants F-2 Consolidated Statements of Income F-3 Consolidated Balance Sheets F-4 Consolidated Statements of Shareholders' Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 Financial Statement Schedule: For the Three Years Ended September 30, 1999 Schedule II - Valuation and Qualifying Accounts F-28 F-1 26 Report of Independent Accountants To the Board of Directors and Shareholders of Keithley Instruments, Inc. In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Keithley Instruments, Inc. and its subsidiaries at September 30, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1999 in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP Cleveland, Ohio November 5, 1999 F-2 27 Consolidated Statements of Income For the years ended September 30, 1999, 1998 and 1997 (In Thousands of Dollars Except for Per-Share Data)
1999 1998 1997 --------- --------- --------- Net sales $ 100,938 $ 117,776 $ 123,295 --------- --------- --------- Cost of goods sold 39,923 50,332 51,924 Selling, general and administrative expenses 38,885 46,756 51,011 Product development expenses 10,745 13,139 17,233 Gain on sale of businesses (5,153) (2,852) -- Special charges -- 1,172 771 Net financing (income) expenses (179) 1,040 1,145 --------- --------- --------- Income before income taxes 16,717 8,189 1,211 Income taxes 3,009 3,185 421 --------- --------- --------- Net income $ 13,708 $ 5,004 $ 790 ========= ========= ========= Basic earnings per share $ 1.84 $ .64 $ .10 ========= ========= ========= Diluted earnings per share $ 1.79 $ .62 $ .10 ========= ========= =========
The accompanying notes are an integral part of the financial statements. F-3 28 Consolidated Balance Sheets As of September 30, 1999 and 1998 (In Thousands of Dollars Except for Share Data)
1999 1998 -------- -------- Assets Current assets: Cash and cash equivalents $ 13,426 $ 9,321 Accounts receivable and other, net of allowances of $679 and $704 as of September 30, 1999 and 1998, respectively 19,633 17,586 Inventories: Raw materials 4,853 5,997 Work in process 4,009 3,163 Finished products 2,187 2,490 -------- -------- Total inventories 11,049 11,650 Deferred income taxes 3,074 3,267 Prepaid expenses 519 503 -------- -------- Total current assets 47,701 42,327 -------- -------- Property, plant and equipment, at cost: Land 1,325 1,325 Buildings and leasehold improvements 15,090 14,984 Manufacturing, laboratory and office equipment 21,878 23,025 -------- -------- 38,293 39,334 Less-Accumulated depreciation and amortization 25,617 24,723 -------- -------- Total property, plant and equipment, net 12,676 14,611 -------- -------- Deferred income taxes 7,801 8,087 Other assets 6,573 5,992 -------- -------- Total assets $ 74,751 $ 71,017 ======== ======== Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 8,119 $ 6,191 Accrued payroll and related expenses 5,872 4,203 Other accrued expenses 6,046 6,902 Income taxes payable 3,382 4,591 -------- -------- Total current liabilities 23,419 21,887 -------- -------- Long-term debt 3,000 6,099 Other long-term liabilities 4,543 4,277 Deferred income taxes 8 12 Shareholders' equity: Common Shares, stated value $.025: Authorized - 30,000,000; issued and outstanding - 4,415,349 in 1999 and 5,092,903 in 1998 132 127 Class B Common Shares, stated value $.025: Authorized - 9,000,000; issued and outstanding - 2,692,528 in 1999 and 2,785,378 in 1998 67 70 Capital in excess of stated value 9,071 8,877 Earnings reinvested in the business 42,623 29,870 Accumulated other comprehensive income 112 429 Unamortized portion of restricted stock plan (239) (283) Common Shares held in treasury, at cost (7,985) (348) -------- -------- Total shareholders' equity 43,781 38,742 -------- -------- Total liabilities and shareholders' equity $ 74,751 $ 71,017 ======== ========
The accompanying notes are an integral part of the financial statements. F-4 29 Consolidated Statements of Shareholders' Equity For the years ended September 30, 1999, 1998 and 1997 (In Thousands of Dollars)
Accumulated other comprehensive income --------------------- Capital Earnings Minimum Unamortized Common Class B in excess reinvested pension Cumulative portion of Shares Total Common Common of stated in the liability translation restricted held in shareholders Shares Shares value business adjustment adjustment stock plan treasury equity --------- ------- --------- ---------- ---------- ----------- ------------- ---------- ------------ BALANCE SEPTEMBER 30, 1996 116 70 5,293 25,865 -- 562 (14) (136) 31,756 Comprehensive Income: Net Income 790 Translation adjustment (550) Total comprehensive income 240 Cash dividends: Common Shares ($.125 per share) (603) (603) Class B Common Shares ($.10 per share) (279) (279) Shares issued under stock plans 6 2,004 (742) 1,268 Repurchase of Common Shares (124) (124) Gains from hedging net investments in foreign subsidiaries 238 238 Amortization 187 187 --------- ------- -------- ---------- ---------- ----------- --------- ---------- ---------- BALANCE SEPTEMBER 30, 1997 122 70 7,297 25,773 250 (569) (260) 32,683 Comprehensive Income: Net Income 5,004 Translation adjustment 146 Total comprehensive income 5,150 Cash dividends: Common Shares ($.125 per (629) (629) share) Class B Common Shares ($.10 (278) (278) per share) Shares issued under stock plans 5 1,580 1,585 Repurchase of Common Shares (88) (88) Gains from hedging net investments in foreign subsidiaries 33 33 Amortization 286 286 --------- ------- -------- ---------- ---------- ---------- ----------- ---------- ---------- BALANCE SEPTEMBER 30, 1998 127 70 8,877 29,870 -- 429 (283) (348) 38,742 Comprehensive Income: Net Income 13,708 Translation adjustment (281) Minimum pension liability adj. (39) Total comprehensive income 13,388 Cash dividends: Common Shares ($.14 per share) (653) (653) Class B Common Shares ($.112 per share) (302) (302) Shares issued under stock plans 2 194 1,077 1,273 Conversion to Common Shares 3 (3) -- Repurchase of Common Shares (8,714) (8,714) Gains from hedging net investments in foreign subsidiaries 3 3 Amortization 44 44 ========= ======= ======== ========== =========== =========== =========== ========== ========== BALANCE SEPTEMBER 30, 1999 132 67 9,071 42,623 (39) 151 (239) (7,985) 43,781 ========= ======= ======== ========== =========== =========== =========== ========== ==========
The accompanying notes are an integral part of the financial statements. F-5 30 Consolidated Statements of Cash Flows For the years ended September 30, 1999, 1998 and 1997 (In Thousands of Dollars)
1999 1998 1997 -------- -------- -------- Cash flows from operating activities: Net income $ 13,708 $ 5,004 $ 790 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 2,923 3,653 3,823 Amortization of intangible assets -- 196 222 Deferred income taxes 475 (22) (1,140) Deferred compensation 183 331 229 Special charges -- 551 (771) Gain on sale of businesses (5,153) (2,852) -- Change in current assets and liabilities: Accounts receivable and other (2,488) 6,625 (6,969) Inventories (1,581) 3,670 486 Prepaid expenses 156 (648) 29 Other current liabilities 2,205 (3,320) 1,427 Other operating activities (769) (155) 863 -------- -------- -------- Net cash provided by (used in) operating activities 9,659 13,033 (1,011) -------- -------- -------- Cash flows from investing activities: Capital expenditures (1,545) (2,753) (5,849) Proceeds received from sale of assets 9,147 8,683 -- Cash expenditures for sale of assets (1,636) (759) -- Other investing activities 58 96 202 -------- -------- -------- Net cash provided by (used in) investing activities 6,024 5,267 (5,647) -------- -------- -------- Cash flows from financing activities: Net decrease in short-term debt -- (16) (45) Borrowing (payment) of long-term debt (3,056) (11,314) 4,520 Proceeds from sale of Common Shares 925 1,458 1,144 Purchase of Treasury Shares (8,366) -- -- Cash dividends (955) (907) (882) -------- -------- -------- Net cash provided by (used in) financing activities (11,452) (10,779) 4,737 -------- -------- -------- Effect of changes in foreign currency exchange rates on cash and cash equivalents (126) 73 (347) -------- -------- -------- Increase (decrease) in cash and cash equivalents 4,105 7,594 (2,268) Cash and cash equivalents at beginning of period 9,321 1,727 3,995 -------- -------- -------- Cash and cash equivalents at end of period $ 13,426 $ 9,321 $ 1,727 ======== ======== ======== Supplemental disclosures of cash flow information Cash paid during the year for: Income taxes $ 3,641 $ 972 $ 1,981 Interest 179 891 1,140
Disclosure of accounting policy For purposes of this statement, the Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Cash flows resulting from hedging transactions are classified in the same category as the cash flows from the item being hedged. The accompanying notes are an integral part of the financial statements. F-6 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands of Dollars Except for Per-Share Data) NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - --------------------------- The consolidated financial statements include the accounts of Keithley Instruments, Inc. and its subsidiaries. Intercompany transactions have been eliminated. Certain amounts in prior years have been reclassified to be consistent with the current year's presentation. REVENUE RECOGNITION - ------------------- Sales are recognized at time of shipment for all products. NATURE OF OPERATIONS - -------------------- The Company operates in a single industry segment and is engaged in the design, development, manufacture and marketing of complex electronic instruments and systems. Its products provide electrical measurement-based solutions to the telecommunications, semiconductor and electronic components industries. Engineers and scientists around the world use the Company's advanced hardware and software for process monitoring, production test and basic research. PRODUCT DEVELOPMENT EXPENSES - ---------------------------- Expenditures for product development are charged to expense as incurred. These expenses include the cost of computer software, an integral part of certain products. Costs defined by Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed," are immaterial to the financial statements and have been expensed as incurred. The Company continually reviews the materiality and financial statement classification of computer software expenditures. INVENTORIES - ----------- Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market. PROPERTY, PLANT AND EQUIPMENT - ----------------------------- Property, plant and equipment are stated at cost. Depreciation is provided over periods approximating the estimated useful lives of the assets. Substantially all manufacturing, laboratory and office equipment is depreciated by the double declining balance method over periods of 3 to 10 years. Buildings are depreciated by the straight-line method over periods of 23 to 45 years. Leasehold improvements are amortized over the shorter of the asset lives or the terms of the leases. OTHER ACCRUED EXPENSES - ---------------------- Included in the "Other accrued expenses" caption of the Consolidated Balance Sheets at September 30, 1999 and 1998, were $1,476 and $1,599, respectively, for commissions payable to outside sales representatives of the Company. F-7 32 CAPITAL STOCK - ------------- The Company has two classes of stock. The Class B Common Shares have ten times the voting power of the Common Shares but are entitled to cash dividends of no more than 80% of the cash dividends on the Common Shares. Holders of Common Shares, voting as a class, elect one-fourth of the Company's Board of Directors and participate with holders of Class B Common Shares in electing the balance of the Directors and in voting on all other corporate matters requiring shareholder approval. Additional Class B Common Shares may be issued only to holders of such shares for stock dividends or stock splits. These shares are convertible at any time to Common Shares on a one-for-one basis. Included in the "Common shares held in treasury, at cost" caption of the Consolidated Balance Sheets at September 30, 1999 and 1998, were Common Shares repurchased to settle non-employee Directors' fees deferred pursuant to the Keithley Instruments, Inc. 1996 Outside Directors Deferred Stock Plan. At September 30, 1999, the caption also included shares repurchased through the Company's share repurchase programs. (See Note D.) INCOME TAXES - ------------ Provision has been made for estimated United States and foreign withholding taxes, less available tax credits, for the undistributed earnings of the non-U.S. subsidiaries as of September 30, 1999, 1998 and 1997. USE OF ESTIMATES - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the reported financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. EARNINGS PER SHARE - ------------------ In February 1997, the Financial Accounting Standards Board issued Statement of Financial Acccounting Standards No. 128, "Earnings Per Share." The Company adopted this standard in 1998. All per share amounts have been restated in accordance with the new standard. Both Common Shares and Class B Common Shares are included in calculating earnings per share. The weighted average number of shares outstanding used in the calculation is set forth below:
1999 1998 1997 --------- ----------- --------- Basic 7,447,081 7,799,507 7,588,094 Diluted 7,657,425 8,065,289 7,866,750
HEDGING AND RELATED FINANCIAL INSTRUMENTS - ------------------------------------------ The Company utilizes foreign currency borrowings and foreign exchange forward contracts to hedge foreign exchange risks for sales denominated in foreign currencies and net equity or unremitted foreign earnings. F-8 33 To hedge sales, the Company purchases foreign exchange forward contracts or option contracts to sell foreign currencies to fix the exchange rates related to near-term sales and the Company's margins. Underlying hedged transactions are recorded at hedged rates, therefore realized and unrealized gains and losses are recorded when the operating revenues and expenses are recorded. To hedge equity or unremitted earnings, the Company borrows foreign currencies or purchases foreign exchange forward contracts. Realized and unrealized after-tax gains or losses on the hedging instruments are reflected in the cumulative translation adjustment component of shareholders' equity. The Company has entered into a swap instrument to mitigate the risk of interest rate changes. The amount exchanged under the swap agreement is included in the "Net financing (income) expenses" caption of the Consolidated Statements of Income. The estimated fair value of the swap instrument is determined through quotes from the related financial institutions. The Company is exposed to credit loss in the event of nonperformance by the counterparties to these financial instruments. Because the counterparties are major financial institutions, the Company does not expect such nonperformance. OTHER ACCOUNTING PRONOUNCEMENTS - ------------------------------- In March 1998, the Accounting Standards Executive Committee issued Statement of Position 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1). This Statement requires expenses incurred during the application development stage of a software implementation project to be capitalized and amortized over the useful life of the project. SOP 98-1 is required to be adopted in the Company's fiscal year ending September 30, 2000. Application of this standard is not expected to have a material impact on the consolidated results of financial position of the Company. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). This Statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 - an amendment of FASB Statement No. 133" (SFAS 137). SFAS 137 deferred the effective date of SFAS 133 for one year, therefore, SFAS 133 will be required to be adopted in the Company's first quarter of its fiscal year ending September 30, 2001. The Company has not yet determined the financial statement impact of this Statement. F-9 34 NOTE B - SALE OF ASSETS On August 10, 1998, the Company sold certain assets used in the operation of its Radiation Measurements Division (RMD) to Inovision Radiation Measurements, L.L.C. for $8,215 in cash. Additionally, the Company received $468 for certain liabilities incurred in the operation of RMD that were not assumed by the buyer. The agreement, which was effective July 31, 1998, included the sale of RMD's inventory, accounts receivable, machinery, equipment and other tangible personal property, and intangible assets including patents and technology. The sale resulted in a pretax gain of $2,852, or $.22 per share, recorded in the fourth quarter of fiscal 1998. On November 9, 1998, the Company sold certain assets used in the operation of its Quantox product line to KLA-Tencor Corporation for $9,147 in cash. The agreement, which was effective October 31, 1998, included the sale of the Quantox inventory, certain machinery, equipment and other tangible personal property. The Company retained the accounts receivable. The sale resulted in a pretax gain of $4,808, or $.39 per share, recorded in the first quarter of fiscal 1999. During the fourth quarter of fiscal 1999, an additional pretax gain of $345, or $.03 per share, was recorded for the above mentioned sales of businesses. At the time of the sales of these businesses, the Company established liabilities for certain items that were to be settled at future dates. The additional adjustment recorded in the fourth quarter of fiscal 1999 represents the settlement of certain of these issues. F-10 35 NOTE C - SPECIAL CHARGES An analysis of special charges recorded in the Consolidated Statements of Income in 1998 and 1997, and the amount accrued in the Consolidated Balance Sheets at September 30, 1999 and 1998 is as follows:
Accrued at Expense September 30, ------- ------------- Description: 1998 1997 1999 1998 ---- ---- ---- ---- Write off of goodwill $ 519 $ -- $ -- $ -- Severance, outplacement and other personnel costs 290 (291) 2 24 Lease and related costs 280 (525) 180 248 Impaired inventory and equipment 122 49 -- -- Relocation of facility and employees 25 1,073 -- -- Recruiting and consulting costs -- 187 -- -- Manufacturing start-up costs -- 282 -- -- European operating subleases (64) (4) 474 540 ------- ------- --- --- Totals $1,172 $ 771 $656 $812 ====== ====== ==== ====
The Company did not record any special charges during fiscal 1999. Due to continued weakness in the semiconductor capital equipment industry throughout 1998, the Company incurred special charges in 1998 for cost reduction actions taken in the second quarter relative to its semiconductor business. Also, the Company decided to change the methodology of pursuing its WLR business, which was part of the 1996 acquisition of Turner Engineering Technology. As a result of this decision, the Company reviewed the carrying value of the goodwill using the estimated future cash flow method and determined that the goodwill was impaired. 1998 special charges include $519 for the write-off of the remaining balance of the goodwill. Additionally, the Company decided to further consolidate its manufacturing operations. As a result, special charges in 1998 include lease costs accrued on a leased facility the Company will no longer occupy. The reversal of European operating subleases represents a change in circumstances in 1998. The special charges recorded during 1998 of $1,172 pretax, or $.09 per share, include $551 in noncash charges. Special charges of $771 pretax, or $.06 per share, recorded in 1997 include gross costs of $1,902 primarily for the relocation of the Keithley MetraByte operation from Taunton, Massachusetts to Cleveland, Ohio, net of a reversal of $1,131 of expense (noncash) recorded during 1996 primarily for closing the Taunton facility. The reversal of 1996 expense relates to changes in circumstances that occurred during 1997. $256 of the gross expense represents a noncash charge to reserve for additional impaired inventory. In September 1996, management made the decision to relocate the Keithley MetraByte operation to its Cleveland, Ohio facility due to a lack of growth in sales and poor earnings. The relocation was completed in July 1997, and during 1998, the Keithley MetraByte operation was combined with the Company's Instruments group to form the Test and Measurement business unit. At September 30, 1999 and 1998, $257 and $272, respectively, were accrued in the Consolidated Balance Sheets under the category "Other accrued expenses" and $399 and $540, respectively, were accrued under the category "Other long-term liabilities." F-11 36 NOTE D - SHARE REPURCHASE PROGRAMS On November 11, 1998, the Company commenced a tender offer to repurchase up to 2,000,000 of its Common Shares, or approximately 25 percent of the outstanding Common Shares and Class B Common Shares combined. The offer was conducted through a procedure commonly known as a "Dutch Auction" in which shareholders could tender their shares at prices not in excess of $7.00 nor less than $5.75 per share. The offer expired on December 10, 1998, and resulted in the purchase of 405,733 Common Shares at $7.00 per share plus expenses of approximately $1.00 per share. At the conclusion of the Dutch Auction, the Company's Board of Directors approved a program to repurchase up to 1,000,000 Common Shares on the open market over a two-year period. The shares repurchased under both the Dutch Auction and the stock repurchase program are expected to be held as treasury stock, and from time to time, may be reissued in settlement of stock options and the Company's employee stock purchase plan. During fiscal 1999 the Company purchased 537,070 Common Shares at an average price of $9.54 per share including commissions. Since commencing the tender offer in November 1998, the Company has purchased under both buy back plans a total of 942,803 Common Shares, which constitutes 12 percent of the combined Common and Class B Common Shares at the start of the buy back programs, at an average price of $8.87 per share including commissions. During fiscal 1999, the Company reissued 100,427 treasury shares in settlement of shares purchased through the Company's stock option plans and employee stock purchase plan. F-12 37 NOTE E - FINANCING ARRANGEMENTS
September 30, ------------- 1999 1998 ---- ---- Long-term debt: Revolving loans with various banks with interest due monthly; principal due March 28, 2002: U.S. dollar denominated loans with an interest rate of 6.3% and 6.4% based on LIBOR at $ 3,000 $ 5,500 September 30, 1999 and 1998, respectively Deutsche mark denominated loans with an interest rate of 3.8% based on FIBOR -- 599 ------- ------- 3,000 6,099 Less-current installments on long-term debt -- -- ------- ------- Total long-term debt $ 3,000 $ 6,099 ======= =======
The Company's credit agreement, which expires March 28, 2002, is a $25,000 debt facility ($3,000 outstanding at September 30, 1999) that provides unsecured, multi-currency revolving credit at various interest rates based on Prime, LIBOR or FIBOR. The Company is required to pay a facility fee of between .175% and .25% on the total amount of the commitment. Additionally, the Company has a number of other credit facilities in various currencies aggregating $5,281. At September 30, 1999, the Company had total unused lines of credit with domestic and foreign banks aggregating $27,281, including short-term and long-term lines of credit of $5,281 and $22,000, respectively. Under certain long-term debt agreements, the Company is required to comply with various financial ratios and covenants. Principal payments on long-term debt are due in 2002. The three-month LIBOR interest rate was 6.1 and 5.3 percent at September 30, 1999 and 1998. The Company has an interest rate swap agreement with a commercial bank to effectively fix its interest rate on $3,000 of variable rate debt. The agreement effectively fixes the interest rate on a notional $3,000 of variable LIBOR rate debt at 6.8 percent, and expires September 19, 2005. The interest differential to be paid or received on the notional amount of the swap is recognized over the life of the agreement. At September 30, 1999 interest rate levels, the swap requires the Company to make payments to the bank and would cost the Company approximately $24 to terminate. Following is an analysis of net financing (income) expenses:
1999 1998 1997 ------- ------- ------- Interest expense $ 220 $ 1,137 $ 1,315 Investment income (399) (97) (170) ------- ------- ------- $ (179) $ 1,040 $ 1,145 ======= ======= =======
F-13 38 NOTE F - FOREIGN CURRENCY The functional currency for the Company's foreign subsidiaries is the applicable local currency. Income and expenses are translated into U.S. dollars at average exchange rates for the period. Assets and liabilities are translated at the rates in effect at the end of the period. Translation gains and losses are recognized in the cumulative translation component of shareholders' equity. Certain transactions of the Company and its foreign subsidiaries are denominated in currencies other than the functional currency. The Consolidated Statement of Income includes gains (losses) from such foreign exchange transactions of $40, $(138) and $95 for 1999, 1998 and 1997, respectively. At September 30, 1999, the Company had obligations under foreign exchange forward contracts to sell 1,800,000 Euros and 180,000 British pounds at various dates through December 1999. The total U.S. dollar equivalent amount of these foreign exchange contracts of $2,189 includes an unrecognized loss of $32 at September 30, 1999. F-14 39 NOTE G - EMPLOYEE BENEFIT PLANS The Company has noncontributory defined benefit pension plans covering all of its eligible employees in the United States and certain non-U.S. employees. Pension benefits are based upon the employee's length of service and a percentage of compensation above certain base levels. A summary of components of net periodic pension cost is shown below:
1999 1998 1997 ------- ------- ------- Service cost-benefits earned during the period $ 1,011 $ 945 $ 733 Interest cost on projected benefit obligation 1,443 1,356 1,192 Actual return on assets (2,141) (3,791) (3,470) Net amortization and deferral 92 2,073 2,115 ------- ------- ------- Net periodic pension cost $ 405 $ 583 $ 570 ======= ======= =======
The following table sets forth the funded status of the Company's plans and the related amounts recognized in the Consolidated Balance Sheet at September 30, 1999 and 1998:
Non-U.S. United States Plan Plan Overfunded Underfunded* -------------------- -------------------- 1999 1998 1999 1998 -------- -------- -------- -------- CHANGE IN PROJECTED BENEFIT OBLIGATIONS: Benefit obligation at beginning of year $ 16,999 $ 15,219 $ 4,098 $ 2,777 Service cost 831 780 180 165 Interest cost 1,213 1,186 229 170 Actuarial (gain) loss (397) 188 (321) 805 Benefits paid (611) (421) (84) (41) Plan amendment -- 457 -- -- Curtailment gain -- (410) -- -- Foreign currency exchange rate changes -- -- (358) 222 -------- -------- -------- -------- Benefit obligation at year end $ 18,035 $ 16,999 $ 3,744 $ 4,098 ======== ======== ======== ========
F-15 40
Non-U.S. United States Plan Plan Overfunded Underfunded* -------------------- -------------------- 1999 1998 1999 1998 -------- -------- -------- -------- CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year $ 23,500 $ 19,474 $ 655 $ 498 Actual return on pension assets 2,130 3,718 10 72 Employer contributions 157 728 50 54 Benefits paid (611) (420) (11) (4) Foreign currency exchange rate changes -- -- (59) 35 Fair value of plan assets at end of year 25,176 23,500 645 655 -------- -------- -------- -------- Funded status - over (under) funded 7,141 6,501 (3,099) (3,443) Unrecognized actuarial gains (5,582) (5,146) 151 474 Unrecognized prior service cost 1,329 1,470 53 63 Unrecognized initial net (asset) obligation (270) (314) 165 201 -------- -------- -------- -------- Prepaid pension assets (pension liability) recognized in the Consolidated Balance Sheets $ 2,618 $ 2,511 $ (2,730) $ (2,705) ======== ======== ======== ========
*The Company has purchased indirect insurance of $2,634 which is expected to be available to the Company as non-U.S. pension liabilities of $2,730 mature. The caption, "Other assets," on the Company's Consolidated Balance Sheets includes $2,634 and $2,776 at September 30, 1999 and 1998, respectively, for this asset. In accordance with Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," this Company asset is not included in the non-U.S. plan assets. The significant actuarial assumptions as of the year-end measurement date were as follows:
1999 1998 1997 ---- ---- ---- UNITED STATES PENSION PLAN: Discount rate 7.25% 7.5% 7.5% Expected long-term rate of return on plan assets 8.25% 8.25% 8.5% Rate of increase in compensation levels 5.0% 5.0% 5.5% NON-U.S. PENSION PLAN: Discount rate 6.0% 6.0% 6.25% Expected long-term rate of return on plan assets 7.0% 7.0% 7.0% Rate of increase in compensation levels 4.0% 4.0% 3.5%
The "Projected Unit Credit" Actuarial Cost Method is used to determine the Company's annual expense. For the United States plan, the Company uses the "Entry Age Normal" Actuarial Cost Method to determine its annual funding requirements. United States plan assets are invested primarily in common stocks and fixed-income securities. Although there are no requirements for the Company to fund the non-U.S. pension plan, the Company has made contributions in the past. Non-U.S. plan assets represent employee and Company contributions and are invested in a direct insurance contract payable to the individual participants. F-16 41 The sale of the Radiation Measurements Division's assets resulted in the termination of essentially all the Division's employees. As a result, the Company recognized a gain for pension curtailment of $410 in 1998. The gain is included in the "Gain on sale of businesses" caption on the Company's Consolidated Statement of Income. (See Note B.) In addition to the defined benefit pension plan, the Company also maintains a retirement plan for all of its eligible employees in the United States under Section 401(k) of the Internal Revenue Code. The Company makes contributions to the 401(k) plan, and expense for this plan amounted to $932, $443 and $403 in 1999, 1998 and 1997, respectively. The Company also has an unfunded supplemental executive retirement plan (SERP) for former key employees which includes retirement, death and disability benefits. Expense (income) recognized for these benefits was $37, $12 and $(3), for 1999, 1998 and 1997, respectively. The income recognized during 1997 was due to an officer taking early retirement causing a reversal of previously accrued expense. Liabilities of $190 and $170 were accrued in the "Other long-term liabilities" caption on the Company's Consolidated Balance Sheets to meet all SERP obligations at September 30, 1999 and 1998, respectively. F-17 42 NOTE H - STOCK PLANS Stock Option Plans - ------------------ Under the 1984 Stock Option Plan and the 1992 Stock Incentive Plan, 675,000 and 1,900,000 of the Company's Common Shares, respectively, were reserved for the granting of options to officers and other key employees. After February 11, 1994, no new grants could be issued from the 1984 Stock Option Plan. The Compensation and Human Resources Committee of the Board of Directors administers the plans. Incentive stock options granted under the plans can not be less than the fair market price at the date of the grant with an exercise period not to exceed ten years. Such grants generally become exercisable over a four year period. The option price under nonqualified stock options is determined by the Committee on the date the option is granted. The 1992 Stock Incentive Plan also provides for restricted stock awards and stock appreciation rights. This plan will expire on February 8, 2002. All options outstanding at the time of termination of either plan shall continue in full force and effect in accordance with their terms. The 1997 Directors' Stock Option Plan provides for the issuance of 200,000 of the Company's Common Shares to non-employee Directors. Under the terms of the plan, each non-employee Director is automatically granted an option to purchase 5,000 Common Shares at the close of each annual shareholders' meeting. The plan will expire on February 15, 2007. On February 15, 1997, the Company's Board of Directors terminated the 1992 Directors' Stock Option Plan. Prior to its termination, this plan provided for the issuance of 60,000 of the Company's Common Shares to non-employee Directors, with each non-employee Director automatically granted an option to purchase 600 Common Shares at the close of each annual shareholders' meeting. All options outstanding at the time of termination of the plans shall continue in full force and effect in accordance with their terms. The option price for grants under both plans is the fair market value of a Common Share on the date of grant. The options under both plans are exercisable six months and one day after the date of grant and will expire after ten years. F-18 43 The activity under all option plans was as follows:
Outstanding Exercisable Weighted Weighted Average Average Number Exercise Number Exercise of Shares Price of Shares Price --------- ----- --------- ----- September 30, 1996 1,171,989 $ 8.24 400,044 $ 5.45 Options granted at fair market value 310,000 11.18 Options granted above fair market value 1,100 11.54 Options granted below fair market value 82,528 - Options exercised (124,873) 1.70 Options forfeited (37,212) 9.23 ------------------------------------------------------------- September 30, 1997 1,403,532 8.97 593,607 7.01 Options granted at fair market value 280,050 5.70 Options granted above fair market value 38,204 10.18 Options granted below fair market value 30,322 4.83 Options exercised (111,228) 5.37 Options forfeited (264,011) 9.47 ------------------------------------------------------------- September 30, 1998 1,376,869 8.44 707,844 7.93 Options granted at fair market value 313,200 8.20 Options granted above fair market value 45,658 5.65 Options granted below fair market value 33,184 7.23 Options exercised (157,919) 5.11 Options forfeited (97,677) 7.53 ------------------------------------------------------------- September 30, 1999 1,513,315 $8.69 785,169 $9.42 =============================================================
The options outstanding at September 30, 1999 have been segregated into ranges for additional disclosure as follows:
- ----------------------------------------------------------------------------- ---------------------------------- Outstanding Exercisable - ------------------------ ----------------- ---------------- ----------------- ----------------- ---------------- Weighted Average Remaining Weighted Average Weighted Average Range of Exercise Number of Shares Contractual Exercise Number of Shares Exercise Prices Outstanding Life Price Exercisable Price - ------------------------ ----------------- ---------------- ----------------- ----------------- ---------------- $4.13 - $5.06 405,583 6.76 years $ 4.96 179,433 $ 4.83 $5.19 - $8.81 408,032 9.17 years $ 8.09 85,832 $ 7.66 $9.06 - $10.00 290,300 5.96 years $ 9.27 227,100 $ 9.23 $11.44 - $15.69 409,400 6.46 years $12.56 292,804 $12.89 1,513,315 7.18 years $ 8.69 785,169 $ 9.42 - ------------------------ ----------------- ---------------- ----------------- ----------------- ----------------
1993 Employee Stock Purchase Plan - --------------------------------- On February 5, 1994, the Company's shareholders approved the 1993 Employee Stock Purchase and Dividend Reinvestment Plan. The plan offers eligible employees the opportunity to acquire the Company's Common Shares at a discount and without transaction costs. Eligible employees can only participate in the plan on a year-to-year basis, must enroll prior to the commencement of each plan year, and in the case with U.S. employees, must authorize monthly payroll F-19 44 deductions. Non-U.S. employees submit their contribution at the end of the plan year. The purchase price of the Common Shares is 85 percent of the lower market price at the beginning or ending of the calendar plan year. A total of 750,000 Common Shares are available for purchase under the plan. Total shares may be increased with shareholder approval or the plan may be terminated when the shares are fully subscribed. No compensation expense is recorded in connection with the plan. During 1999 and 1998, 58,393 and 108,602 shares, respectively, were purchased by employees at a price of $7.38 per share. Pro Forma Disclosure - -------------------- As of September 30, 1999, the Company had various stock-based compensation plans that are described above. The Company has elected to continue to account for stock issued to employees according to APB Opinion 25, "Accounting for Stock Issued to Employees" and its related interpretations. Under APB No. 25, no compensation expense is recognized in the Company's consolidated financial statements for employee stock options except in certain cases when stock options are granted below the market price of the underlying stock on the date of grant. During 1999 and 1998, $44 and $260, respectively, was recognized in compensation expense for such grants. Alternatively, under the fair value method of accounting provided for under Statement of Financial Accounting Standards No 123, "Accounting for Stock-Based Compensation" (SFAS 123), the measurement of compensation expense is based on the fair value of employee stock options or purchase rights at the grant or right date and requires the use of option pricing models to value the options. The weighted average fair value of options granted under stock options plans in 1999, 1998 and 1997 was $3.52, $2.29 and $4.97, respectively. The fair value of options at the date of grant was estimated using the Black-Scholes model with the following weighted average assumptions:
1999 1998 1997 ---- ---- ---- Expected life (years) 4.6 4.4 5.0 Risk-free interest rate 5.5% 4.8% 6.0% Volatility 46.0% 41.5% 41.5% Dividend yield 1.3% 1.3% 1.3%
The weighted average fair value of purchase rights granted under the 1993 Employee Stock Purchase Plan in 1999, 1998 and 1997 was $2.93, $3.05 and $5.49, respectively. The fair value of employees' purchase rights was estimated using the Black-Scholes model with the following assumptions:
1999 1998 1997 ---- ---- ---- Expected life (years) 1.0 1.0 1.0 Risk-free interest rate 5.0% 5.1% 5.5% Volatility 42.7% 41.5% 41.5% Dividend yield 1.3% 1.3% 1.3%
F-20 45 The pro forma impact to both net income and earnings per share from calculating stock-related compensation expense consistent with the fair value alternative of SFAS 123 is indicated below:
1999 1998 1997 ---- ---- ---- Pro forma net income $ 12,706 $ 4,226 $ 214 Pro forma earnings per share: Basic $ 1.71 $ 0.54 $ 0.03 Diluted $ 1.66 $ 0.52 $ 0.03
For purposes of the pro forma disclosures, the estimated fair value of the stock-based awards is amortized over the vesting period. The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts. SFAS 123 is applicable only to awards made after fiscal 1995. F-21 46 NOTE I - INCOME TAXES For financial reporting purposes, income (loss) before income taxes includes the following components:
1999 1998 1997 ---- ---- ---- United States $ 14,130 $ 4,923 $ (892) Non-U.S 2,587 3,266 2,103 -------- -------- -------- $ 16,717 $ 8,189 $ 1,211 ======== ======== ======== The provision (benefit) for income taxes is as follows: 1999 1998 1997 -------- -------- -------- Current: Federal $ 1,143 $ 1,416 $ 275 Non-U.S 1,191 1,622 1,091 State and local 200 169 195 -------- -------- -------- Total current 2,534 3,207 1,561 -------- -------- -------- Deferred: Federal 275 310 (1,124) Non-U.S 200 (332) (16) -------- -------- -------- Total deferred 475 (22) (1,140) -------- -------- -------- Total provision $ 3,009 $ 3,185 $ 421 ======== ======== ========
Differences between the statutory United States federal income tax and the effective income tax rates are as follows:
1999 1998 1997 ---- ---- ---- Federal income tax at statutory rate $ 5,684 $ 2,784 $ 412 State and local income taxes 133 111 129 Tax on non-U.S. income and tax credits (72) (333) (945) Change in valuation allowance (1,928) -- -- Terminated life insurance contract -- -- 877 Adjustment for prior years' taxes (168) 480 -- Tax credits (685) -- -- Other 45 143 (52) -------- -------- -------- Effective income tax $ 3,009 $ 3,185 $ 421 ======== ======== ========
F-22 47 Significant components of the Company's deferred tax assets and liabilities as of September 30, 1999 and 1998 are as follows:
Deferred tax assets: 1999 1998 - ------------------- ---- ---- Capitalized research and development $ 4,824 $ 5,707 Depreciation 980 949 Warranty 367 627 Intangibles 181 965 State and local taxes 1,196 1,685 Alternative minimum tax credit carryforwards 1,148 1,151 Deferred compensation 784 693 Inventory 1,402 1,673 General business credit carryforwards 68 1,013 Other 1,123 1,203 -------- -------- Total deferred tax assets 12,073 15,666 -------- -------- Valuation allowance for deferred tax assets -- (3,127) -------- -------- 12,073 12,539 -------- -------- Deferred tax liabilities: - ------------------------ Pension contribution 890 768 Other 316 429 -------- -------- Total deferred tax liabilities 1,206 1,197 -------- -------- Net deferred tax assets $ 10,867 $ 11,342 ======== ========
The valuation allowance at the end of 1998 related to tax credit carryforwards and certain state tax benefits which in the opinion of management would likely not be realized. The current year decrease relates primarily to the utilization of tax credits and in managements' opinion, the remaining tax credits will be utilized in the future based upon improved profitability in the Company's U.S. operations during 1999. At September 30, 1999, the Company had tax credit carryforwards as follows: Year Expiration Commences --------- General business credit $ 68 2012 Alternative minimum tax credit 1,148 Indefinite F-23 48 NOTE J - LEASES The Company leases certain equipment under capital leases. Manufacturing, laboratory and office equipment includes $495 of leased equipment at September 30, 1999 and 1998, respectively. Accumulated depreciation includes $494 and $483 at September 30, 1999 and 1998, respectively, related to these leases. The Company also leases certain office and manufacturing facilities and office equipment under operating leases. Rent expense under operating leases (net of sublease income of $211 in 1999, $95 in 1998 and $84 in 1997) for 1999, 1998 and 1997 was $1,657, $2,165 and $2,658, respectively. Future minimum lease payments under operating leases are: 2000 $1,953 2001 1,444 2002 883 2003 599 2004 528 After 2004 1,542 ------ Total minimum operating lease payments $6,949 ======
F-24 49 NOTE K - SEGMENT AND GEOGRAPHIC INFORMATION The Company adopted FASB Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," for the fiscal year ended September 30, 1999. This statement designated the internal organization, that is used by management, for making operating decisions and assessing performance as the source of the Company's reportable segments. It also required disclosures about products and service, geographic areas and major customers. The Company's business is to develop measurement-based solutions to verify customers' product performance. All the Company's products are computer based (multi-point) systems operating under software control. The Company's customers are engineers, technicians and scientists in manufacturing, product development and research functions within a range of industries. Keithley's advanced hardware and software is used for process monitoring, production test and basic research. Although the Company's products vary in capability, sophistication, use, size and price, they basically test, measure and analyze electrical and physical properties. As such, the Company's management determined the Company operates in a single industry segment. The operations by geographic area are presented below. The basis for attributing revenues from external customers to a geographic area is the location of the customer.
1999 1998 1997 ---- ---- ---- NET SALES: United States $ 50,672 $ 60,653 $ 67,503 Europe 31,986 33,694 31,606 Pacific Basin 12,513 17,253 18,291 Other 5,767 6,176 5,895 -------- -------- -------- $100,938 $117,776 $123,295 ======== ======== ======== LONG-LIVED ASSETS: United States $ 15,898 $ 17,075 $ 20,670 Germany 3,017 3,136 2,791 Other 334 392 312 -------- -------- -------- $ 19,249 $ 20,603 $ 23,773 ======== ======== ========
F-25 50 NOTE L - CONTINGENCIES The Company is engaged in various legal proceedings arising in the ordinary course of business. The ultimate outcome of these proceedings is not expected to have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. F-26 51 Unaudited Quarterly Results of Operations (In Thousands of Dollars Except for Per-Share Data)
First Second Third Fourth ----- ------ ----- ------ Fiscal 1999 Net sales $20,881 $24,387 $25,947 $29,723 Gross profit 12,075 14,635 15,985 18,320 Gain on sale of business 4,808 -- -- 345 Income before income taxes (1) 5,772 2,756 3,357 4,832 Net income (2) 3,783 1,984 4,612 3,329 Diluted earnings per share (1) (2) .48 .26 .61 .44 Fiscal 1998 Net sales $31,623 $29,696 $28,578 $27,879 Gross profit 18,584 16,688 16,443 15,729 Gain on sale of business -- -- -- 2,852 Income before income taxes (1) (3) 1,636 1,162 996 4,395 Net income (2) (3) 1,096 779 667 2,462 Diluted earnings per share (1) (2) (3) .14 .10 .08 .31
(1) The first and fourth quarter of fiscal 1999 include pretax income of $4,808, or $.39 per share, and $345, or $.03 per share, for the gain on the sales of businesses, respectively. The fourth quarter of fiscal 1998 includes pretax income of $2,852, or $.22 per share, for the gain on the sale of a business. (2) The third quarter of fiscal 1999 includes a favorable adjustment of $2,195, or $.29 per share, from settlements of prior years' tax liabilities and the release of certain valuation reserves due to improved profitability from U. S. operations. The fourth quarter of fiscal 1998 includes a charge for prior years' taxes of $480, or $.06 per share. (3) The second and fourth quarters of fiscal 1998 include pretax charges of $335, or $.03 per share, and $837, or $.06 per share, in special charges, respectively. The third and fourth quarter of fiscal 1998 include pretax charges of $663, or $.06 per share, and $547, or $.03 per share for severance and other officer retirement expenses, respectively. F-27 52 SCHEDULE II KEITHLEY INSTRUMENTS, INC. VALUATION AND QUALIFYING ACCOUNTS (In Thousands of Dollars)
Column A Column B Column C Column D Column E - -------- -------- -------- -------- -------- Balance at Charged to Beginning of Costs and Balance at End Description Period Expenses Deductions (1) of Period - ----------- ------------- ----------- -------------- -------------- For the Year Ended September 30, 1999: Valuation allowance for deferred tax assets $3,127 $ -- $3,127 $ -- For the Year Ended September 30, 1998: Valuation allowance for deferred tax assets $3,166 $ 54 $ 93 $3,127 For the Year Ended September 30, 1997: Valuation allowance for deferred tax assets $2,994 $172 -- $3,166
(1) Represents utilization of tax credits, capital loss carryovers and release of valuation reserve. F-28 EX-4.A 2 EXHIBIT 4(A) 1 EXHIBIT 4(A) Exhibit 4(a) - Specimen Share Certificate for the Common Shares, without par value [Logo of woman, NUMBER man and globe] SHARES THIS CERTIFICATE IS CUSIP 487584 10 4 TRANSFERABLE IN NEW YORK KEITHLEY INSTRUMENTS, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF OHIO THIS CERTIFES THAT SPECIMEN IS THE OWNER OF FULLY PAID AND NON-ASSESSABLE COMMON SHARES WITHOUT PAR VALUE OF Keithley Instruments, Inc. transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. In Witness Whereof, the said Corporation has cause this Certificate to be signed by its duly authorized officers and its corporate seal to be hereunto affixed. Dated: [Company Seal] /s/ James B. Griswold /s/ Joseph P. Keithley - --------------------- ---------------------- SECRETARY CHAIRMAN OF THE BOARD Countersigned and registered: First Chicago Trust Company of New York Transfer Agent and Registrar, By: Authorized Signature 2 REVERSE SIDE OF CERTIFICATE KEITHLEY INSTRUMENTS, INC. WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS, WITHIN FIVE DAYS AFTER RECEIPT OF SUCH REQUEST, A STATEMENT OF THE EXPRESS TERMS OF EACH CLASS OF SHARES WHICH KEITHLEY INSTRUMENTS, INC. IS AUTHORIZED TO ISSUE. ANY SUCH REQUEST IS TO BE IN WRITING AND ADDRESSED TO THE PRESIDENT OF KEITHLEY INSTRUMENTS, INC., 28775 AURORA ROAD, SOLON, OHIO 44139. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM as tenants in common TEN ENT as tenants by the entireties JT TEN as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT-- Custodian ------- -------- (Cust) (Minor) under Uniform Gift to Minors Act ------------ (State) Additional abbreviations may also be used though not in the above list. For Value Received, hereby sell, assign and transfer unto ------------ PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SHARES REPRESENTED BY THE WITHIN CERTIFICATE AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT __________________ ATTORNEY, TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN- NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES. Dated: , 19 ----------------- ----- ------------------------------ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. EX-10.B 3 EXHIBIT 10(B) 1 EXHIBIT 10(B) ------------- KEITHLEY INSTRUMENTS, INC. SUPPLEMENTAL DEFERRAL PLAN THIS PLAN is made and entered into this September 1, 1999, by Keithley Instruments, Inc., a corporation with principle offices and place of business in the State of Ohio, hereinafter referred to as the "Corporation." WITNESSETH: WHEREAS, the Corporation wishes to establish and maintain an unfunded deferred compensation plan primarily for the purpose of providing additional deferred compensation benefits for a select group of management or highly compensated employees; and WHEREAS, the Corporation intends that the Plan at all times shall be administered and interpreted in such a manner as to qualify for the limited exemption available under section 201(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") from selected provisions of ERISA Title I; NOW, THEREFORE, in consideration of the premises, the Corporation hereby establishes and maintains the Keithley Instruments, Inc. Supplemental Deferral Plan, upon and subject to the following terms and conditions. DEFINITIONS: ACCOUNT. A bookkeeping account, established by the Corporation in the name of a Participant and kept as part of the Corporation's regular books and records, that indicates such Participant's interest in the Plan. Each individual participating in the Plan as a Participant shall have an Account established and maintained in his or her name, and the Corporation (or its designee) shall credit or charge to such Account (i) any and all amounts deferred hereunder by or on behalf of such Participant, (ii) any and all amounts credited by the Corporation pursuant to paragraph 1.03 hereof, (iii) any interest or dividends credited thereto in accordance with this Plan and (iv) any investment earnings or gains credited, or losses charged, thereto in accordance with Article Four of this Plan, (v) any distributions directly or indirectly charged to such Participant or his or her beneficiaries hereunder (including direct transfers, and tax withholdings and remittances); and (vi) any Plan and Plan-related costs or expenses charged thereto. The existence of such Account shall not create, and shall not be deemed to create, a trust of any kind, or a fiduciary relationship between the Corporation and the Participant, his or her designated beneficiary, or other beneficiaries under the Plan. AFFILIATE. Any corporation, partnership, limited liability company, joint venture, association, or similar organization or entity, which is a member of a controlled group of corporations that includes, or which is under common control with, the Corporation. For purposes of determining the presence of a "controlled group of corporations, or "common control," the standards set forth in Section 414(b) and 414(c) of the Code and related regulations, as interpreted and applied by the Corporation acting in its sole discretion, shall apply. CALENDAR YEAR. January 1 to December 31. 2 CODE. The Internal Revenue Code of 1986, as amended or re-codified, and in effect from time to time. COMPENSATION. As applicable, the total salary, bonuses and commissions, or director's and meeting fees, paid or due to be paid by the Corporation to a Participant in a Calendar Year, including any amount deferred pursuant to Article One hereof. CORPORATION. Keithley Instruments, Inc., an Ohio corporation. The Corporation shall act through its board of directors (the "Board"), which may delegate some or all of its rights, duties and responsibilities to committees of the Board and employees of the Corporation; provided, that any delegation by the Board shall be in writing. EARLY RETIREMENT DATE. The date the Participant attains 55 years of age. EFFECTIVE DATE. July 1, 1999. ELECTION TO DEFER. A written notice filed by the Participant with the Corporation in substantially the form attached hereto as Exhibit A, specifying the amount (if any) of Compensation to be deferred. ELIGIBLE INDIVIDUAL. Any individual employed by the Corporation or an Affiliate (or both) who satisfies the Minimum Eligible Compensation Level and has been selected by the President of the Corporation (acting in his sole discretion) to participate herein. Such term shall include any individual who serves as a non-employee director of the Corporation without regard to the Minimum Eligible Compensation Level. Any individual who qualifies as an Eligible Individual shall be entitled to participate herein in accordance with the provisions of paragraph 1.01 hereof. ERISA. The Employee Retirement Income Security Act of 1974, as amended and then in effect. MINIMUM ELIGIBLE COMPENSATION LEVEL. Compensation of at least $80,000 per Calendar Year, as determined for the preceding Calendar Year. The Compensation needed to satisfy the Minimum Eligible Compensation Level each Plan Year shall be adjusted to reflect changes in the Consumer Price Index for All Urban Consumers ("CPI-U"). NORMAL RETIREMENT DATE. The date a Participant attains 65 years of age. PARTICIPANT. An Eligible Individual who participates in the Plan. PARTICIPANT ANNUAL DEFERRAL. The portion of a Participant's Compensation that he or she elects to defer for a Calendar Year. PLAN. This Plan, together with any and all amendments or supplements thereto. PLAN ADMINISTRATOR. The Corporation. PLAN YEAR. The Calendar Year. 3 ARTICLE ONE 1.01 ELIGIBILITY. (a) Any individual who is an Eligible Individual may become a Participant in the Plan as of the first day of the Plan Year next following the date such individual becomes an Eligible Individual. As a condition of participation, each Eligible Individual shall be required to execute a participation agreement in the form annexed hereto as Exhibit B. (b) Once an Eligible Individual becomes a Participant, he or she shall remain a Participant until death, or if earlier, until his or her Account is fully distributed; however, an individual shall only be an active Participant while an Eligible Individual. (C) In the case of any Eligible Individual who first becomes a Participant after the Effective Date, the Plan Administrator shall specify the date as of which such Individual commences participation hereunder. 1.02 DEFERRAL ELECTION. Commencing on the Effective Date, and continuing through the date on which an Eligible Individual ceases to qualify as an Eligible Individual, an Eligible Individual shall be entitled to elect to defer, and have credited to his or her Account, up to 100% of his or her Compensation. Any amounts not paid to an Eligible Individual because it has been deferred shall be credited to such Individual's Account within (30 days) of the date such amounts otherwise would have been paid to such Individual. 1.03 CREDITING CORPORATE AMOUNTS. From time to time, the Corporation may credit each Participant's Account, in amounts and using such methods, allocation criteria and standards as the Corporation shall determine in its sole discretion. Any amounts so credited shall be credited to each Participant's Account within (30 days) following the date such amounts are declared. ARTICLE TWO 2.01 RESPONSIBILITY FOR ADMINISTRATION OF THE PLAN. (a) The Plan Administrator shall be responsible for the management, operation and administration of the Plan. The Plan Administrator may employ others to render advice with regard to its responsibilities under this Plan. It may also allocate its responsibilities to others and may exercise any other powers necessary for the discharge of its duties. (b) The primary responsibility of the Plan Administrator is to administer the Plan for the benefit of the Participants and their beneficiaries, subject to the specific terms of the Plan. The Plan Administrator shall administer the Plan in accordance with its terms and shall have the power to determine all questions arising in connection with its administration, interpretation and application. Any such determination shall be conclusive and binding upon all persons. The Plan Administrator shall have all powers necessary or appropriate to accomplish its duties. 2.02 INFORMATION FROM CORPORATION. The Corporation and each Affiliate shall provide to the Plan Administrator, on an accurate and timely basis, the information needed to properly administer the Plan. The Plan Administrator may rely upon the correctness of all such information as is so supplied and shall have no duty or responsibility to verify such information. The Plan Administrator shall also be entitled to rely conclusively upon all tables, valuations, certifications, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the Plan Administrator with respect to the Plan. 4 2.03 INVESTMENT. The Corporation shall determine, in its sole discretion, whether to dedicate or encumber corporate assets, or engage in investment activities, to place the Corporation in a position to discharge and otherwise satisfy its liabilities under the Plan. Notwithstanding the preceding sentence to the contrary, each Participant with an interest in the Plan acknowledges, consents and agrees that his or her rights under the Plan are defined by, and limited to, such Participant's Account, and that he or she has no right, title or interest to, or any interest in or claim to (whether at law or in equity) any investments made or funds established by the Corporation to facilitate the discharge of the Company's Plan liabilities. ARTICLE THREE 3.01 VESTING OF PLAN INTERESTS. Regardless of the circumstances under which a Participant's relationship with the Corporation terminates, that portion of the Participant's Account attributable to deferrals made pursuant to Paragraph 1.02, including any investment gains or losses on such Deferrals, shall be 100% vested. Contributions by the Corporation credited to said Participant's Account (whether pursuant to paragraph 1.03, or otherwise), including any investment gains or losses on such contributions, will vest in accordance with the following schedule: COMPLETED YEARS OF PLAN PARTICIPATION VESTED PERCENTAGE ------------------------------------- ----------------- Less than 1 0% 1 but less than 2 33% 2 but less than 3 67% 3 or more 100% provided, that if a Participant's relationship with the Corporation and all Affiliates terminates prior to the completion of three (3) Completed Years of Plan Participation, such Participant shall forfeit the forfeitable portion of his or her Account; and provided, further, that if a Participant's relationship with the Corporation and all Affiliates terminates or is terminated "for cause," no benefits of any kind will be payable under the terms of this Plan, other than such Participant's interest in deferrals made pursuant to paragraph 1.02 hereof 3.02 VESTING UPON CHANGE IN CONTROL. Immediately upon any Change in Control (as defined below), notwithstanding any other contrary provisions herein (including, without limitation, paragraph 3.01 hereof), each Participant's interest in all amounts credited to his Account under this Plan shall fully and immediately vest and become nonforfeitable, and all forfeiture provisions otherwise imposed hereunder (including those set forth in paragraph 3.01 hereof) shall be null, void and unenforceable and have no further force or effect. For purposes of this paragraph, a Change in Control shall be deemed to have occurred if and when: (a) any tender offer is made and consummated for the ownership of 25% or more of the outstanding voting securities of the Corporation; (b) the Corporation is merged or consolidated with another entity and, as a result of such merger, reorganization or consolidation, less than 75% of the outstanding voting interests of the surviving or resulting entity is owned in the aggregate by the Corporation, or by the former shareholders of the Corporation, as determined immediately prior to such merger, reorganization or consolidation; (c) the Corporation sells substantially all of its assets to another entity (including one or more Affiliated Companies, as defined below if applicable) which is not at least eighty percent (80%) owned by the Corporation; or (iv) a person, within the meaning of Section 3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Securities Exchange Act of 1934 (the 5 "Exchange Act"), acquires, other than by reason of inheritance, twenty-five percent (25%) or more of the outstanding voting securities of the Corporation (whether directly, indirectly, beneficially or of record). In making any such determination, transfers made by a person to an affiliate of such person (as determined by the Board prior to such transfer), whether by gift, devise or otherwise, shall not be taken into account. For purposes of this Plan, ownership of voting securities shall take into account and shall include ownership as determined by applying the provisions of Rule 13d-3(d)(1)(i) as in effect on the date hereof pursuant to the Exchange Act. For purposes of this paragraph, "Affiliated Company" or "Affiliated Companies" means the Corporation, any and all corporations, limited and/or general partnerships, limited liability companies, business trusts, or other trades or businesses, in which the Corporation holds a direct or indirect ownership interest, or a profits or beneficial interest, in excess of fifty percent (50%). ARTICLE FOUR 4.01 EARNINGS OR LOSSES ON DEFERRED AMOUNTS. The Corporation hereby agrees that it will credit the Participant's Account in an amount equal to the investment earnings or losses attributable to such Participant's Account. For this purpose, a Participant's Account shall be assumed to have been invested in the fund or funds selected by the Participant on the first day of the month following the income deferral. Each Participant shall have the right to select, from the funds made available by the Plan Administrator, the fund or funds in which his or her Account shall be deemed to be invested and, prior to the beginning of each calendar quarter, to designate a different fund or funds, in writing. ARTICLE FIVE 5.01ELECTION TO DEFER COMPENSATION. The Participant may defer all or a portion of his or her Compensation by filing an Election of Deferral. An Election of Deferral must be filed prior to the beginning of the Calendar Year to which it pertains and shall be effective on the first day of such Calendar Year; however, for the Plan Year in which an Eligible Individual first becomes eligible to participate in the Plan, such election must be made before the effective date of participation, and only Compensation earned after the date of election shall be taken into account. Each Election of Deferral shall be effective only in the Calendar Year to which the Election of Deferral applies. Any subsequent Election of Deferral, to be effective must be filed prior to the beginning of the Calendar Year in which deferral is sought. 5.02TRANSFER, CONSOLIDATION OF CORPORATE INTERESTS. A Participant with a vested interest in one (1) or more other unfunded, elective deferred compensation plans maintained by the Corporation (including, without limitation, interests held under the Keithley Instruments, Inc. Deferred Compensation Plan (as amended)) may effect a transfer of interests between such plans and this Plan by accepting an interest in the Plan in lieu of some or all of the interest(s) then held under such other deferred compensation plan. To do so, however, such Participant and the Corporation must agree to compromise and extinguish outright such Participant's interest under such other Plan, in full accord and satisfaction of such other plan interest, and in addition consent and agree to each of the following terms and conditions: (a) extinguishment of the interest held under the other Keithley-maintained plan shall be a condition precedent to the creation of the indicated Plan interest; (b) a Plan interest created as a result of this paragraph shall only be created (and other plan interests are only extinguished) as of the last day of a calendar month selected by the Participant, based on the interests then held under such other plan; (c) both the Participant and the Corporation must consent and agree to such transfer of 6 interest; (d) the extinguishment of such other deferred compensation plan interests must not be prohibited under the terms of such other plan(s); (e) any such transfer of interest must not materially accelerate the date such other plan interest(s) otherwise would be paid to (or in respect of) the Participant; and (f) any such transfer of interest must not have the effect of accelerating the interest held under such other plan(s) for federal tax purposes (including, without limitation, the economic benefit and constructive receipt income tax doctrines). ARTICLE SIX 6.01 RETIREMENT AND TERMINATION BENEFIT. Following the date the Participant terminates his or her relationship with the Corporation and all Affiliates, or if later, attains his or her Normal Retirement Date or Early Retirement Date, the Corporation shall thereafter pay to the Participant, his or her Account. Such Account shall be payable in substantially equal monthly installments for the period of time selected by the Participant in Exhibit A (Election Deferral Form) attached hereto. The amount of each monthly installment shall be determined at the sole discretion of the Plan Administrator based on the value of the Participant's Account at the date payment is due, based on the interest rates prevailing at that time. Such payments shall commence on or about the first day of the first month following the Participant's termination or retirement date (as applicable). 6.02 ACCELERATED PAYMENTS. The Plan Administrator shall make payment of all or a part of the Participant's Account balance before any payments would otherwise be due, if (a) the Plan Administrator reasonably determines that a change in the federal tax or revenue laws, a published ruling or similar announcement issued by the Internal Revenue Service, a regulation issued by the Secretary of the Treasury, a decision by a court of competent jurisdiction involving a Participant or a beneficiary, or a closing agreement made under 7121 of the Code that is approved by the Internal Revenue Service and involves a Participant, causes or likely will cause a Participant to recognize income under the Plan for federal income tax purposes with respect to amounts that are or will be payable under the Plan before they are to be paid to the Participant; or (b) a Plan interest is awarded or otherwise becomes payable to a former spouse of a Participant, by court order as part of a division or partition of marital property; or (c) there occurs a Change in Control (as defined in paragraph 3.02 hereof). In the event any such accelerated payment is determined to be necessary, distributions will be made as soon as practicable after such determination is made, and all Participants will receive such accelerated payments in the same form of distribution. ARTICLE SEVEN 7.01 DISABILITY BENEFIT. The Participant shall be entitled to receive payments hereunder prior to his or her Normal Retirement Date if it is determined by a duly licensed physician selected by the Corporation that, because of ill health, accident, or disability, the Participant is no longer able properly and satisfactorily perform his or her regular duties for the Corporation. If the Participant's relationship with the Corporation terminates pursuant to this paragraph, the benefit payable hereunder shall be the vested value of the Participant's Account on the date of the physician's disability determination. The Disability Benefit payable under this Article shall be payable in equal monthly installments for the period of time selected by the Participant in Exhibit A (Election Deferral Form) attached hereto, with the first payment due on or about the first day of the third month following the determination of disability. 7 ARTICLE EIGHT 8.01 DEATH BENEFIT PRIOR TO COMMENCEMENT OF BENEFITS. In the event of the Participant's death prior to commencement of benefit payments, the Corporation shall distribute such Participant's Account as soon as practicable following the date of such Participant's death. The benefit payable under this Article shall be distributed to the Participant's beneficiary in a single payment (less any applicable withholding) and will be paid according to the last beneficiary designation received by the Corporation from the Participant prior to his or her death. If no such designation has been received by the Corporation, such payment shall be made to the Participant's surviving legal spouse. If the Participant is not survived by a legal spouse, or if such spouse shall fail to so appoint, the said payment shall be made to the then living children of the Participant, if any, in equal shares. If there are no surviving children, the payment will be made to the estate of the later to die of the Participant and (if any) his or her legal spouse. Such payment shall be made on or about the first day of the third month following the Participant's death; provided, that the Plan Administrator in its sole discretion may delay payment of the benefit described in this paragraph for a period not to exceed one hundred eighty (180) days, in order to resolve any dispute arising over the proper identity of the parties entitled to receive such payment. 8.02 DEATH BENEFIT AFTER COMMENCEMENT OF BENEFITS. In the event a Participant dies after the commencement of benefit payments, but prior to the completion of all such payments due and owing hereunder, the Corporation shall continue to make such payments, in installments over the remainder of the period specified in Exhibit A hereof, as if the Participant had survived. Such continuing payments shall be made to the Participant's designated beneficiary in accordance with the last such designation received by the Corporation from the Participant prior to his or her death. If no such designation has been received by the Corporation, such payments shall be made to the Participant's surviving legal spouse. If such spouse dies before receiving all payments to which he or she is entitled hereunder, then payments shall continue, for the remainder of the payment period, to such person or persons, including his or her estate, as he or she may designate in the last beneficiary designation received by the Corporation from such spouse prior to his or her death. If the Participant is not survived by a legal spouse, or is such spouse shall fail to so appoint, then said payments shall be made to the then living children of the Participant, if any, in equal shares. If there are no surviving children, the payments will be made to the estate of the later to die of the Participant and (if any) his or her legal spouse. Such continuing payments shall commence as of the first day of the first month following the Participant's death. ARTICLE NINE 9.01 TERMINATION BENEFITS. In the event the Participant's relationship with the Corporation and all Affiliates terminates for any reason other than death, disability or for cause, the Corporation shall pay to the Participant a Termination Benefit. The amount payable shall be equal to the Participant's vested Account as of the date of termination and shall be payable in equal monthly installments for the period of time selected by the Participant in Exhibit B (Participation Agreement) attached hereto. 8 9.02 TERMINATION FOR CAUSE. Termination "for cause" shall mean (i) conviction of robbery, bribery, extortion, embezzlement, fraud, grand larceny, burglary, perjury, income tax evasion, misapplication of company funds, false statements in violation of 18 U.S.C. Sec. 1001, and any other felony that is punishable by a term of imprisonment of more than one year, or (ii) any breach of the participant's duty of loyalty to the corporation, any acts of omission in the performance of his company duties not in good faith or which involve intentional misconduct or a knowing violation of law, or any transaction in the performance of his company duties from which the participant derived an improper personal benefit. In the event the Participant's relationship with the Corporation and all Affiliates is terminated for cause, no benefits of any kind will be due or payable under the terms of the Plan and such Participant's Account (less such Participant's interest in the Account attributable to deferrals) shall be forfeited. ARTICLE TEN 10.01 APPLICATION FOR HARDSHIP DISTRIBUTION. In the event a Participant incurs a financial hardship, as hereinafter defined, such Participant may apply to the Plan Administrator for a hardship distribution. After a Participant's death, his or her beneficiary may apply for a hardship distribution, and references herein to the Participant shall include the beneficiary. The Plan Administrator shall consider the circumstances of each such case, and the best interests of the Participant and his or her family, and shall have the right, in its sole discretion, to allow such application, in full or in part, or to refuse to make a hardship distribution. 10.02 AMOUNT OF DISTRIBUTION. In no event shall the amount of any hardship distribution exceed the lesser of: (a) The portion of the Participant's Account attributable to his or her deferrals pursuant to paragraph 1.02 hereof (exclusive of any investment earnings or losses thereon) or (b) that amount determined by the Plan Administrator to be necessary to alleviate the hardship, including any taxes payable by the Participant as a result of receiving such hardship distribution, and which is not reasonably available from other resources of the Participant. 10.03 FINANCIAL HARDSHIP. For purposes of this Article, a "financial hardship" means an immediate and heavy financial need of the Participant. 10.04 FURTHER DEFERRALS. A Participant who receives a hardship distribution shall be prohibited from making deferrals under paragraph 1.02 for the remainder of the Calendar Year in which the distribution is made and for the next succeeding Calendar Year 10.05 RULES ADOPTED BY PLAN ADMINISTRATOR. The Plan Administrator shall have the authority to adopt additional rules relating to hardship distributions. In administering these rules, The Plan Administrator shall act in accordance with the principle that the primary purpose of this Plan is to provide additional retirement income, not additional funds for current consumption. 10.06 LIMIT ON NUMBER OF HARDSHIP DISTRIBUTIONS. No Participant may receive more than one hardship distribution in any Calendar Year. 10.07 IN-SERVICE DISTRIBUTION. At the time of completing an "Election of Deferral", a Participant may elect to receive an In-Service Distribution. 9 10.08 TIMING OF DISTRIBUTION. An In-Service Distribution shall commence on the date elected by the Participant. In all cases, such date elected must be before the Normal Retirement Date. 10.09 AMOUNT OF IN-SERVICE DISTRIBUTION. The amount of an In-Service Distribution may be specified by the Participant, up to one hundred percent (100%) of the amounts deferred by the Participant under Paragraph 1.02 hereof, plus any investments gains or losses attributable thereto. ARTICLE ELEVEN 11.01 BENEFICIARY DESIGNATION. The Participant shall have the right, at any time, to submit in substantially the form attached hereto as Exhibit C, a written designation of primary and secondary beneficiaries to whom payment under this Plan shall be made in the event of his or her death prior to complete distribution of the benefits payable. Each beneficiary designation shall become effective only when receipt there of is acknowledge in writing by the Corporation. The Corporation shall have the right, in its sole discretion, to reject any beneficiary designation which is not in substantially the form attached hereto as Exhibit C. Any attempt to designate a beneficiary, otherwise than as provided in this Article, shall be ineffective. ARTICLE TWELVE 12.01 NO TRUST CREATED. Nothing contained in this Plan, and no action taken pursuant to its provisions by any individual shall create, or be construed to create, a trust of any kind, or a fiduciary relationship between the Corporation and any other individual. 12.02 BENEFITS PAYABLE ONLY FROM GENERAL CORPORATE ASSETS: (UNSECURED GENERAL CREDITOR STATUS OF PARTICIPANT). (a) Payments to the Participant or any beneficiary hereunder shall be made from assets which shall continue, for all purposes, to be part of the general, unrestricted assets of the Corporation; and no individual shall have any interest in any such asset by virtue of any provision of this Plan. The Corporation's obligation hereunder shall be an unfunded and unsecured promise to pay money in the future. To the extent that any individual acquires a right to receive payments from the Corporation under the provisions hereof, such right shall be no greater than the right of any unsecured general creditor of the Corporation; no such individual shall have or acquire any legal or equitable right, interest or claim in or to any property or assets of the Corporation. (b) In the event that, in its discretion, the Corporation purchases an insurance policy or policies insuring the life of a Participant (or any other property), to allow the Corporation to recover or meet the cost of providing benefits, in whole or in part, hereunder, no Participant or beneficiary shall have any rights whatsoever therein or in the proceeds therefrom. The Corporation shall be the sole owner and beneficiary of any such insurance policy or property and shall possess and may exercise all incidents of ownership therein. 12.03 NO CONTRACTUAL RELATIONSHIP. Nothing contained herein shall be construed to be a contract for personal services for any term of years, nor as conferring upon the Participant the right to continue to render services to the Corporation in his or her present capacity or in any capacity. It is expressly understood that this Plan relates to the payment of deferred compensation for the Participant's services, payable after such Participant's relationship with the Corporation terminates, and is not intended to be a personal services contract. 10 12.04 INTERESTS NOT TRANSFERABLE. No Participant or beneficiary under this Plan shall have any power or right to transfer, assign, anticipate, hypothecate or otherwise encumber any part of all of the interest otherwise distributable hereunder. No such Plan interest shall be subject to seizure by any creditor of any such Participant or beneficiary, by any proceeding at law or in equity, nor shall such interest be transferable by operation of law in the event of bankruptcy, insolvency or death of the Participant or beneficiary. Any such attempted assignment shall be void. No such right, benefit or interest shall be liable for or subject to the debts, contracts, liabilities, or torts of the individual entitled to such benefits, including claims for alimony, support, or separate maintenance by the spouse or ex-spouse of the Participant. If a Participant should become insolvent or bankrupt, or attempt to anticipate, alienate, sell, assign, pledge, encumber or charge any right to benefits under this Plan, such Participant's interest in the Plan, in the discretion of the Plan Administrator, shall be extinguished. In such event, the Plan Administrator in its sole discretion may hold or apply the interest at issue, or any part thereof, for the benefit of such Participant, such Participant's spouse, or such Participant's beneficiary, in such manner as the Plan Administrator in its sole discretion may deem proper. Notwithstanding the generality of the foregoing, the Corporation shall have the unrestricted right to set off against or recover out of any payments or benefits becoming payable to or for the benefit of a Participant, at the time such payments or benefits otherwise become payable hereunder, any amounts owed or owing to the Corporation by such Participant. 12.05 INDEMNIFICATION AGAINST THIRD PARTY CLAIMS. Each Participant, by executing a Participation Agreement and becoming a Participant hereunder, acknowledges and agrees to indemnify and hold the Corporation harmless from and against any damages, losses and expenses (including without limitation litigation costs incurred by the Corporation in connection with the administration of the Plan) arising from third-party claims disputes involving such Participant's Plan interest (including without limitation, tax liens and levies, creditors' claims, garnishment and bankruptcy proceedings, and proceedings in domestic relations court). 12.06 HOLD HARMLESS OF CORPORATE AGENTS. The Corporation, and its directors, officers and employees, shall be free from liability, joint or several, for personal acts, omissions, and conduct, and for the acts, omissions and conduct of duly appointed agents, in the administration of this Plan so long as taken in good faith. 12.07 TAXES; NO GUARANTEE OF TAX CONSEQUENCES. The Corporation shall be entitled to withhold and remit any federal, state and local taxes from any distribution made hereunder which such Corporation believes are necessary, appropriate, or required by relevant law, regulation or ruling. The Corporation makes no representation, warranty or guarantee of any federal, state or local tax consequences of participation in the Plan to any Participant or beneficiary thereof, or any personal representative or attorney-in-fact for any such Participant or beneficiary. . ARTICLE THIRTEEN 13.01 CLAIM PROCEDURE. A person who believes that he or she is being denied a benefit to which he or she is entitled under the Plan (hereinafter referred to as a "Claimant") may file a written request for such benefit with the Corporation, setting forth his or her claim. The request must be addressed to the Board. 11 13.02 CLAIM DECISION. Upon receipt of a claim, the Corporation shall advise the Claimant that a reply will be forthcoming within 90 days and the Plan Administrator shall, in fact, deliver such reply within such period. The Plan Administrator may, however, extend the reply period for an additional 90 days for reasonable cause. If the claim is denied in whole or in part, the Plan Administrator shall adopt a written opinion, using language calculated to be understood by the Claimant, setting forth: i. The specific reason or reasons for such denial; ii. Specific reference to pertinent provisions of this Plan on which such denial is based; iii. A description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation why such material or such information is necessary; iv. Appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review; and v. The time limits for requesting a review under subsection iii and for review under subsection iv hereof. 13.03 REQUEST FOR REVIEW. Within 60 days after receipt by the Claimant of the written opinion described above, the Claimant may request in writing that the Corporation review the Plan Administrator's determination. Such request must be addressed to the Secretary of the Corporation at its then principal place of business. The Claimant or his or her duly authorized representative may, but need not, review the pertinent documents and submit issues and comments in writing for consideration by the Corporation. If the Claimant does not request a review of the determination within such 60 day period, he or she shall be bared and estopped from challenging the determination. 13.04 REVIEW OF DECISION. Within 60 days after the Corporation's receipt of a request for review, it will review the Plan Administrator's determination. After considering all materials presented by the Claimant, the Corporation will render a written opinion, written in a manner calculated to be understood by the Claimant, setting forth the specific reasons for the decision and containing specific references to the pertinent provisions of this Plan on which the decision is based. If special circumstances require that the 60 day time period be extended, the Corporation will so notify the Claimant and will render the decision as soon as possible, but no later than 120 days after receipt of the request for review. 13.05 EFFECT OF REVIEWED DECISION. A final decision by the Corporation, made following a review conducted in accordance with the provisions of paragraph 13.04 hereof, shall be final, conclusive and binding on the Claimant, such Claimant's dependents and/or beneficiaries, and such Claimants heirs and assigns. 12 ARTICLE FOURTEEN 14.01 AMENDMENT. This Plan may be amended or terminated by the Corporation at any time, without notice to or consent of any person. Any such amendment or termination shall take effect as of the date specified therein and, to the extent permitted by law, may have retroactive effect. However, no such amendment or termination shall reduce (i) the amount then credited to the Participant's Account, or (ii) his or her vested percentage under paragraph 3.01. If the Plan is terminated, benefits will be distributed in accordance with Article Six hereof. Any other provision of this Plan to the contrary notwithstanding, the Plan may be amended by the Corporation at any time, and retroactively if required to the extent that, in the opinion of the Corporation, such amendment is needed to ensure that the Plan will be characterized as a plan maintained principally for a select group of management or highly compensated employees, as described in sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, or to conform the Plan to the requirements of any applicable law, including ERISA and the Code. No such amendment shall be considered prejudicial to any interest of a Participant or beneficiary hereunder. ARTICLE FIFTEEN 15.01 NOTICE. Any notice, consent or demand required or permitted to be given under the provisions of this Plan shall be in writing, and shall be signed by the party giving or making the same. If such notice, consent or demand is mailed, it shall be sent by United States certified mail, postage prepaid, addressed to the addressee's last known address as shown on the records of the Corporation. The date of such mailing shall be deemed the date of notice consent or demand. Any person may change the address to which notice is to be sent by giving notice of the change of address in the manner aforesaid. ARTICLE SIXTEEN 16.01 FACILITY OF PAYMENT. If a distribution is to be made to a minor, or to a person who is otherwise incompetent, then the Plan Administrator may, in its discretion, make such distribution (i) to the legal guardian, or if none, to a parent of a minor payee with whom the payee maintains his or her residence, or (ii) to the conservator or committee or, if none, to the person having custody of an incompetent payee. Any such distribution shall fully discharge the Plan Administrator, the Corporation and Plan from further liability on account thereof. ARTICLE SEVENTEEN 17.01 BOARD AUTHORITY. The Board shall have full power and authority to interpret, construe, and administer this Agreement and the Board's interpretations and constructions thereof, and actions thereunder, including any valuation of a Participant's Account or the amount or recipient of any distribution to be made therefrom, shall be binding and conclusive on all persons for all purposes, subject to the terms and conditions of Article 12. No member of the Board shall be liable to any person for any action taken or admitted in connection with the interpretation and administration of this Agreement unless attributable to their willful misconduct or lack of good faith. 13 ARTICLE EIGHTEEN 18.01 GOVERNING LAW. The Plan and the right and obligations of all persons hereunder shall be governed by and construed in accordance with the laws of the State of Ohio, other than its laws regarding choice of law, to the extent that such state law is not preempted by federal law. 18.02 ENTIRE AGREEMENT. This Plan instrument, and Exhibits A, B and C (incorporated herein by reference) represent the entire agreement and understanding between the Corporation and those individuals having or acquiring an interest hereunder. Accordingly, all prior or contemporaneous oral statements and writings hereby are superseded. IN WITNESS WHEREOF, the Corporation has executed this Plan as of the day and year above first written. ATTEST: KEITHLEY INSTRUMENTS, INC. ___________________________ By:_____________________________ Title:__________________________ ___________________________ By: ____________________________ (Participant) 14 KEITHLEY INSTRUMENTS, INC. SUPPLEMENTAL DEFERRAL PLAN AMENDMENT 1 SECTION 10.07- IN-SERVICE DISTRIBUTION - At the time of completing an "Election of Deferral", a Participant may elect to receive an In-Service Distribution, for purposes of meeting all or a part of his children's or grandchildren's educational expenses, or a purchase of a future residence IS HEREBY AMENDED AS FOLLOWS EFFECTIVE OCTOBER 1, 1999: 10.07. At the time of completing an "Election of Deferral", a Participant may elect to receive an In-Service Distribution. EX-10.D 4 EXHIBIT 10(D) 1 EXHIBIT 10(D) ------------- EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT dated this 26th day of September, 1988 between Keithley Instruments, Inc., an Ohio corporation, (hereinafter called the "Company"), and Joseph P. Keithley (hereinafter called the "Employee"). WHEREAS, the Company considers the establishment and maintenance of sound and vital management to be essential to protecting and enhancing the best interest of the Company and its shareholders; and WHEREAS, the Company wishes to assure itself of the Employee's full-time employment during the period specified herein; and WHEREAS, the Employee is prepared to enter into an employment agreement with the Company and to give the Company the assurances it desires; NOW, THEREFORE, in consideration of the foregoing premises and of the mutual agreements herein set forth, the parties hereto have agreed and do hereby mutually agree as follows: I) TERM OF AGREEMENT The term of this Agreement shall commence on the date first above written, and shall continue through and including the fifth (5th) anniversary of the date hereof, unless sooner terminated pursuant to Section VI or XII hereinbelow. II) RESPONSIBILITY It is agreed that the Employee is hereby employed by the Company with responsibility to perform such duties, consistent with his position, as Vice Chairman of the Board of Directors, member of the Office of Chairman of the Company, and Director of Marketing as shall be assigned to him by the Board of Directors of the Company. III) ACCOUNTABILITY It is agreed that in exercising his responsibilities as a member of the Office of Chairman and Vice Chairman of the Board of Directors, the Employee will be accountable to the Company's Board of Directors and as Director of Marketing, the Employee will be accountable to the President and Chief Executive Officer of the Company. The Employee agrees to: (i) devote his business time and efforts full-time to the affairs of the Company and its affiliates, and (ii) use his best efforts to promote the interests of the Company and its affiliates. IV) REMUNERATION A) BASE SALARY. The Employee will be employed during the term of this Agreement at an annual base salary of not less than One Hundred Twenty Thousand Dollars ($120,000), paid on a monthly basis. This base salary may be increased, but not decreased, without the Employee's consent, at the discretion of the Compensation Committee of the Board of Directors of the Company. B) ADDITIONAL COMPENSATION. The Employee shall be eligible to participate in incentive, stock option, profit-sharing, annual cash bonus, deferred compensation, supplemental retirement and similar plans maintained by the Company for the benefit of its executives. C) PAYMENT OF COMPENSATION. The annual base salary described in Section IV, A hereof shall be paid throughout the term of this Agreement subject to the following: 2 i) Such compensation shall terminate up the death or resignation without "Good Reason" as described in Section VI, A, and C hereof, respectively, of the Employee; ii) Such compensation shall not terminate, but rather shall be increased by 25% upon the resignation for "Good Reason" as described in Section VI, D hereof, of the Employee; iii) Such compensation shall terminate upon the termination of the Employee's employment by the Company "For Cause" as described in Section VI, E hereof; and iv) Such compensation shall not terminate, but rather shall be increased by 25%, upon the termination of the Employee's employment by the Company other than "For Cause" as described in Section VI, E hereof. The Employee's right to receive the foregoing payments shall be subject to the covenant not to compete set forth in Section VIII hereof. V) OTHER EMPLOYEE FRINGE BENEFITS The Employee shall be included to the extent eligible thereunder (at the expense of the Company, if provided at Company expense for other executives of the Company) under any and all existing plans or arrangements (and any plans or arrangements which may be adopted) providing benefits for its employees, including but not limited to group life insurance, hospitalization, medical, pension, automobile, financial services and any and all other similar or comparable benefits at least to the extent they may be in effect for other executives of the Company from time to time during the term of this Agreement. Additional or improved fringe benefits are to be calculated for and awarded to the Employee in at least as beneficial a manner as they are calculated for and awarded to such other executive. Nothing in this Agreement shall adversely affect the rights of the Employee or his beneficiaries under the present or any future retirement, profit-sharing, insurance, or other fringe benefit or compensation plans or arrangements which the Company now has or may adopt for its employees, and no rights or the Employee thereunder shall be forfeited by any action set forth in this Agreement unless so provided in such plans or arrangements. VI) TERMINATION OF EMPLOYMENT A) DEATH. If the Employee shall die during the term of this Agreement, the duties of the Company and the Employee, one to the other, under this Agreement shall terminate as of the date of the Employee's death. Notwithstanding the sentence immediately preceding, the death of the Employee shall not adversely affect the rights of this beneficiaries to any benefits under the Company's employee benefit plans or arrangements in which he may be a participant, in accordance with the terms thereof, including but not limited to those referred to in Section VI, G hereof. B) DISABILITY. During the term hereof, compensation hereunder shall continue during any period of disability irrespective of the nature and extent of such disability; the Employee shall render services as he is able to render consistent with any such disability. During the term hereof, the Company hereby acknowledges its agreement to continue the Employee's status as an employee during any period of disability and to continue the Employee's salary and benefits during such period, less any payments or benefits under any disability program or plan maintained by the Company. C) RESIGNATION WITHOUT GOOD REASON. If the Employee voluntarily leaves the employ of the Company during the term of this Agreement without "Good Reason", as described below, the duties of the Company and the Employee, one to the other, under this Agreement 3 shall terminate as of the date of the Employee's termination of employment. Notwithstanding the sentence immediately preceding, such voluntary termination of employment by the Employee shall not adversely affect his rights to any benefits under the Company's employee benefit plans or arrangements in which he may be a participant, in accordance with the provisions thereof, including but not limited to those referred to in Section VI, G hereof. D) RESIGNATION FOR GOOD REASON. The Employee may terminate his employment at any time for Good Reason which maybe any of the following: i) the assignment tot he Employee, without his consent, of any substantial duties inconsistent with his positions, duties, responsibilities and status with the Company; ii) a reduction by the Company without the Employee's consent in his base salary as in effect on the date hereof or as the same may be increased from time to time; iii) a failure by the Company to continue the Employee as a participant in the Company's bonus plan, as the same may be modified from time to time but substantially in the form currently in effect, on at least as favorable of a basis as the present basis without otherwise compensating the Employee for the amounts which he would otherwise have been entitled to receive based on the Company's performance in accordance with such plan; iv) the Company's requiring the Employee, without his consent, to be permanently based anywhere other than the Company's principal executive offices, or in the event he consents to any such relation, the failure by the Company to pay (or reimburse the Employee for) all reasonable moving expenses actually incurred by the Employee or to indemnify the Employee against any loss realized in the sale of his principal residence in connection with any such relocation. Travel required with respect to the Company's business to an extent substantially consistent with the Employee's present business travel obligations or consistent with his duties or position with the Company shall not be deemed a relocation; v) the failure by the Company to continue the Employee as participant in or to designate the Employee as a participant in any benefit plan or arrangement, including any retirement plan, compensation plan, savings and profit sharing plan, stock ownership plan, stock purchase plan, stock option plan, life insurance plan, health-and-accident plan, dental plan or disability plan in which he is currently participating or in any similar plan or arrangement adopted or maintained by the Company for its executives without otherwise compensating him for such loss in benefits. In no event shall the discontinuance of any compensation or other fringe benefit plan or arrangement or the restructuring of the Company's compensation or fringe benefit plans or arrangements constitute Good Reason unless the Employee is not otherwise compensated and the net result is a substantial economic loss for the Employee and unless the Employee notifies the Company in writing of the existence and extent of such loss and grants the Company thirty (30) days to cure the loss. E) TERMINATION BY COMPANY. The Company may terminate the Employee's employment at any time, without cause, subject to providing the benefits hereinafter specified in accordance with the terms hereof. The Company may terminate the Employee's employment at any time "For Cause". In the event the Company shall terminate the Employee's employment "For Cause," the duties of the Company and the Employee, one to the other, under this Agreement shall terminate as of the date of the Employee's termination of employment. Notwithstanding the sentence immediately preceding, such 4 termination of employment of the Employee by the Company For Cause shall not adversely affect his rights to any benefits under the Company's employee benefit plans or arrangements in which he may be a participant, in accordance with the provisions thereof, including but not limited to those referred to in Section VI, G hereof. As used herein the words "For Cause" shall be deemed to mean and include (i) the Employee's conviction of either a felony involving moral turpitude or any crime in connection with his employment by the Company which causes the Company or any affiliated company a substantial detriment; or (ii) the Employee's refusal to submit to a medical examination if directed to do so by the Board to determine whether the Employee is disabled under subsection VI(B) hereof; or (iii) the Employee's willful failure to take actions permitted by law and necessary to implement policies of the Board which the Board has communicated to him in writing, provided that minutes of a Board meeting attended in its entirety by the Employee shall be deemed communicated to the Employee; or (iv) the Employee's continued failure to perform his duties as an executive officer of the Company (provided that the Employee shall not be deemed to have continued to fail to perform his duties unless such a continued failure shall have been attested to in writing by a majority of the Board of Directors of the Company who are neither employees of the Company nor members of the Keithley family not attorneys at law representing either the Company or members of the Keithley family); or (v) any condition which either resulted from the Employee's habitual drunkenness or addiction to narcotics, or resulted from any intentionally self-inflicted injury; or (vi) acting in breach or contravention of any material obligation, covenant or agreement of the Employee contained in this Agreement, expressly including without limitation, the non-competition and non-solicitation covenants set forth in Section VIII hereof or the provision of the "Employee Agreement" or any similar agreement regarding confidentiality. F) NOTICE OF TERMINATION. Any termination of the Employee's employment by the Company or by the Employee shall be communicated by written Notice of Termination to the other party hereto which notice shall set forth the effective date of such termination which shall not be earlier than the date of mailing, or delivery by other means, of the notice. G) CONTINUATION OF EMPLOYEE BENEFITS. The death, disability or termination of employment of the Employee, whether or not voluntary and whether or not For Cause or for a Good Reason shall not result in the loss by the Employee or his beneficiaries of any benefits under any life insurance, death benefit, pension, profit sharing, stock option, medical, deferred compensation, supplemental executive retirement plan or other employee benefit plan or arrangement except as provided for in such plan or arrangement. VII) COMPENSATION UPON INVOLUNTARY TERMINATION FOR A GOOD REASON OR INVOLUNTARY TERMINATION OTHER THAN FOR CAUSE If the Employee's employment with the Company shall be terminated, during the term of this Agreement, by the Employee for Good Reason or by the Company other than For Cause, then the Employee shall be entitled to the benefits provided below: i) the Company shall pay the Employee, on a monthly basis, the amount described in Section IV, C, ii or iv hereof, whichever shall be applicable, which amount is one hundred twenty-five percent (125%) of his full monthly base salary, determined as of the date of his termination of employment, through the fifth (5th) anniversary of the date hereof; ii) full participation in the annual Extra Compensation Plan if his termination of employment is on or subsequent to June 30 of the respective fiscal year; 5 iii) full participation in any performance award if the performance measuring period ends within six months follow his termination of employment; iv) the choice of exercising all vested stock options up to thirty days after his termination of employment, provided this provision shall not extend the term of his options beyond their terms as initially granted, and the Company agrees to request the Compensation Committee of its Board of Directors to permit such exercise pursuant to Section 6(g) of the Keithley Instruments, Inc. 1984 Stock Option Plan or the comparable provision of any future plan; v) the Employee shall be deemed to have vested in his stock, if any, required under the Company's restricted stock plan at a rate of 20% per year of service subsequent to the date of sale of such stock to the Employee; vi) the Company shall maintain in full force and effect, following the cessation of the Employee's active employment by the Company, for the Employee's continued benefit through the fifth (5th) anniversary of the date hereof, all employee fringe benefit plans and arrangement in which he was entitled to participate immediately prior to the date of the Notice of Termination, provided that if such continued coverage would jeopardize the tax qualified status of such plan or arrangement with respect to any other employee or the Company, the Company may elect to provide the said benefit on an individual basis or provide cash compensation equivalent to the benefit which otherwise would have been provided so that the Employee shall suffer no financial loss whatsoever due to such substitution; vii) in addition to the retirement benefits to which the Employee is entitled under the Company's Employees' Pension Plan, as amended from time to time (the "Pension Plan"), the Employee shall be eligible to participate in the Company's supplemental retirement program ; and viii) reimbursement of fees for outplacement services actually used up to $10,000. Nothing in this Agreement shall be construed as amending any compensation or fringe benefit plan or arrangement of the Company. All rights of the Employee under any such plan or arrangement upon his termination of employment must be determined under the terms of such plans or arrangements at the time of the Employee's termination of employment. VIII) COVENANT NOT TO COMPETE The Employee agrees that during his employment with the Company, and after his termination of employment for as long as payments hereunder are made by the Company, the Employee shall remain in full compliance with the following conditions: i) He must not accept employment either directly or indirectly, with any competitor of the Company. ii) He must not allow the use of his name by or in any competitive business. iii) He must not employ for himself the services of any other employee of the Company without the written permission of the Company. iv) He must keep himself at all times reasonably available for consultation (by telephone only after termination of employment) by the officers and directors of the Company; provided that no such consultation shall be required after the Employee attains age sixty-five (65). In the event he is called upon to render any such substantial consulting services (consistent with his other activities), 6 he shall receive additional compensation in a reasonable amount, and any travel or other expenses which may be required in connection with such services shall be paid by the Company. The Company shall make payments under this Agreement only so long as the Employee complies with the above conditions except to the extent expressly waived in writing by the Board of Directors. In the event that the Employee shall be determined to be guilty of violation of any of the foregoing conditions by agreement or by the reasonable determination of the Board of Directors and the Employee does not correct such violation within a reasonable time, as determined by the Board after notice to him in writing, the Company may thereafter suspend or terminate in whole or in part any further payments under this Agreement. This Agreement shall not be deemed to modify in any way any agreement between the Company and the Employee concerning the protection of Company secrets. IX) DISSOLUTION, MERGER OR CONSOLIDATION If the Company shall at any time be merged or consolidated into or with any other corporation or corporations or if substantially all the assets of the Company are sold or otherwise transferred to another corporation or party, the provisions of this Agreement shall be binding upon and inure to the benefit of the corporation surviving or resulting from such merger or consolidation or to which such assets shall be sold or transferred, and this provision shall apply in the event of any subsequent sale, merger, consolidation or transfer. X) NON-ASSIGNABILITY This Agreement shall be binding upon and inure to the benefit of the Parties hereto and to their successors. The Employee may not assign, pledge or otherwise encumber any rights or interest hereunder without the written consent of the Company. The Company may not assign this Agreement other than as set forth in IX above. IX) ENTIRE AGREEMENT OF THE PARTIES This Agreement expresses the entire agreement of the parties, and all promises, representations, understandings, arrangement and prior agreements are merged herein and superseded hereby. X) AMENDMENTS, TERMINATION Except as herein provided, this Agreement cannot be terminated by unilateral action of either party. However, this Agreement can be changed, modified or terminated by mutual written agreement. No person, other than pursuant to a resolution of the Board of Directors of the Company, shall have any authority on behalf of the Company to agree to modify, change or terminate this Agreement or anything in reference thereto, and any such modification, change or termination must be in writing and signed by both parties. XI) LAWS GOVERNING This Agreement has been entered into in the State of Ohio, and shall be construed, interpreted and governed in accordance with the laws of the State of Ohio. 7 XII) TERMINATION OF PRIOR AGREEMENT By execution of this Agreement, the parties hereto agree that any prior agreement or understanding with respect to the Employee's employment by the Company is terminated as of the date hereof and this Agreement shall be effective, as of the date hereof, in lieu of any such prior agreement or understanding. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereunto duly authorized, and the Employee has hereunto set his hand, as of the day and year first above written. KEITHLEY INSTRUMENTS, INC. ("Company") By /s/ Joseph F. Keithley ------------------------------ (Chairman, Board of Directors) And /s/ Mark J. Plush ----------------------------- (Corporate Secretary - Assistant) JOSEPH P. KEITHLEY ("Employee") /s/ Joseph P. Keithley --------------------------------- EX-10.E 5 EXHIBIT 10(E) 1 Exhibit 10(e) KEITHLEY INSTRUMENTS, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Effective: January 1, 1988 2 TABLE OF CONTENTS ----------------- ARTICLE NUMBER - ------- ------ DEFINITIONS I ELIGIBILITY AND PARTICIPATION II ACCRUED RETIREMENT BENEFIT III RETIREMENT BENEFITS IV DISABILITY BENEFITS V SPOUSE'S BENEFITS VI FORFEITURE OF BENEFITS VII FINANCING OF BENEFITS VIII ADMINISTRATION IX AMENDMENT AND TERMINATION X MISCELLANEOUS XI ii 3 KEITHLEY INSTRUMENTS, INC. -------------------------- SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN -------------------------------------- THIS AGREEMENT is made by KEITHLEY INSTRUMENTS, INC., an Ohio corporation (hereinafter referred to as the "Company") on behalf of certain of its senior executive employees; W I T N E S S E T H WHEREAS, it is necessary for the Company to attract, retain and motivate highly competent senior management executives so that it may compete effectively; and WHEREAS, in order to attract, retain and motivate such senior management executives, the Company has duly authorized the establishment of a Supplemental Executive Retirement Plan in order to provide certain retirement, death and disability benefits for its senior executives and their spouses commensurate with those offered by other companies; NOW, THEREFORE, the Company hereby establishes the KEITHLEY INSTRUMENTS, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN, effective as of January 1, 1988, as follows: (iii) 4 ARTICLE I --------- DEFINITIONS ----------- 1.1 The words "Accrued Retirement Benefit" shall mean an amount computed with respect to each Participant in accordance with Article III hereof. 1.2 The words "Actuarial Equivalent" shall mean the benefit having the same value as the benefit which the actuarial equivalent replaces. The determination of an actuarial equivalent shall be based on the actuarial assumptions and methods which are set forth in the Pension Plan, except as otherwise expressly provided in this Plan or as otherwise designated by the Compensation Committee. 1.3 The word "Affiliate" shall mean any corporation or business organization that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the Company, and particularly shall mean any corporation or business organization during any period during which it is a member of a controlled group of corporations or trades or businesses which includes the Company within the meaning of Sections 414(b) and 414(c) of the Internal Revenue Code. 1.4 The words "Benefit Service" shall mean for any Participant his credited service under the Pension Plan, together with any comparable service with any Affiliate of the Company, but excluding any period of such service after a Participant first becomes a Senior Executive and during which period the Participant is not a Senior Executive due to action of the Compensation Committee pursuant to Section 2.4 hereof. 1-1 5 1.5 The word "Company" shall mean Keithley Instruments, Inc. and any Affiliate, or any successor corporation or other business organization which shall assume the obligations of this Plan as provided herein with respect to Participants. 1.6 The word "Compensation" shall mean compensation as defined in the Pension Plan specifically including employee elective deferral contributions made pursuant to Sections 125 and 401(k) of the Internal Revenue Code, but including such Compensation only during a period when the Participant was a Senior Executive or at any time prior thereto. 1.7 The words "Compensation Committee" shall mean the Compensation Committee of the Board of Directors of Keithley Instruments, Inc. 1.8 The words "Disability Plan Offset" shall mean the total amounts, if any, actually payable to a Totally and Permanently Disabled Participant on the date specified herein for their calculation under any short-term disability or long-term disability plan, program, or insurance contract of the Company, or the amount which would be payable thereunder upon application therefor. The words "Disability Plan Offset" shall not include any amounts representing benefits which might have been payable to a Totally and Permanently Disabled Participant under such a plan, program, or contract if he had been "disabled" as defined therein but which are not actually payable to the Totally and Permanently Disabled Participant because he is not "disabled" as so defined. 1.9 The words "Earned Income" shall mean the total remuneration which a Participant or Totally and Permanently Disabled Participant shall receive as compensation or profit from the performance of services as an employee of any corporation, partnership, organization, govern- 1-2 6 mental agency or as a self-employed individual, including amounts contributed to a qualified retirement plan pursuant to such Participant's or Spouse's election under a qualified cash or deferred arrangement (described in Section 401(k) of the Internal Revenue Code of 1986) or a cafeteria plan (described in Section 125 of the Internal Revenue Code of 1986). 1.10 The words "Final Average Earnings" shall mean the total of a Participant's Compensation during the three (3) consecutive Plan Years falling within the ten (10) Plan Years inclusive of and next preceding the earlier of the date he ceased to be a Senior Executive or his date of termination of employment by the Company or an Affiliate, during which his Compensation was highest, divided by thirty-six (36); provided, however, that if he has Compensation for fewer than three (3) consecutive Plan Years, his Final Average Earnings shall be determined based upon the number of months of Compensation that he has. 1.11 The words "Life Annuity Basis" shall mean, with respect to a Participant, that a benefit is payable monthly to a Participant during his life and that no further benefits are payable after the death of the Participant. 1.12 The words "Normal Retirement Date" shall mean the first day of the month coinciding with or next following a Participant's attainment of age sixty-five (65). 1.13 The words "Other Retirement Plan Benefits" shall mean any benefits provided by employer contributions, including benefits previously distributed or to be distributed in the future, under: (a) the Pension Plan; 1-3 7 (b) the Keithley Instruments, Inc. Netirement Savings Trust and Plan; (c) any pension, profit sharing, stock bonus or retirement plan, practice or program of any other corporation, or any partnership, organization, government or governmental agency, other than Federal Social Security, which provides benefits to a Participant upon his retirement or attainment of a stated retirement age, by reason of his employment with or his performance of services for any such entity excluding, however, any such plan, practice or program under which a Participant accrues or accumulates benefits contemporaneously with and during his participation in this Plan; and (d) any agreement entered into between the Participant and any other corporation, partnership, organization, government or governmental agency, with which he was employed or for which he performed services, that provides for the nonvoluntary deferral of compensation or remuneration until the Participant's attainment of a stated retirement age, excluding, however, any such agreement under which a Participant accrues or accumulates benefits contemporaneously with and during his participation in this Plan. The words "Other Retirement Plan Benefits" shall not include any voluntary employee contributions or amounts contributed to a qualified retirement plan as employee elective deferrals pursuant to a Participant's election under a qualified cash or deferred arrangement (described in Section 401(k) of the Internal Revenue Code of 1986) and earnings on said contributions and amounts. 1.14 The word "Participant" shall mean any eligible Senior Executive of the Company who has performed all the acts required by this Plan to become a Participant, who has become a Participant in accordance with Article II hereof, and who remains a Participant hereunder. 1.15 The words "Pension Plan" shall mean the Keithley Instru- ments, Inc. Employees' Pension Plan. 1.16 The word "Plan" shall mean the Keithley Instruments, Inc. Supplemental Executive Retirement Plan. 1-4 8 1.17 The words "Plan Year" shall mean the twelve (12) month period ending on September 30 in each calendar year. 1.18 The words "Projected Accrued Retirement Benefit" shall mean in the case of a Participant who becomes Totally and Permanently Disabled prior to his Normal Retirement Date and prior to his termination of employment, the Accrued Retirement Benefit he would have had at his Normal Retirement Date calculated on the assumptions that between such date and his Normal Retirement Date: (a) he would have remained employed by the Company; (b) he would have had Compensation during each Plan Year ending in such period in an amount equal to the greater of: (i) his Compensation during the Plan Year immediately prior to such date; and (ii) his Compensation during the Plan Year in which such date occurs; (c) he would have remained a Senior Executive if he was a Senior Executive on such date; and (d) he would not have become a Senior Executive during such period if he was not a Senior Executive on such date. 1.19 The words "Senior Executive" shall mean any executive employee of the Company who shall be so designated as such by the Compensation Committee pursuant to Article II hereof, but only while he remains so designated. A Participant who becomes Totally and Permanently Disabled at a time when he is a Senior Executive shall be deemed to continue to be a Senior Executive during the period he remains Totally and Permanently Disabled. 1.20 The words "Social Security Offset" shall mean for a Participant, who is eligible for retirement benefits under Article IV hereof, the monthly amount of the primary and family old age insurance 1-5 9 benefits under the Federal Social Security Act which are payable, or which upon application thererfor would be payable, to the Participant on the dates specified herein for computation thereof. The words "Social Security Offset" shall mean for a Totally and Permanently Disabled Participant, who is eligible for disability benefits under Article V hereof, either: (a) the monthly amount of the primary disability insurance benefits under the Federal Social Security Act which are payable, or which upon application therefor would be payable, to the Totally and Permanently Disabled Participant or (b) if old age, as opposed to primary disability insurance benefits are payable under the Federal Social Security Act, the amount specified in the first paragraph of this Section, on the dates specified herein for the computation thereof. The "Social Security Offset" of a Participant or Totally and Permanently Disabled Participant shall be computed without regard to any reduction in his Social Security benefits by reason of his Earned Income. 1.21 The word "Spouse" shall mean the person to whom a Participant is married on the earliest of the date the Participant dies, the date of his termination of employment or the date he becomes Totally and Permanently Disabled; provided, however, that in the case of a person married to a Participant who terminates his employment or becomes Totally and Permanently Disabled, such person shall cease to be considered to be a "Spouse" if she shall thereafter cease to be married to such Participant for any reason other than the death of such Participant. 1-6 10 1.22 The words "Termination of Employment" shall mean for any employee, the occurrence of any one of the following events: (a) his discharge; (b) his voluntary termination of employment; (c) his retirement; (d) his failure to return to work: (i) at the end of any leave of absence authorized by the Company; or (ii) within ninety (90) days following such employee's release from military service or within any other period following military service in which such employee's right to reemployment with the Company is guaranteed by law; or (iii) after the cessation of disability income payments under this Plan and under any sick leave, short-term disability program or long-term disability program of the Company. 1.23 The words "Totally and Permanently Disabled" shall mean for any Participant that he has a total and permanent disability as defined in the Pension Plan. 1-7 11 ARTICLE II ---------- ELIGIBILITY AND PARTICIPATION ----------------------------- 2.1 An employee of the Company shall be qualified to become a Participant under this Plan when the Compensation Committee shall, at its discretion, designate him a Senior Executive. 2.2 The Compensation Committee shall, upon designating an employee a Senior Executive, notify such employee in writing of his eligibility and of the actions necessary to become a Participant hereunder, and shall provide him with the opportunity to become a Participant. If such eligible employee desires to become a Participant, he shall, within such time as the Compensation Committee shall determine: (a) furnish to the Compensation Committee all information requested by it; (b) execute such documents and such instruments as the Compensation Committee may require to facilitate the administration of this Plan; (c) agree in such form and manner as the Compensation Committee may require to be bound by the terms of this Plan and by the terms of such Amendments as may be made hereto; and (d) truthfully and fully answer any questions and supply any information which the Compensation Committee deems necessary or desirable for the proper administration of this Plan, without any reservations whatsoever. The agreement with a Senior Executive may contain special provisions applicable only to such Senior Executive and approved by the Compensation Committee. 2.3 An eligible employee who shall have timely done all acts required of him to become a Participant shall become a Participant on or as of such date as shall be specified by the Compensation Committee. 12 2.4 At any time after the effective date of this Plan, the Compensation Committee may, in its sole discretion, determine that any employee, who has not attained his Normal Retirement Date, terminated his employment, become Totally and Permanently Disabled or died, and who shall have previously been designated by it as a Senior Executive, is no longer entitled to be so designated and may withdraw such designation with respect to such employee. The withdrawal of the designation of an employee as a Senior Executive shall become effective as of the date specified by the Compensation Committee which date may not be earlier than the date upon which the Compensation Committee determines such employee is no longer a Senior Executive. Such employee shall continue to be a Participant in this Plan but shall not accrue any further Benefit Service. 2.5 A Participant shall automatically cease to be a Senior Executive on his date of termination of employment. 2-2 13 ARTICLE III ----------- ACCRUED RETIREMENT BENEFIT -------------------------- 3.1 The Accrued Retirement Benefit of a Participant wrio remains a Senior Executive until his Normal Retirement Date shall be an amount equal to sixty percent (60%) of his Final Average Earnings, reduced, in the case of a Participant who has completed less than fifteen (15) years of Benefit Service at the time he retires, by one-one hundred eightieth (1/180) thereof for each month that his Benefit Service is less than one hundred eighty (180) months. 3.2 The Accrued Retirement Benefit of a Participant who ceases to be a Senior Executive prior to his Normal Retirement Date shall be an amount equal to (a) multiplied by (b) below, where: (a) equals the amount his Accrued Retirement Benefit would have been on his Normal Retirement Date if he had remained a Senior Executive until his Normal Retirement Date, computed on the basis of his Final Average Earnings determined as of the date he ceased to be a Senior Executive; and (b) equals a fraction, the numerator of which shall be the number of years (computed to the nearest one-twelfth (1/12th) year) of such Participant's Benefit Service, and the denominator of which shall be the number of years (computed to the nearest one-twelfth (1/12th) year) of Benefit Service which such Participant would have had if he had remained a Senior Executive until his Normal Retirement Date. 3-1 14 ARTICLE IV ---------- RETIREMENT BENEFITS ------------------- 4.1 Each Participant who continues in the employ of the Company until his Normal Retirement Date shall be entitled to retire on such date or at any time thereafter and shall be eligible for retirement benefits under this Plan commencing on the first day of the month after his termination or employment. 4.2 Each Participant who continues in the employ of the Company until (a) his completion of fifteen (15) years of Benefit Service and his attainment of age sixty (60), or (b) his completion of thirty (30) years of Benefit Service, shall be entitled to retire at any time thereafter, prior to his Normal Retirement Date, and shall be eligible for retirement benefits under this Plan commencing on the first day of any month on or after his termination of employment but not later than his Normal Retirement Date, as such Participant shall designate in writing to the Compensation Committee. 4.3 Retirement benefits payable to a Participant pursuant to this Article IV shall be payable commencing on the date specified in Section 4.1 or 4.2 hereof in a form of benefit provided under the Pension Plan other than the lump sum form. If the benefit under this Plan commences at the same time or after the benefit under the Pension Plan, it shall be payable in the same form with the same designation of beneficiary as under the Pension Plan; provided, however, that if the Participant is to receive a lump sum payment under the Pension Plan, his benefit hereunder will be paid on the basis of another form provided under the Pension Plan and selected by the Participant. If the benefit 4-1 15 under this Plan commences before the benefit under the Pension Plan, or if there i.s no benefit under the Pension Plan, the benefit under this Plan need not be payable in the same form or with the same beneficiary as under the Pension Plan, but shall be payable in such form as shall be selected by the Participant. 4.4 Subject to adjustments pursuant to Section 4.6 hereof, the monthly amount of retirement benefits payable commencing on his Normal Retirement Date on a Life Annuity Basis to a Participant eligible therefor pursuant to this Article IV shall be equal to his Accrued Retirement Benefit reduced by the total of: (a) his Social Security Offset; plus (b) the amount specified in Section 4.5 hereof. Furthermore, if the benefit payable hereunder is payable other than on a Life Annuity Basis or if it commences prior to the Partici- pant's Normal Retirement Date, the reduced Accrued Retirement Benefit shall be further reduced as follows: (i) if payment commences prior to the Participant's Normal Retirement Date, such benefit shall be reduced by one-half of one percent (0.5%) thereof for each complete month, if any, that the date retirement benefits commence to said Participant precedes his Normal Retirement Date; plus (ii) if payment is in a form other than on a Life Annuity Basis, such benefit shall be reduced so that it is the actuarial equivalent of a benefit payable on a Life Annuity Basis. 4.5 The amount of the reduction specified in Subsection 4.4(b) above shall be equal to the total Other Retirement Plan Benefits payable, or which would be payable upon application therefor, to the Participant on a Life Annuity Basis commencing on the date retirement benefits commence to the Participant pursuant to this Article IV. In the event that the Participant is entitled to nonforfeitable Other 4-2 16 Retirement Plan Benefits, but such benefits are not payable and would not be payable upon application on a Life Annuity Basis or are not payable commencing on the date retirement benefits commence to the Participant pursuant to this Article IV, or both, the amount of the reduction specified in Subsection 4.4(b) above shall be equal to the amount which, if such amount were payable on a Life Annuity Basis commencing on the date retirement benefits commence to the Participant pursuant to this Article IV, would be the actuarial equivalent of his nonforfeitable Other Retirement Plan Benefits. Such reduction shall be computed on the date retirement benefits commence to the Participant under this Article IV and shall not thereafter be subject to adjustment by reason of any change in the Other Retirement Plan Benefits payable to the Participant. 4.6 The amount of retirement benefits payable to a Participant who is not eligible for primary Social Security Benefits on the date his retirement benefits commence for a reason other than a limit on his maximum Earned Income, shall be recomputed to reflect the change in his Social Security Offset on the date he first becomes eligible to receive such benefits or would become eligible to receive such benefits except for a limit on his maximum Earned Income. 4-3 17 ARTICLE V --------- DISABILITY BENEFITS ------------------- 5.1 Each Participant who, prior to his Normal Retirement Date and while he is in the employ of the Company, becomes Totally and Permanently Disabled shall be eligible for disability benefits under this Plan commencing on the earlier of: (a) the first day of the first (1st) month following his attainment of age sixty-five (65); or (b) the date his benefit begins under the Pension Plan; but not earlier than the date which would allow him to receive unreduced benefits under the Company's short-term or long-term disability plan. Such benefits shall be payable as of the first day of each month thereafter in the same form as the Participant is receiving or is to receive benefits under the Pension Plan; provided, however, that if he is to receive a lump sum payment under the Pension Plan, his benefit hereunder will be paid on a Life Annuity Basis. Payment of disability benefits hereunder shall be in lieu of payment of retirement benefits under Article IV hereof. 5.2 The monthly amount of disability benefits payable to a Participant pursuant to this Article V shall be equal to his Projected Accrued Retirement Benefit reduced by the total of: (a) his Social Security Offset; plus (b) his Disability Plan Offset; plus (c) the amount specified in Section 5.3 hereof; plus 5-1 18 (d) if payment commences prior to the Participant's Normal Retirement Date, such benefit shall be reduced by one-half of one percent (0.5%) thereof for each complete month, if any, that the date retirement benefits commence to said Participant precedes his Normal Retirement Date; plus (e) if payment is in a form other than on a Life Annuity Basis, such benefit shall be reduced so that it is the actuarial equivalent of a benefit payable on a Life Annuity Basis. The amount of disability benefits shall be recomputed to reflect changes in either the Participant's Disability Plan Offset or his Social Security Offset as of each of the following dates: (i) the date payments to the Totally and Permanently Disabled Participant under any long-term or short-term disability plan of the Company shall cease; (ii) the date the waiting period for disability benefits under the Federal Social Security Act ends, if the Totally and Permanently Disabled Participant is eligible for such disability benefits; and (iii) the date upon which there is any change in the definition of disability contained in any long-term disability plan of the Company under which he is eligible to receive disability benefits. In any such recomputation, increases in the rate of the Totally and Permanently Disabled Participant's disability benefits under the Federal Social Security Act as a result of amendments to such Act or increases in the cost of living shall be disregarded. Disability benefits payable pursuant to this Article V after the date of the recomputation shall be paid in accordance with the amount as recomputed. 5-2 19 5.3 The amount of the reduction specified in Subsection 5.2(c) above shall be equal to the total monthly Other Retirement Plan Benefits payable to the Totally and Permanently Disabled Participant, and any such benefits which would be payable upon application therefor, which benefits commence on the date the Participant is entitled to receive disability benefits under this Article V. 5.4 A Participant shall become entitled to disability benefits under this Article V only if the Compensation Committee finds that he is Totally and Permanently Disabled as that term is defined in this Plan. In any case, where the Compensation Committee makes a determination with respect to the disability of any Participant applying for disability benefits, or of any Totally and Permanently Disabled Participant during the period he is receiving such benefits, the Participant shall be required to submit to such examinations and reexaminations by a clinic, physician or physicians selected by the Compensation Committee as the Compensation Committee deems necessary to establish his eligibility for such disability benefits or his continued eligibility therefor; provided that, in the case of any Totally and Permanently Disabled Participant while he is receiving such disability benefits, reexamina- tions shall not be made more frequently than twice in any twelve (12) month period nor shall any such examination or reexamination be required after attainment of age sixty-five (65). The Compensation Committee may substitute other equally conclusive evidence, if it so decides, in place of such examination by a clinic, physician or physicians. Fees of any clinic, physician or physicians making such examinations shall be paid by the Company. 5-3 20 5.5 In the event a Totally and Permanently Disabled Partici pant dies prior to commencement of benefits under this Article V, a monthly benefit equal to fifty percent (50%) of the amount determined pursuant to Section 5.2 hereof will be paid to his Spouse commencing on the first day of the month next following the death of the Participant. Such benefits shall be payable until the earlier to occur of the death of the Spouse or her remarriage. Payment of a death benefit hereunder shall be in lieu of payment of a Spouse's benefit under Article VI hereof. 5-4 21 ARTICLE V I ----------- SPOUSE'S BENEFITS ----------------- 6.1 In the event that a Participant shall die after (a) his Normal Retirement Date (b) his completion of fifteen (15) years of Benefit Service, or (c) his completion of thirty (30) years of Benefit Service, but prior to the date retirement benefits commence to the Participant pursuant to Article IV hereof, his Spouse, if then living, shall be entitled to receive a Spouse's benefit payable in accordance with Section o.2 hereof. The monthly amount of her Spouse's benefit shall be equal to fifty percent (50%,) of the benefit which would have been payable to the Participant pursuant to Section 4.4 hereof if such Participant had commenced receiving retirement benefits on the first day of the month following his date of death on a Life Annuity Basis. Solely for purposes of calculating the amount of the Spouse's benefit payable with respect to a Participant who dies after completion of fifteen (15) years of Benefit Service but before he has attained age sixty (60) or completed thirty (30) years of Benefit Service, such Participant's benefit hereunder shall be calculated as if Section 4.2(a) of this Plan did not require attainment of age sixty (60) for benefit entitlement. 6.2 Spouse's benefits payable pursuant to this Article VI shall be payable monthly commencing on the first day of the month next following the death of the Participant. Such benefits shall be payable until the earlier to occur of the death of the Spouse or her remarriage. 6-1 22 ARTICLE VII ----------- FORFEITURE OF BENEFITS ---------------------- 7.1 In the event the Compensation Committee shall receive a written confession by a Participant, or retired or terminated Participant, or proor satisfactory to the Compensation Committee, of the commission by such a Participant of a felony against the Company or an Affiliate, the rights of such Participant, and the rights of such Participant's Spouse, to receive retirement benefits and/or death benefits provided herein shall immediately be forfeited and the Company's obligation to pay or provide any such benefits shall thereupon cease and terminate. 7.2 A Participant, during his employment with the Company or an Affiliate, or a retired or terminated Participant who shall be entitled to receive retirement benefits provided herein, must remain in full compliance with the following conditions: (a) He must not accept employment, either directly or indirectly, with any competitor of the Company or any Affiliate; (b) He must not allow the use of his name by or in any competitive business; (c) He must not employ for himself the services of any other employee of the Company or any Affiliate without the written permission of the Company; and (d) He must keep himself at all times reasonably available for consultation by the officers and directors of the Company; provided that no such consultation shall be required after the Participant attains age sixty-five (65). In the event he is called upon to render any such substantial consulting services, he shall receive additional compensation in a reasonable amount, and any travel or other expenses which may be required in connection with such services shall be paid by the Company. 7-1 23 The Company shall make payments under this Plan only so long as the retired or terminated Participant complies with the above conditions except to the extent expressly waived in writing by the Compensation Committee. In the event that a Participant or a retired or terminated Participant shall be determined to be guilty of violation of any of the foregoing conditions by agreement or by the reasonable determination of the Compensation Committee and such Participant does not correct such violation within a reasonable time, as determined by the Committee after notice to him in writing, the Company may thereafter expel a Participant from this Plan or suspend or terminate in whole or in part any further payments to a retired or former Participant under this Plan and, if so expelled or to the extent such payments are suspended or terminated, the Participant or retired or former Participant shall forfeit his right and the right of his Spouse to receive any or any further retirement benefit payments or any death benefits hereunder. This Plan shall not be deemed to modify in any way any agreement between the Company and the Participant concerning the protection ot Company secrets. In the event of a disagreement between the retired or terminated Participant, or his Spouse, and the Compensation Committee with respect to the administration of this Section 7.2, appeal may be made for review by the Board of Directors pursuant to Section 9.3 hereof. 7.3 In the event that, upon a date specified in Articles IV, V and VI hereof for the commencement or recomputation of benefits payable under said Articles, a Participant shall fail or refuse to 7-2 24 provide the Compensation Committee with full, complete and accurate information with respect to the amount of benefits, the commencement date of benet its and the method of payment of benefits payable to the Participant under a retirement plan which provides Other Retirement Plan Benefits, other than such a retirement plan administered by the Company or an Affiliate, or under the Federal Social Security Act, such Participant shall forreit all rights to receive any retirement or disability benefits under this Pian and he shall forfeit the right of his Spouse to receive any Spouse's benefits or other death benefits under this Plan. 7-3 25 ARTICLE VIII ------------ FINANCING OF BENEFITS --------------------- 8.1 The benefits provided under this Plan shall not be funded or financed by the Company in any manner, and no escrow, trust fund, insurance contract or contracts or other funding medium shall be established or purchased by the Company for the benefit of the Participants or their Spouses. :\1l such benefits shall be payable solely from the general funds of the Company. The undertakings of the Company herein constitute merely the unsecured promise of the Company to make the payments and provide the benefits set forth herein. 8.2 Notwithstanding the provisions of Section 8.1 hereof and any other apparently contrary provisions of this Plan, the Company may set aside, in one or more separate accounts, "Rabbi Trusts", annuity contracts or similar vehicles, amounts intended to be used for payment of benefits hereunder. Such setting aside shall not, however, result in this Plan being considered as "funded" either for Federal income tax purposes or under the Employee Retirement Income Security Act of 1974, as amended. 8-1 26 ARTICLE IX ---------- ADMINISTRATION -------------- 9.1 The Compensation Connnittee shall be responsible for the general administration of the Plan and shall have all such powers as may be necessary to carry out the provisions of the Plan and may, from time to time, establish rules for the administration of the Plan and the transaction of the Plan's business. The Compensation Committee shall have the following powers and duties: (a) To enact such rules, regulations, and procedures and to prescribe the use of such forms as it shall deem advisable. (b) To appoint or employ such agents, attorneys, actuaries, and assistants at the expense of the Company, as it may deem necessary to keep its records or to assist it in taking any other action. (c) To interpret the Plan, and to resolve ambiguities, inconsistencies, and omis,ions, to determine any question of fact, to determine the right to benefits of, and the amount of benefits, if any, payable to, any person in accordance with the provisions of the Plan. 9.2 If any Participant, any beneficiary, or the authorized representative of a Participant or beneficiary shall file an application for benefits hereunder and such application is denied by the Compensation Committee, in whole or in part, he shall be notified in writing of the specific reason or reasons for such denial. The notice shall also set forth the specific Plan provisions upon which the denial is based, an explanation of the provisions of Section 9.3 hereof, and any other information deemed necessary or advisable by the Compensation Committee. 9-1 27 9.3 Any Participant, any beneficiary, or any authorized representative of a Participant or beneficiary whose application for benefits hereunder has been denied, in whole or in part, by the Compensation Committee may, upon written notice to the Compensation Committee, request a review by the Board of Directors of Keithley Instruments, Inc. of such denial of his application. Such review may be made by written briefs submitted by the applicant and the Compensation Committee or at a hearing, or by both, as shall be deemed necessary by the Board of Directors. Any hearing conducted by the Board of Directors shall be held In such location as shall be reasonably convenient to the applicant. The date and time of any such hearing shall be designated by the Board of Directors upon not less than seven (7) days' notice to the applicant and the Compensation Committee unless both of them accept shorter notice. The Board of Directors shall make every effort to schedule the hearing on a day and at a time which is convenient to both the applicant and the Compensation Committee. If the applicant does not request a hearing, the Board of Directors shall review the denial of such benefits without a hearing. Such hearing or review shall be made on a DE NOVO basis rather than merely determining whether the decision of the Compensation Committee was reasonable. After the review has been completed, the Board of Directors shall render a decision in writing, a copy of which shall be sent to both the applicant and the Compensation Committee. Such decision shall set forth the specific reason or reasons for the decision and the specific Plan provisions upon which the decision is based. When the Board of Directors shall be called upon to render a decision pursuant to this Section 9.3, including a decision as to whether it shall grant a request for a hearing, such decision shall 9-2 28 be in writing and shall be made by majority vote of the Board of Directors, provided that no such decision may be adverse to the applicant unless it is approved by a majority of those members of the Board of Directors who are neither employees of the Company nor members of the Keithley family nor attorneys at law representing either the Company or members of the Keithley family. There shall be no further appeal from a decision rendered by the Board of Directors. 9.4 The interpretations, determinations and decisions of the Compensation Committee and Board of Directors shall, except to the extent provided in Section 9.3 hereof and in this Section 9.4, be final and binding upon all persons with respect to any right, benefit and privilege hereunder. The review procedures of said Section 9.3 shall be the sole and exclusive remedy and shall be in lieu of all actions at law, in equity, pursuant to arbitration or otherwise. 9.5 The Company, Compensation Committee, Board of Directors, and their respective officers, members, employees and agents shall have no duty or responsibility under the Plan other than the duties and responsibilities expressly assigned to them herein or delegated to them pursuant hereto. None of them shall have any duty or responsibility with respect to the duties or responsibilities assigned or delegated to another of them. 9.6 The Compensation Committee, Board of Directors, and their respective officers, employees, members and agents shall incur no personal liability of any nature whatsoever in connection with any act done or omitted to be done in good faith in the administration of the Plan. The Compensation Committee, Board of Directors, and their 9-3 29 respective officers, employees, members and agents shall be indemnified and saved harmless by the Company from and against any and all liabilities to which they may be subjected by reason of any act or conduct in their respective capacities under this Plan, including all expenses reasonably incurred in their defense. 9-4 30 ARTICLE X --------- AMENDMENT AND TERMINATION ------------------------- 10.1 Subject to the provisions of Sections 10.2 and 10.3 hereof, this Plan may be amended by Keithley Instruments, Inc. at any time, or from time to time, and may be terminated by Keithley Instruments, Inc. at any time, but no such amendment or termination will (a) deprive any Participant or any terminated or retired Participant of his right to receive his Accrued Retirement Benefit as determined as of the date of such amendment or termination, or reduce the amount of such Accrued Retirement Benefit, unless such Participant consents in writing to such deprivation or reduction; or (b) deprive the Spouse of any terminated or retired Participant of her rights to receive the payments provided by Article VI hereof, or reduce the amount of any such payments, unless such Participant consents in writing to such deprivation or reduction; or (c) deprive any Totally and Permanently Disabled Participant or his Spouse of his or her right to receive disability benefits as provided in Article V hereof, or reduce the amount of such disability benefits. 10.2 Notwithstanding any provision of this Article X to the contrary, Keithley Instruments, Inc. may amend or modify this Plan in any respect which shall be necessary or advisable in order that the benefits provided by this Plan shall constitute unfunded deferred compensation for a select group of management or highly-compensated employees as described in Sections 201(2), 301(a)(3), and 401(a)(1) of the Employee Retirement Income Security Act of 1974. 10-1 31 ARTICLE XI ---------- MISCELLANEOUS ------------- 11.1 Neither anything contained herein, nor any acts done in pursuance of this Plan, shall be construed as entitling any Participant to be continued in the employ of the Company or an Affiliate for any period of time nor as obliging the Company or an Affiliate to keep any Participant in its employ for any period of time, nor shall any employee of the Company or an Affiliate nor anyone else have any rights whatsoever, legal or equitable, against the Company or an Affiliate as a result of this Plan except those expressly granted to him hereunder. 11.2 The undertakings of the Company herein constitute merely the unsecured promise of the Company to make the payments and provide the benefits as provided for herein. No property of the Company is or shall, by reason of this Plan, be held in trust, except as otherwise provided in Section 8.2 hereof, for any Participant, any Spouse, or any other person, and neither the Participants nor any Spouse or any other person shall have by reason of this Plan, any rights, title or interest of any kind in or to any property of the Company. 11.3 Whenever any pronoun is used herein, it shall be construed to include the masculine pronoun, the feminine pronoun or the neuter pronoun as shall be appropriate. 11.4 This Plan shall be construed under and in accordance with the laws of the State of Ohio and of the United States of America. 11.5 In the event that any provision or term of this Plan, or any agreement or instrument required by the Compensation Committee hereunder, is determined by judicial, quasi-judicial or administrative 11-1 32 body to be void or not enforceable for any reason, all other provisions or terms of this Plan or such agreement or instrument shall remain in full force and effect and shall be enforceable as if such void or nonenforceable provision or term had never been a part of this Plan, or such agreement or instrument. 11.6 No benefits under this Plan shall be subject in any manner to be anticipated, alienated, sold, transferred, assigned, pledged encumbered or charged, and any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be void; nor shall any such benefits in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefits as are herein provided for him. 11.7 Any payment to or for the benefit of any Participant, retired Participant, terminated Participant, or Totally and Permanently Disabled Participant, or to his Spouse or beneficiary, in accordance with the provisions of this Plan, shall to the extent thereof be in full satisfaction of all claims hereunder against the Plan, the Compensation Committee and the Company, any of whom may require such Participant, retired Participant, terminated Participant, Totally and Permanently Disabled Participant, Spouse or beneficiary, as a condition precedent to such payment, to execute a receipt and release therefor in such form as shall be determined by the Compensation Committee or the Company, as the case may be. 11.8 If the monthly benefits payable hereunder to a retired, terminated or Totally and Permanently Disabled Participant or to a Spouse shall be less than Twenty-Five Dollars ($25) per month, the Compensation Committee may direct that said Participant's or Spouse's 11-2 33 benefits be paid quarterly, semiannually or annually in amounts equal to 3, 6 or 12, respectively, times the monthly amount otherwise payable, or it may, in its sole discretion, direct payment, in full discharge of all the Plan's liability in respect to such benefits, of an amount equal to the lump-sum actuarial equivalent value of such benefits. 11.9 If the Company shall at any time be merged or consolidated into or with any other corporation or corporations or if substantially all the assets of the Company are sold or otherwise transferred to another corporation or party, the provisions of this Plan shall be binding upon and inure to the benefit of the corporation surviving or resulting from such merger or consolidation or to which such assets shall be sold or transferred, and this provision shall apply in the event of any subsequent sale, merger, consolidation or transfer. IN WITNESS WHEREOF, KEITHLEY INSTRUMENTS, INC., by its duly authorized officers, has caused this Supplemental Executive Retirement Plan, to be executed as of the 27 day of January , 1989. KEITHLEY INSTRUMENTS, INC. ("Company") By --------------------------------- And -------------------------------- 11-3 EX-10.F 6 EXHIBIT 10(F) 1 EXHIBIT 10(F) ------------- KEITHLEY INSTRUMENTS, INC. 1992 STOCK INCENTIVE PLAN 1. General. This Stock Incentive Plan (the "Plan") provides eligible employees of Keithley Instruments, Inc. (the "Company") with the opportunity to acquire or expand their equity interest in the Company by making available for award or purchase Common Shares, without par value, of the Company ("Common Shares"), through the granting of nontransferable options to purchase Common Shares ("Stock Options"), the granting of Common Shares subject to temporal restrictions on transfer and substantial risks of forfeiture ("Restricted Stock"), and the granting of nontransferable options to receive payments based on the appreciation of Common Shares ("SARs"). Stock Options, Restricted Stock and SARs shall be collectively referred to herein as "Grants"; an individual grant of Stock Options, Restricted Stock or SARs shall be individually referred to herein as a "Grant". It is intended that key employees may be granted, simultaneously or from time to time, Stock Options that qualify as incentive stock options ("Incentive Stock Options") under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or Stock Options that do not so qualify ("Non-qualified Stock Options"). No provision of the Plan is intended or shall be construed to grant employees alternative rights in any Incentive Stock Option granted under the Plan so as to prevent such Option from qualifying under Section 422 of the Code. 2. Purpose of the Plan. The purpose of the Plan is to provide continuing incentives to key employees of the Company and of any subsidiary corporation of the Company, by encouraging such key employees to acquire new or additional share ownership in the Company, thereby increasing their proprietary interest in the Company's business and enhancing their personal interest in the Company's success. For purposes of the Plan, a "subsidiary corporation" consists of any corporation fifty percent (50%) of the stock of which is directly or indirectly owned or controlled by the Company. 3. Effective Date of the Plan. The Plan shall become effective upon its adoption by the Board of Directors, subject to approval by holders of a majority of the outstanding shares of voting capital stock of the Company. If the Plan is not so approved within twelve (12) months after the date the Plan is adopted by the Board of Directors, the Plan and any Grants made hereunder shall be null and void. However, if the Plan is so approved, no further shareholder approval shall be required with respect to the making of Grants pursuant to the Plan, except as provided in Section 12 hereof. 4. Administration of the Plan. The Plan shall be administered by the Compensation and Human Resources Committee of the Board of Directors of the Company, however described, or by any other committee selected by such Board of Directors by majority vote and composed of no fewer than two (2) members of such Board of Directors (the "Committee"). No person shall be appointed to the Committee who, during the one-year period immediately preceding such person's appointment to the Committee, has received any Grants under the Plan or any similar stock option or stock incentive plan, other than a formula-based plan, maintained by the Company or any subsidiary corporation. A member of the Committee shall not be eligible to participate in this Plan while serving on the Committee. A majority of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present (or acts unanimously approved in writing by the members of the Committee) shall constitute binding acts of the Committee. 2 Subject to the terms and conditions of the Plan, the Committee shall be authorized and empowered: (a) To select the key employees to whom Grants may be made; (b) To determine the number of Common Shares to be covered by any Grant; (c) To prescribe the terms and conditions of any Grants made under the Plan, and the form(s) and agreement(s) used in connection with such Grants, which shall include agreements governing the granting of Restricted Stock, Stock Options and/or SARs; (d) To determine the time or times when Stock Options and/or SARs will be granted and when they will terminate in whole or in part; (e) To determine the time or times when Stock Options and SARs that are granted may be exercised; (f) To determine, at the time a Stock Option is granted under the Plan, whether such Option is an Incentive Stock Option entitled to the benefits of Section 422 of the Code; (g) To establish any other Stock Option agreement provisions not inconsistent with the terms and conditions of the Plan or, where the Stock Option is an Incentive Stock Option, with the terms and conditions of Section 422 of the Code; and (h) To determine whether SARs will be made part of any Grants consisting of Stock Options, and to approve any SARs made part of any such Grants pursuant to Section 9 hereof. 5. Employees Eligible for Grants. Grants may be made from time to time to those key employees of the Company or a subsidiary corporation, who are designated by the Committee in its sole and exclusive discretion. Key employees may include, but shall not necessarily be limited to, members of the Board of Directors (excluding members of the Committee), and officers, of the Company and any subsidiary corporation; however, Stock Options intended to qualify as Incentive Stock Options shall only be granted to key employees while actually employed by the Company or a subsidiary corporation. The Committee may grant more than one Stock Option, with or without SARs, to the same key employee. No Stock Option shall be granted to any key employee during any period of time when such key employee is on a leave of absence. 6. Shares Subject to the Plan. The shares to be issued pursuant to any Grant made under the Plan shall be Common Shares. Either Common Shares held as treasury stock, or authorized and unissued Common Shares, or both, may be so issued, in such amount or amounts within the maximum limits of the Plan as the Board of Directors shall from time to time determine. In the event a SAR is granted in tandem with a Stock Option pursuant to Section 9 and such SAR is thereafter exercised in whole or in part, then such Stock Option or the portion thereof to which the duly exercised SAR relates shall be deemed to have been exercised for purposes of such Option, but may be made available for reoffering under the Plan to any eligible employee. Subject to the provisions of the next succeeding paragraph of this Section 6 and the provisions of Section 7(h), the aggregate number of Common Shares that can be actually issued under the Plan (exclusive of Restricted Stock forfeited under the Plan before the holder thereof received any Page 2 3 benefits of ownership, such as dividends) shall be three hundred fifty thousand (350,000) Common Shares. If, at any time subsequent to the date of adoption of the Plan by the Board of Directors, the number of Common Shares are increased or decreased, or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation (whether as a result of a stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization or otherwise): (i) there shall automatically be substituted for each Common Share subject to an unexercised Stock Option or SAR (in whole or in part) granted under the Plan, the number and kind of shares of stock or other securities into which each outstanding Common Share shall be changed or for which each such Common Share shall be exchanged; (ii) the option price per Common Share or unit of securities shall be increased or decreased proportionately so that the aggregate purchase price for the securities subject to a Stock Option or SAR shall remain the same as immediately prior to such event; and (iii) any outstanding Restricted Stock that is converted, exchanged or otherwise changed into a different number or kind of stock or security, shall continue to be subject to any and all terms, conditions and restrictions originally applicable to such Restricted Stock. In addition to the foregoing, the Committee shall be entitled in the event of any such increase, decrease or exchange of Common Shares to make other adjustments to the securities subject to a Stock Option or SAR, the provisions of the Plan, and to any related Stock Option or SAR agreements (including adjustments which may provide for the elimination of fractional shares), where necessary to preserve the terms and conditions of any Grants hereunder. 7. Stock Option Provisions. (a) General. The Committee may grant to key employees (also referred to as "optionees") nontransferable Stock Options that either qualify as Incentive Stock Options under Section 422 of the Code or do not so qualify. However, any Stock Option which is an Incentive Stock Option shall only be granted within 10 years from the earlier of (i) the date this Plan is adopted by the Board of Directors of the Company; or (ii) the date this Plan is approved by the shareholders of the Company. (b) Stock Option Price. The option price per Common Share which may be purchased under an Incentive Stock Option under the Plan shall be determined by the Committee at the time of Grant, but shall not be less than one hundred percent (100%) of the fair market value of a Common Share, determined as of the date such Option is granted; however, if a key employee to whom an Incentive Stock Option is granted is, at the time of the grant of such Option, an "owner," as defined in Section 422(b)(6) of the Code (modified as provided in Section 424(d) of the Code) of more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any subsidiary corporation (a "Substantial Shareholder"), the price per Common Share of such Option, as determined by the Committee, shall not be less than one hundred ten percent (110%) of the fair market value of a Common Share on the date such Option is granted. The option price per Common Share under each Stock Option granted pursuant to the Plan which is not an Incentive Stock Option shall be determined by the Committee at the time of Grant. Except as specifically provided above, the fair market value of a Common Share shall be determined in accordance with procedures to be established by the Committee. The day on which the Committee approves the granting of a Stock Option shall be considered the date on which such Option is granted. (c) Period of Stock Option. The Committee shall determine when each Stock Option is to expire. However, no Incentive Stock Option shall be exercisable for a period of more than ten (10) years from the date upon which such Option is granted. Further, no Incentive Stock Option granted to an employee who is a Substantial Shareholder at the time of the grant of such Option shall be exercisable after the expiration of (5) years from the date of grant of such Option. Page 3 4 (d) Limitation on Exercise and Transfer of Stock Options. Only the key employee to whom a Stock Option is granted may exercise such Option, except where a guardian or other legal representative has been duly appointed for such employee, and except as otherwise provided in the case of such employee's death. No Stock Option granted hereunder shall be transferable by an optionee other than by will or the laws of descent and distribution. No Stock Option granted hereunder may be pledged or hypothecated, nor shall any such Option be subject to execution, attachment or similar process. (e) Employment, Holding Period Requirements For Certain Options. The Committee may condition any Stock Option granted hereunder upon the continued employment of the optionee by the Company or by a subsidiary corporation, and may make any such Stock Option immediately exercisable. However, the Committee will require that, from and after the date of grant of any Incentive Stock Option granted hereunder until the day three (3) months prior to the date such Option is exercised, such optionee must be an employee of the Company or of a subsidiary corporation, but always subject to the right of the Company or any such subsidiary corporation to terminate such optionee's employment during such period. Each Stock Option shall be subject to such additional restrictions as to the time and method of exercise as shall be prescribed by the Committee. Upon completion of such requirements, if any, a Stock Option or the appropriate portion thereof may be exercised in whole or in part from time to time during the option period; however, such exercise right(s) shall be limited to whole shares. (f) Payment for Stock Option Price. A Stock Option shall be exercised by an optionee giving written notice to the Company of his intention to exercise the same, accompanied by full payment of the purchase price in cash or by check, or, with the consent of the Committee, in whole or in part with a surrender of Common Shares having a fair market value on the date of exercise equal to that portion of the purchase price for which payment in cash or check is not made. The Committee may, in its sole discretion, approve other methods of exercise for a Stock Option or payment of the option price, provided that no such method shall cause any option granted under the Plan as an Incentive Stock Option to not qualify under Section 422 of the Code, or cause any Common Share issued in connection with the exercise of an option not to be a fully paid and non-assessable Common Share. (g) Certain Reissuances of Stock Options. To the extent Common Shares are surrendered by an optionee in connection with the exercise of a Stock Option in accordance with Section 7(f), the Committee may in its sole discretion grant new Stock Options to such optionee (to the extent Common Shares remain available for Grants), subject to the following terms and conditions: (i) The number of Common Shares shall be equal to the number of Common Shares being surrendered by the optionee; (ii) The option price per Common Share shall be equal to the fair market value of Common Shares, determined on the date of exercise of the Stock Options whose exercise caused such Grant; and (iii) The terms and conditions of such Stock Options shall in all other respects replicate such terms and conditions of the Stock Options whose exercise caused such Grant, except to the extent such terms and conditions are determined to not be wholly consistent with the general provisions of this Section 7, or in conflict with the remaining provisions of this Plan. (h) Cancellation and Replacement of Stock Options and Related Rights. The Committee may at any time or from time to time permit the voluntary surrender by an optionee who is the holder of any outstanding Stock Options under the Plan, where such surrender is conditioned upon the Page 4 5 granting to such optionee of new Stock Options for such number of shares as the Committee shall determine, or may require such a voluntary surrender as a condition precedent to the grant of new Stock Options. The Committee shall determine the terms and conditions of new Stock Options, including the prices at and periods during which they may be exercised, in accordance with the provisions of this Plan, all or any of which may differ from the terms and conditions of the Stock Options surrendered. Any such new Stock Options shall be subject to all the relevant provisions of this Plan. The Common Shares subject to any Stock Option so surrendered, and/or any Common Shares subject to any Stock Option that has lapsed, been forfeited, or been cancelled and extinguished in connection with the exercise of an SAR, shall no longer be charged against the limitation provided in Section 6 of this Plan and may again become shares subject to the Plan. The granting of new Stock Options in connection with the surrender of outstanding Stock Options under this Plan shall be considered for the purposes of the Plan as the granting of new Stock Options and not an alteration, amendment or modification of the Plan or of the Stock Options being surrendered. (i) Limitation on Exercisable Incentive Stock Options. The aggregate fair market value of the Common Shares first becoming subject to exercise as Incentive Stock Options by a key employee during any given calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). Such aggregate fair market value shall be determined as of the date such Option is granted, taking into account, in the order in which granted, any other incentive stock options granted by the Company, or by a parent or subsidiary thereof. 8. Restricted Stock. (a) Grant. The Committee shall determine the key employees to whom, and the time or times at which, Grants of Restricted Stock will be made, the number of shares of Restricted Stock to be granted, the price (if any) to be paid by such key employees (subject to Section 8(b)), the time or times within which such Restricted Stock grants may be subject to forfeiture, and the other terms and conditions of the grants in addition to those set forth in Section 8(b). The Committee may condition the grant of Restricted Stock upon the attainment of specified performance goals or such other factors as the Committee may determine in its sole discretion. (b) Terms and Conditions. Restricted Stock granted under the Plan shall contain any terms and conditions, not inconsistent with the provisions of the Plan, which are deemed desirable by the Committee. A key employee who receives a grant of Restricted Stock shall not have any rights with respect to such Grant, unless and until such key employee has executed an agreement evidencing such Grant in the form approved from time to time by the Committee, has delivered a fully executed copy thereof to the Company, and has otherwise complied with the applicable terms and conditions of such Grant. In addition, Restricted Stock granted under the Plan shall be subject to the following terms and conditions: (i) The purchase price for Common Shares consisting of Restricted Stock, if any, will be specified by the Committee. (ii) Grants of Restricted Stock shall only be accepted by executing a Restricted Stock agreement and paying, in cash or by check, whatever price (if any) is required under Section 8(b)(i). (iii) Each key employee granted Restricted Stock shall be issued a stock certificate in respect of such shares of Restricted Stock. Such certificate shall be registered in the name of such key employee, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Grant. Page 5 6 (iv) Any stock certificates evidencing Common Shares consisting of Restricted Stock shall either (A) be held in custody by the Company until the employment and other restrictions thereon shall all have lapsed; or (B) be affixed with a legend, identifying such Shares as Restricted Stock and expressly prohibiting the sale, transfer, tender, pledge, assignment or encumbrance of such Shares, as the Committee shall determine. With respect to any Restricted Stock held in custody by the Company, the key employee granted such Restricted Stock shall deliver to the Company a stock power, endorsed in blank, relating to the Common Shares represented by such Stock. With respect to any Restricted Stock held by a key employee under legend, the key employee granted such Restricted Stock shall deliver to the Company an acknowledgement that such Stock remains subject to a substantial risk of forfeiture in the event of termination of employment under certain circumstances, and that the certificates representing ownership of such Stock will be surrendered to the Company immediately upon any such termination of employment. (v) Subject to the provisions of the Plan and the Restricted Stock agreement, during a temporal period set by the Committee and commencing with the date of such Grant (the "Restriction Period"), a key employee shall not be permitted to sell, transfer, tender, pledge, assign or otherwise encumber any Restricted Stock granted under the Plan. However, the Committee, in its sole discretion, may provide for the lapse of such transfer or other restrictions in installments, or accelerate or waive such restrictions in whole or in part, based on service, performance or other factors and criteria selected by the Committee. (vi) Except as provided in this Section 8(b)(vi) and Section 8(b)(v), a key employee shall have, with respect to shares of Restricted Stock granted to him, all of the rights of a shareholder of the Company, including the right to vote such Stock and the right to receive any dividends thereon. The Committee, in its sole discretion and as determined at the time of a Grant of Restricted Stock, may permit or require cash dividends otherwise due and payable to be deferred and, if the Committee so determines, reinvested either in additional Restricted Stock (to the extent Common Shares are available), or otherwise. Stock dividends issued with respect to Restricted Stock shall be treated as additional shares of Restricted Stock. As Restricted Stock, such additional Common Shares will be subject to the same restrictions, terms and conditions applicable to the Restricted Stock with respect to which such additional Common Shares were issued. (vii) No Restricted Stock shall be transferable by a key employee other than by will or by the laws of descent and distribution. (viii) In the event Restricted Stock is forfeited by a key employee, the Company will refund to such key employee any payment(s) made by such key employee to purchase such Stock, promptly upon such forfeiture (and any corresponding surrender of stock certificates). (c) Minimum Value Provisions. To ensure that Grants of Restricted Stock actually reflect the performance of the Company and service of the key employee, the Committee may provide, in its sole discretion, for a tandem performance-based award, or other grant, designed to guarantee a minimum value, payable in cash or Common Shares, to the recipient of a Restricted Stock Grant, subject to such performance, future service, deferral and other terms and conditions as may be specified by the Committee. Page 6 7 9. Stock Appreciation Rights. A key employee may be granted the right to receive a payment based on the increase in the value of Common Shares occurring after the date of such Grant; such rights shall be known as Stock Appreciation Rights ("SARs"). SARs may (but need not) be granted to a key employee in tandem with, and exercisable in lieu of exercising, a Grant of Stock Options. SARs will be specifically granted upon terms and conditions specified by the Committee, if the Company is the employer of the key employee, or by a subsidiary corporation subject to the Committee's approval, if such subsidiary corporation is the employer of the key employee. No optionee shall be entitled to SAR rights solely as a result of the grant of a Stock Option to him. Any such rights, if granted, may only be exercised by the holder thereof, either with respect to all, or a portion, of the Stock Option to which it applies. When granted in tandem with a Stock Option, an SAR shall provide that the holder of a Stock Option shall have the right to receive an amount equal to one hundred percent (100%) of the excess, if any, of the fair market value of the Common Shares covered by such Option, determined as of the date of exercise of such SAR by the Committee (in the same manner as such value is determined for purposes of the granting of Stock Options), over the price to be paid for such Common Shares under such Option. Such amount shall be payable by either the Company or the subsidiary corporation, whichever such corporation is the employer of the key employee, in one or more of the following manners, as determined by the Committee: (a) cash (or check); (b) fully paid Common Shares having a fair market value equal to such amount; or (c) a combination of cash (or check) and Common Shares. In no event may any person exercise any SARs granted hereunder unless (i) such person is then permitted to exercise the Stock Option or the portion thereof with respect to which such SARs relate, and (ii) the fair market value of the Common Shares covered by the Stock Option, determined as provided above, exceeds the option price of such Common Shares. Upon the exercise of any SARs, the Stock Option, or that portion thereof to which such SARs relate, shall be canceled and automatically extinguished. A SAR granted in tandem with a Stock Option hereunder shall be made a part of the Stock Option agreement to which such SAR relates, in a form approved by the Committee and not inconsistent with this Plan. The granting of a Stock Option or SAR shall impose no obligation upon the optionee to exercise such Stock Option or SAR. The Company's or a subsidiary corporation's obligation to satisfy SARs shall not be funded or secured in any manner. No SAR granted hereunder shall be transferable by the key employee granted such SAR, other than by will or the laws of descent and distribution. After the Grant of an SAR, an optionee intending to rely on an exemption from Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act") shall be required to hold such SAR for six (6) months from the date the price for such SAR is fixed to the date of cash settlement. Additionally, in order to remain exempt from Section 16(b) of the Exchange Act, an SAR must be exercised by an optionee subject to such Section only during the period beginning on the third business day following the release of a summary statement of the Company's quarterly or annual sales and earnings and ending on the twelfth business day following said date. 10. Termination of Employment. If a key employee ceases to be an employee of the Company and every subsidiary corporation, for a reason other than death, retirement, or permanent and total disability, his Grants shall, unless extended by the Committee on or before his date of termination of employment, terminate on the effective date of such termination of employment. Neither the key employee nor any other person shall have any right after such date to exercise all or any part of his Stock Options or SARs, and all Restricted Stock which is not vested or otherwise subject to restriction shall thereupon be forfeited, and/or declared void and without value. Page 7 8 If termination of employment is due to death or permanent and total disability, then outstanding Stock Options and SARs may be exercised within the one (1) year period ending on the anniversary of such death or permanent and total disability. In the case of death, such outstanding Stock Options and SARs shall be exercised by such key employee's estate, or the person designated by such key employee by will, or as otherwise designated by the laws of descent and distribution. Notwithstanding the foregoing, in no event shall any Stock Option or SAR be exercisable after the expiration of the option period, and in the case of exercises made after a key employee's death, not to any greater extent than the key employee would have been entitled to exercise such Option or SAR at the time of his death. Restricted Stock held by a key employee whose employment by the Company or any subsidiary corporation terminates by reason of death shall thereupon vest and all restrictions and risks of forfeiture thereon shall thereupon lapse. Subject to the discretion of the Committee, in the event a key employee terminates employment with the Company and all subsidiary corporations because of normal or early retirement under the Keithley Instruments, Inc., Employees' Pension Plan (or any successor pension plan), or (in the case of Restricted Stock) permanent and total disability, (a) any then-outstanding Stock Options and/or SARs held by such key employee shall lapse at the earlier of the end of the term of such Stock Option or SAR, or three (3) months after such retirement or permanent and total disability; and (b) any Restricted Stock held by such key employee shall thereafter vest and any applicable restrictions shall lapse, to the extent such Restricted Stock would have become vested or no longer subject to restriction within one year from the time of termination had the key employee continued to fulfill all of the conditions of the Restricted Stock during such period (or on such accelerated basis as the Committee may determine at or after date of Grant). In the event an employee of the Company or one of its subsidiary corporations is granted a leave of absence by the Company or such subsidiary corporation to enter military service or because of sickness, his employment with the Company or such subsidiary corporation shall not be considered terminated, and he shall be deemed an employee of the Company or such subsidiary corporation during such leave of absence or any extension thereof granted by the Company or such subsidiary corporation. 11. Change of Control. Upon the occurrence of a Change of Control (as defined below), notwithstanding any other provisions hereof or of any agreement to the contrary, all Stock Options and SARs granted under this Plan shall become immediately exercisable in full and all Restricted Stock grants shall become immediately vested and any applicable restrictions shall lapse. For purposes of this Plan, a Change of Control shall be deemed to have occurred if: (i) a tender offer shall be made and consummated for the ownership of 25% or more of the outstanding voting securities of the Company; (ii) the Company shall be merged or consolidated with another corporation and, as a result of such merger or consolidation, less than 75% of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the former shareholders of the Company as the same shall have existed immediately prior to such merger or consolidation; (iii) the Company shall sell substantially all of its assets to another corporation which is not a wholly owned subsidiary; or (iv) a person, within the meaning of Section 3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Exchange Act, shall acquire, other than by reason of inheritance, twenty-five percent (25%) or more of the outstanding voting securities of the Company (whether directly, indirectly, beneficially or of record). In making any such determination, transfers made by a person to an affiliate of such person (as determined by the Board of Directors of the Company), whether by gift, devise or otherwise, shall not be taken into account. For purposes of this Plan, ownership of voting securities shall take into account and shall include ownership as determined by applying the provisions of Rule 13d-3(d)(1)(i) as in effect on the date hereof pursuant to the Exchange Act. Page 8 9 12. Amendments to Plan. The Committee is authorized to interpret this Plan and from time to time adopt any rules and regulations for carrying out this Plan that it may deem advisable. Subject to the approval of the Board of Directors of the Company, the Committee may at any time amend, modify, suspend or terminate this Plan. In no event, however, without the approval of shareholders, shall any action of the Committee or the Board of Directors result in: (a) Materially amending, modifying or altering the eligibility requirements provided in Section 5 hereof; (b) Materially increasing, except as provided in Section 6 hereof, the maximum number of shares subject to Grants; or (c) Materially increasing the benefits accruing to participants under this Plan; except to conform this Plan and any agreements made hereunder to changes in the Code or governing law. 13. Investment Representation, Approvals and Listing. The Committee may, if it deems appropriate, condition its grant of any Stock Option hereunder upon receipt of the following investment representation from the optionee: "I agree that any Common Shares of Keithley Instruments, Inc. which I may acquire by virtue of this Stock Option shall be acquired for investment purposes only and not with a view to distribution or resale, and may not be transferred, sold, assigned, pledged, hypothecated or otherwise disposed of by me unless (i) a registration statement or post-effective amendment to a registration statement under the Securities Act of 1933, as amended, with respect to said Common Shares has become effective so as to permit the sale or other disposition of said shares by me; or (ii) there is presented to Keithley Instruments, Inc. an opinion of counsel satisfactory to Keithley Instruments, Inc. to the effect that the sale or other proposed disposition of said Common Shares by me may lawfully be made otherwise than pursuant to an effective registration statement or post-effective amendment to a registration statement relating to the said shares under the Securities Act of 1933, as amended." The Company shall not be required to issue any certificate or certificates for Common Shares upon the exercise of any Stock Option or a SAR granted under this Plan prior to (i) the obtaining of any approval from any governmental agency which the Committee shall, in its sole discretion, determine to be necessary or advisable; (ii) the admission of such shares to listing on any national securities exchange on which the Common Shares may be listed; (iii) the completion of any registration or other qualifications of the Common Shares under any state or federal law or ruling or regulations of any governmental body which the Committee shall, in its sole discretion, determine to be necessary or advisable or the determination by the Committee, in its sole discretion, that any registration or other qualification of the Common Shares is not necessary or advisable; and (iv) the obtaining of an investment representation from the optionee in the form stated above or in such other form as the Committee, in its sole discretion, shall determine to be adequate. 14. General Provisions. The form and substance of Stock Option agreements, Restricted Stock agreements, and SAR agreements made hereunder, whether granted at the same or different times, need not be identical. Nothing in this Plan or in any agreement shall confer upon any employee any right to continue in the employ of the Company or any of its subsidiary corporations, to be entitled to any remuneration or benefits not set forth in this Plan or such Grant, or to interfere with or limit the right of the Company or any subsidiary corporation to terminate his employment at any time, with or without cause. Nothing contained in this Plan or in any Stock Option agreement or SAR shall be Page 9 10 construed as entitling any optionee to any rights of a shareholder as a result of the grant of a Stock Option or an SAR, until such time as Common Shares are actually issued to such optionee pursuant to the exercise of such Option or SAR. This Plan may be assumed by the successors and assigns of the Company. The liability of the Company under this Plan and any sale made hereunder is limited to the obligations set forth herein with respect to such sale and no term or provision of this Plan shall be construed to impose any liability on the Company in favor of any employee with respect to any loss, cost or expense which the employee may incur in connection with or arising out of any transaction in connection with this Plan. The cash proceeds received by the Company from the issuance of Common Shares pursuant to this Plan will be used for general corporate purposes. The expense of administering this Plan shall be borne by the Company. The captions and section numbers appearing in this Plan are inserted only as a matter of convenience. They do not define, limit, construe or describe the scope or intent of the provisions of this Plan. 15. Termination of This Plan. This Plan shall terminate on February 8, 2002, and thereafter no Stock Options or Restricted Stock or SARs shall be granted hereunder. All Stock Options and SARs outstanding at the time of termination of this Plan shall continue in full force and effect according to their terms and the terms and conditions of this Plan. Page 10 11 KEITHLEY INSTRUMENTS, INC. Amendment To The 1992 Stock Incentive Plan To Increase Number of Shares Available for Grant In accordance with action duly taken by the Board of Directors of Keithley Instruments, Inc. (the "Company"), Section 6 of the Keithley Instruments, Inc. 1992 Stock Incentive Plan (the "1992 Plan") is hereby amended to increase the number of common shares subject to issuance under the 1992 Plan to a total of 1,900,000 common shares (after taking into account the effects of the 2-for-1 stock split), subject to approval by an affirmative vote by a majority of the Company's shareholders. Accordingly, the second paragraph in Section 6 of the 1992 Plan is hereby amended, effective December 9, 1995, so as to provide in its entirety as follows: Subject only to the provisions of the next succeeding paragraph of this Section 6, the aggregate number of Common Shares made subject to all Grants under the Plan shall be one million nine hundred thousand (1,900,000) Common Shares. Such aggregate number of Common Shares shall not include any Common Shares reacquired or never issued due to a forfeiture, exchange or relinquishment of rights under a Grant made hereunder. The Plan in all other respects remains unchanged. KEITHLEY INSTRUMENTS, INC. By /s/ Joseph P. Keithley ---------------------- Its Chairman --------------------- 12 KEITHLEY INSTRUMENTS, INC. 1992 STOCK INCENTIVE PLAN 1997 AMENDMENT In accordance with Section 12 of the Keithley Instruments, Inc. 1992 Stock Incentive Plan (the "Plan"), Compensation Committee of the Board of Directors of Keithley Instruments, Inc., an Ohio corporation (the "Committee") hereby amends the Plan, effective February 15, 1997, in the following respects: 1. Section 4 of the Plan is amended so as to provide in its entirety as follows: "4. Administration of the Plan. The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company, however described, or by any other committee selected by such Board of Directors by majority vote and composed of no fewer than two (2) members of such Board of Directors who are "non-employee directors" as defined under Rule 16b-3(b)(3) of the Securities Exchange Act of 1934 (the "Committee"). A member of the Committee shall not be eligible to participate in this Plan while serving on the Committee. A majority of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present (or acts unanimously approved in writing by the members of the Committee) shall constitute binding acts of the Committee. Subject to the terms and conditions of the Plan, the Committee shall be authorized and empowered: (a) To select the key employees to whom Grants may be made; (b) To determine the number of Common Shares to be covered by any Grant; (c) To prescribe the terms and conditions of any Grants made under the Plan, and the form(s) and agreement(s) used in connection with such Grants, which shall include agreements governing the granting of Restricted Stock, Stock Options and/or SARs; (d) To determine the time or times when Stock Options and/or SARs will be granted and when they will terminate in whole or in part; (e) To determine the time or times when Stock Options and SARs that are granted may be exercised; (f) To determine, at the time a Stock Option is granted under the Plan, whether such Option is an Incentive Stock Option entitled to the benefits of Section 422 of the Code; (g) To establish any other Stock Option agreement provisions not inconsistent with the terms and conditions of the Plan or, where the Stock Option is an Incentive Stock Option, with the terms and conditions of Section 422 of the Code; 13 (h) To determine whether SARs will be made part of any Grants consisting of Stock Options, and to approve any SARs made part of any such Grants pursuant to Section 9 hereof; and (i) To delegate to one (1) or more Company officers limited authority to make de minimis Grants of Stock Options or Incentive Stock Options (not to exceed 2,500 Common Shares per individual), to select individuals to whom offers of Company employment are, or are expected to be made, at Fair Market Value and otherwise under terms and conditions approved in advance by the Committee, subject to ratification by the Committee." 2. Section 5 of the Plan is amended so as to provide in its entirety as follows: "5. Employees Eligible for Grants. Grants may be made from time to time to those key employees of the Company or a subsidiary corporation, who are designated by the Committee in its sole and exclusive discretion (or by its delegee(s) in accordance with Section 4(i) hereof). Key employees may include, but shall not necessarily be limited to, members of the Board of Directors (excluding members of the Committee), and officers, of the Company and any subsidiary corporation; however, Stock Options intended to qualify as Incentive Stock Options shall only be granted to key employees while actually employed by the Company or a subsidiary corporation. The Committee may grant more than one Stock Option, with or without SARs, to the same key employee. No Stock Option shall be granted to any key employee during any period of time when such key employee is on a leave of absence." The Plan otherwise remains unchanged. 14 KEITHLEY INSTRUMENTS, INC. 1992 STOCK INCENTIVE PLAN 1999 AMENDMENT In accordance with Section 12 of the Keithley Instruments, Inc. 1992 Stock Incentive Plan (the "Plan"), the Compensation Committee of the Board of Directors of Keithley Instruments, Inc., an Ohio corporation (the "Committee") hereby amends the Plan, effective September 30, 1999, in the following respects: Section 10 of the Plan is amended so as to provide in its entirety as follows: "10. Termination of Employment. If a key employee ceases to be an employee of the Company and every subsidiary corporation, for a reason other than death, retirement, or permanent and total disability, his Grants shall, unless extended by the Committee on or before his date of termination of employment, terminate on the effective date of such termination of employment. Neither the key employee nor any other person shall have any right after such date to exercise all or any part of his Stock Options or SARs, and all Restricted Stock which is not vested or otherwise subject to restriction shall thereupon be forfeited, and/or declared void and without value. If termination of employment is due to death or permanent and total disability, then outstanding Stock Options and SARs may be exercised within the one (1) year period ending on the anniversary of such death or permanent and total disability. In the case of death, such outstanding Stock Options and SARs shall be exercised by such key employee's estate, or the person designated by such key employee by will, or as otherwise designated by the laws of descent and distribution. Notwithstanding the foregoing, in no event shall any Stock Option or SAR be exercisable after the expiration of the option period, and in the case of exercises made after a key employee's death, not to any greater extent than the key employee would have been entitled to exercise such Option or SAR at the time of his death. Restricted Stock held by a key employee whose employment by the Company or any subsidiary corporation terminates by reason of death shall thereupon vest and all restrictions and risks of forfeiture thereon shall thereupon lapse. Subject to the discretion of the Committee, in the event a key employee terminates employment with the Company and all subsidiary corporations because of normal, early or disability retirement under the Keithley Instruments, Inc., Employees' Pension Plan (or any successor pension plan), (a) any then outstanding Stock Options and/or SARs held by such key employee shall lapse at the earlier of (i) the end of the term of such Stock Option or SAR, or (ii) twelve (12) months after such retirement or permanent and total disability (subject only to the three (3) month exercise limitation 15 applicable to Incentive Stock Options); and (b) any Restricted Stock held by such key employee shall thereafter vest and any applicable restrictions shall lapse, to the extent such Restricted Stock would have become vested or no longer subject to restriction within twelve (12) months from the time of termination had the key employee continued to fulfill all of the conditions of the Restricted Stock during such period (or on such accelerated basis as the Committee may determine at or after date of Grant). In the event an employee of the Company or one of its subsidiary corporations is granted a leave of absence by the Company or such subsidiary corporation to enter military service or because of sickness, his employment with the Company or such subsidiary corporation shall not be considered terminated, and he shall be deemed an employee of the Company or such subsidiary corporation during such leave of absence or any extension thereof granted by the Company or such subsidiary corporation." The Plan otherwise remains unchanged. IN WITNESS WHEREOF, the undersigned members of the Committee have set their hand this 10th day of September, 1999. /s/ James B. Griswold ------------------------ James B. Griswold /s/ James T. Bartlett ------------------------ James T. Bartlett /s/ R. Elton White ------------------------ R. Elton White /s/ Arden L. Bement, Jr. ------------------------ Arden L. Bement, Jr. 16 KEITHLEY INSTRUMENTS, INC. Amendment To The 1992 Stock Incentive Plan To Increase Number of Shares Available for Grant In accordance with action duly taken by the Board of Directors of Keithley Instruments, Inc. (the "Company"), Section 6 of the Keithley Instruments, Inc. 1992 Stock Incentive Plan (the "1992 Plan") is hereby amended to increase the number of common shares subject to issuance under the 1992 Plan to a total of 2,700,000 common shares, subject to approval by an affirmative vote by a majority of the Company's shareholders. Accordingly, the second paragraph in Section 6 of the 1992 Plan is hereby amended, effective December 3, 1999, so as to provide in its entirety as follows: Subject only to the provisions of the next succeeding paragraph of this Section 6, the aggregate number of Common Shares made subject to all Grants under the Plan shall be two million seven hundred thousand (2,700,000) Common Shares. Such aggregate number of Common Shares shall not include any Common Shares reacquired or never issued due to a forfeiture, exchange or relinquishment of rights under a Grant made hereunder. The Plan in all other respects remains unchanged. EX-10.G 7 EXHIBIT 10(G) 1 EXHIBIT 10(G) ------------- KEITHLEY INSTRUMENTS, INC. 1992 DIRECTORS' STOCK OPTION PLAN 1. PURPOSE. The purpose of this Directors' Stock Option Plan (the "Plan") is to enable Keithley Instruments, Inc. (the "Company") to attract, retain and reward directors of the Company and strengthen the mutuality of interest between such directors and the Company's shareholders by offering such directors options ("Options") to purchase shares of the Company's no par value Common Shares ("Common Shares"). 2. GRANT AND ELIGIBILITY. All directors of the Company who are not employees of the Company or not otherwise eligible to participate in other employee benefit plans permitting a direct or indirect investment in Common Shares ("Outside Directors") shall be granted Options under the Plan. From and after the Effective Date, so long as the Plan remains in effect and has Common Shares available for grants hereunder, each individual who qualifies as an Outside Director at the close of any annual meeting of the shareholders of the Company (an "Optionee") shall automatically be granted an Option to purchase three hundred (300) Common Shares. In the event Common Shares are available for grants hereunder, but the number of such Shares is insufficient to provide an Outside Director with an Option to purchase three hundred (300) Common Shares, such Outside Director shall receive an Option to purchase the lesser of (i) the number of Common Shares remaining available for grant under the Plan; or (ii) the number of Common Shares being granted to any other Outside Director concurrently entitled to a grant of Options hereunder, so that Options are granted to all such Outside Directors on a pro rata basis. The maximum aggregate number of Common Shares available for issuance under the Plan is thirty thousand (30,000); such Common Shares may be treasury shares or authorized but unissued shares or a combination of the foregoing. If an Option granted under the Plan shall expire, terminate or become forfeited for any reason other than its exercise, the shares subject to, but not delivered under, such Option shall be available for the grant of other Options pursuant to the Plan. The maximum number of shares of Common Shares that an Outside Director shall be entitled to receive as result of the exercise of Options granted under the Plan shall be three thousand (3,000), subject to any adjustment required in accordance with Section 6 hereof. 3. TERM OF OPTION, EXERCISE AND TRANSFERABILITY. The term of each Option granted under the Plan shall be ten years. An Optionee who has continuously served as a director of the Company from the date of the grant of an Option through the date of vesting may first exercise such Option after the date of vesting for all or part of the number of Common Shares in accordance with the Plan. For this purpose, the "date of vesting" for any Option granted under the Plan shall be that date which is six months and one day after the later to occur of: (i) the effective date of the Plan; or (ii) the date such Optionee is elected as a director; or (iii) the date such Option is granted. An Outside Director who resigns or is removed before the date of vesting for any Options held by such Director shall forfeit such Options. No Option shall be transferable by the Optionee other than by will or the laws of descent and distribution. Options shall be exercisable during the Optionee's lifetime only by an Optionee or by his or her legal guardian or legal representative. Notwithstanding the first and second sentences of this paragraph or the preceding paragraph, if any Optionee dies while holding unexercised Options, any Option held by such Optionee at the time of his or her death shall thereafter be exercised, to the extent such Option was exercisable at the time of death, by the estate of the Optionee (acting through its fiduciary), within a 2 period of one year from the date of such death regardless of the term of the Option remaining at the Optionee's death. 4. OPTION PRICE AND PAYMENT. The option price for each Common Share purchasable under an Option shall be the fair market value of a Common Share on the date such Option is granted in accordance with Section 2. The option price shall be payable (i) in cash; (ii) by check acceptable to the Company; (iii) by delivery of shares of the same class of stock subject to such Option; or (iv) a combination of the above, so long as the sum of the fair market value of any such cash, check or Common Shares equals the option price. The Company shall have the right to require an Optionee who is entitled to receive Common Shares pursuant to the exercise of an Option to pay to the Company the amount of any taxes which the Company is required to withhold with respect to such Common Shares. Such amount shall be payable (i) in cash; (ii) by check acceptable to the Company; (iii) by delivery of shares of the same class of stock subject to the Option; or (iv) a combination of the above. 5. CHANGE IN CONTROL. (a) IMPACT OF EVENT. In the event of a "Change in Control" as defined in Section 5(b), all Options granted under the Plan shall vest upon the later to occur of (i) such Change in Control; or (ii) six months and one day after the date of grant of such Options. (b) DEFINITION OF CHANGE IN CONTROL. For purposes of Section 5(a), a "Change in Control" shall be deemed to have occurred if: (i) a tender offer shall be made and consummated for the ownership of 25% or more of the outstanding voting securities of the Company; (ii) the Company shall be merged or consolidated with another corporation and, as a result of such merger or consolidation, less than 75% of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the former shareholders of the Company as the same shall have existed immediately prior to such merger or consolidation; (iii) the Company shall sell substantially all of its assets to another corporation which is not a wholly owned subsidiary; or (iv) a person, within the meaning of Section 3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Securities Exchange Act of 1934 (the "Exchange Act"), shall acquire, other than by reason of inheritance, twenty-five percent (25%) or more of the outstanding voting securities of the Company (whether directly, indirectly, beneficially or of record). In making any such determination, transfers made by a person to an affiliate of such person (as determining by the Board of Directors of the Company), whether by gift, devise or otherwise, shall not be taken into account. For purposes of this Plan, ownership of voting securities shall take into account and shall include ownership as determined by applying the provisions of Rule 13d-3(d)(1)(i) as in effect on the date hereof pursuant to the Exchange Act. 6. ADJUSTMENTS. (a) If, at any time subsequent to the date of adoption of the Plan, the number of Common Shares are increased or decreased, or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation (whether as a result of a stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization or otherwise): (i) there shall automatically be substituted for each Common Share subject to an unexercised Option (in whole or in part) granted under the Plan, the number and kind of shares of stock or other securities into which each outstanding Common Share shall be changed or for which each such Common Share shall be exchanged; and (ii) the option price per Common Share or unit of securities shall be increased or decreased proportionately so that the aggregate purchase price for the securities subject to an Option shall remain the same as immediately prior to such event. (b) No adjustment pursuant to this Section 6 shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in such number or price; however, any Page 2 3 adjustments which by reason of this Section 6 are not required to be made shall be carried forward. Calculations under this Section 6 shall be made to the nearest cent or to the nearest full share, as the case may be. Anything in this Section 6 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the option price, in addition to those required by this Section 6, as it, in its discretion shall determine to be advisable in order that any stock dividends, subdivisions or splits of shares, distribution of rights to purchase stock or securities, or a distribution of securities convertible into or exchangeable for stock hereafter made by the Company to its shareholders shall not be taxable. 7. OTHER TERMS. Each grant of Options hereunder shall be evidenced by a Shares Option Agreement in substantially the form attached hereto as Exhibit A. When exercisable in accordance with Section 3, Options may be exercised, in whole or in part, by giving written notice of exercise to the Company specifying the number of Common Shares to be purchased. Such notice shall be accompanied by payment of the option price of the Common Shares for which the Option is exercised in accordance with Section 4. 8. AMENDMENT. The Board of Directors of the Company (the "Board") may at any time amend, modify, suspend or terminate this Plan. In no event, however, without the approval of shareholders, shall any action of the Board of Directors result in: (a) Materially amending, modifying or altering the eligibility requirements provided in Section 2 hereof; (b) Increasing, except as provided in Section 2 hereof, the maximum number of Common Shares available for purchase with Options; or (c) Increasing the benefits accruing to Optionees under this Plan; except to conform this Plan and any agreements made hereunder to changes in the Internal Revenue Code of 1986, as amended (the "Code") or governing law. In any event, the Board of Directors shall not make any amendment or alteration which would amend or alter the method by which the number or kind of securities to be granted to any Optionee is determined, where such amendment or alteration is made less than six months and one day after the previous such amendment or alteration was made, unless such amendment or alteration is made to comport with changes in the Code. 9. TERMINATION OF PLAN. The Plan shall be terminated and no further Options shall be granted hereunder as of the tenth (10th) anniversary of the date this Plan is adopted by the Board. Options granted prior to such tenth anniversary may extend beyond that date. 10. COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODY. No Option shall be exercisable and no Common Shares will be delivered under this Plan except in compliance with all applicable federal and state laws and regulations, including, without limitation, compliance with applicable withholding tax requirements, if any, and with the rules of all domestic stock exchanges on which the Company's stock may be listed. Any stock certificates issued to evidence Common Shares as to which an Option is exercised may bear such legends and statements as the Company shall deem advisable to assure compliance with federal and state laws and regulations; the Company may, if it deems appropriate, condition its grant of any Options hereunder upon receipt of the following investment representation from the Optionee: "I agree that any Common Shares of Keithley Instruments, Inc. which I may acquire by virtue of this Stock Option shall be acquired for investment purposes only and not with a view to distribution or resale, and may not be transferred, sold, assigned, pledged, hypothecated or Page 3 4 otherwise disposed of by me unless (i) a registration statement or post-effective amendment to a registration statement under the Securities Act of 1933, as amended, with respect to said Common Shares has become effective so as to permit the sale or other disposition of said shares by me; or (ii) there is presented to Keithley Instruments, Inc. an opinion of counsel satisfactory to Keithley Instruments, Inc. to the effect that the sale or other proposed disposition of said Common Shares by me may lawfully be made otherwise than pursuant to an effective registration statement or post-effective amendment to a registration statement relating to the said shares under the Securities Act of 1933, as amended." No Option shall be exercisable, and no stock will be delivered under this Plan, until the Company has obtained such consent or approval from the regulatory body, federal or state, having jurisdiction over such matters as the Company may deem advisable. In the case of the exercise of an Option by a person or estate acquiring the right to exercise such Option by bequest or inheritance, the Company may require reasonable evidence as to the ownership of such Option and may require such consents and releases of taxing authorities as the Committee may deem advisable. 11. EFFECTIVE DATE. The Plan shall be effective as of February 8, 1992; or if later, the date the Plan is approved by the Company's shareholders. 12. GOVERNING LAW. The Plan, all options and actions taken thereunder and any agreements relating thereto shall be governed by and controlled in accordance with Ohio law. Page 4 EX-11 8 EXHIBIT 11 1 EXHIBIT 11 ---------- Statement re computation of per share earnings
Year ended Year ended Year ended September 30, September 30, September 30, 1999 1998 1997 Net income in thousands $13,708 $5,004 $790 Weighted average shares outstanding 7,447,081 7,799,507 7,588,094 Assumed exercise of stock options, weighted average of incremental shares 206,410 171,758 260,895 Assumed purchase of stock under stock purchase plan, weighted average 3,934 94,024 17,761 Diluted shares - adjusted weighted-average shares and assumed conversions 7,657,425 8,065,289 7,866,750 Basic earnings per share $1.84 $ .64 $ .10 Diluted earnings per share $1.79 $ .62 $ .10
EX-21 9 EXHIBIT 21 1 EXHIBIT 21 ---------- WHOLLY OWNED SUBSIDIARIES ------------------------- Keithley International Investment Corporation 28775 Aurora Road, Cleveland, Ohio 44139, U.S.A. Keithley Foreign Sales Corporation 5 Norre Gade, Charlotte Amalie St. Thomas, U.S. Virgin Islands 00801 FRANCE: Keithley Instruments SARL 3 Allee des Garays, BP 60 91122 Palaiseau Cedex GERMANY: Keithley Instruments GmbH Landsberger Strasse 65 D-82110 Germering (Munich) GREAT BRITAIN: Keithley Instruments Ltd. The Minister, 58 Portman Road Reading (London), Berkshire RG30 1EA ITALY: Keithley Instruments SRL Viale San Gimignano 38 20146 Milano NETHERLANDS: Keithley Instruments BV Avenlingen West 49 4202 MS Gorinchem (Amsterdam) SWITZERLAND: Keithley Instruments SA Kriesbachstrasse 4 8600 Dubendorf (Zurich) EX-23 10 EXHIBIT 23 1 EXHIBIT 23 ---------- CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-2496) of Keithley Instruments, Inc. of our report dated November 5, 1999 relating to the financial statements and the financial statement schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Cleveland, Ohio December 21, 1999 EX-27 11 EXHIBIT 27
5 1,000 U.S. DOLLARS YEAR SEP-30-1999 OCT-01-1998 SEP-30-1999 1 13,426 0 20,312 679 11,049 47,701 38,293 25,617 74,751 23,419 3,000 0 0 199 43,582 43,781 100,938 100,938 39,923 39,923 10,745 0 (179) 16,717 3,009 13,708 0 0 0 13,708 1.84 1.79
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