<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
INTEGRATED MEASUREMENT SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
INTEGRATED MEASUREMENT SYSTEMS, INC.
9525 S.W. GEMINI DRIVE
BEAVERTON, OR 97008
(503) 626-7117
______________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 6, 1997
____________________
To the Shareholders of
Integrated Measurement Systems, Inc.:
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders (the "Annual
Meeting") of Integrated Measurement Systems, Inc. (the "Company") will be held
on Tuesday, May 6, 1997, at 10:00 a.m., local time, at the Embassy Suites, 9000
S.W. Washington Square Road, Tigard, Oregon 97223, for the following purposes:
1. ELECTION OF DIRECTORS. To elect two directors, each to serve for a three-
year term and until their successors are duly elected and qualified;
2. APPROVAL OF AMENDMENTS TO STOCK INCENTIVE PLAN. To approve certain
amendments to the Integrated Measurement Systems, Inc. 1995 Stock Incentive
Plan;
3. RATIFICATION OF APPOINTMENT OF AUDITORS. To ratify the appointment by the
Board of Directors of Arthur Andersen LLP as independent auditors of the
Company for the fiscal year ending December 31, 1997; and
4. OTHER BUSINESS. To transact such other business as may properly come
before the meeting or any adjournments or postponements thereof.
The Board of Directors of the Company has fixed the close of business on
March 12, 1997 as the record date for the determination of shareholders entitled
to notice of and to vote at the Annual Meeting. Only shareholders of record at
the close of business on that date will be entitled to notice of and to vote at
the Annual Meeting or any adjournments thereof.
By Order of the Board of Directors,
/s/ Keith L. Barnes
-----------------------------------
Keith L. Barnes
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Beaverton, Oregon
April 1, 1997
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.<PAGE>
<PAGE>
INTEGRATED MEASUREMENT SYSTEMS, INC.
9525 S.W. GEMINI DRIVE
BEAVERTON, OR 97008
(503) 626-7117
______________________
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 6, 1997
_____________________
INTRODUCTION
GENERAL
This Proxy Statement is being furnished to the shareholders of Integrated
Measurement Systems, Inc., an Oregon corporation ("IMS" or the "Company"), as
part of the solicitation of proxies by the Company's Board of Directors (the
"Board of Directors") from holders of the outstanding shares of IMS common
stock, par value of $0.01 per share (the "Common Stock"), for use at the
Company's Annual Meeting of Shareholders to be held at 10:00 a.m. on May 6,
1997, and at any adjournments or postponements thereof (the "Annual Meeting").
At the Annual Meeting, shareholders will be asked to elect two members of the
Board of Directors, approve certain amendments to the Company's 1995 Stock
Incentive Plan, ratify the appointment by the Board of Directors of Arthur
Andersen LLP as independent auditors of the Company for the fiscal year ending
December 31, 1997, and transact such other business as may properly come before
the meeting or any adjournments or postponements thereof. This Proxy Statement,
together with the enclosed proxy card, is first being mailed to shareholders of
IMS on or about April 1, 1997.
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
The Board of Directors has fixed the close of business on March 12, 1997 as
the record date for the determination of the shareholders entitled to notice of
and to vote at the Annual Meeting. Accordingly, only holders of record of
shares of Common Stock at the close of business on such date will be entitled to
vote at the Annual Meeting, with each such share entitling its owner to one vote
on all matters properly presented at the Annual Meeting. On the record date,
there were approximately 1,955 beneficial holders of the 7,474,987 shares of
Common Stock then outstanding. The presence, in person or by proxy, of a
majority of the total number of outstanding shares of Common Stock entitled to
vote at the Annual Meeting is necessary to constitute a quorum at the Annual
Meeting.
If the enclosed form of proxy is properly executed and returned in time to
be voted at the Annual Meeting, the shares represented thereby will be voted in
accordance with the instructions marked thereon. EXECUTED BUT UNMARKED PROXIES
WILL BE VOTED FOR THE ELECTION OF THE TWO NOMINEES FOR ELECTION TO THE BOARD OF
DIRECTORS, FOR THE APPROVAL OF THE PROPOSED AMENDMENTS TO THE COMPANY'S 1995
STOCK INCENTIVE PLAN AND FOR THE RATIFICATION OF THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING
DECEMBER 31, 1997. The Board of Directors does not know of any matters other
than those described in the Notice of Annual Meeting of Shareholders that are to
come before the Annual Meeting. If any other matters are properly brought
before the Annual Meeting, the persons named in the proxy will vote the shares
represented by such proxy upon such matters as determined by a majority of the
Board of Directors.
<PAGE>
Shareholders who execute proxies retain the right to revoke them at any
time prior to the exercise of the powers conferred thereby by filing a written
notice of revocation with, or by delivering a duly executed proxy bearing a
later date to, Corporate Secretary, Integrated Measurement Systems, Inc., 9525
S.W. Gemini Drive, Beaverton, Oregon 97008, or by attending the Annual Meeting
and voting in person. All valid, unrevoked proxies will be voted at the Annual
Meeting.
ELECTION OF DIRECTORS
At the Annual Meeting, two directors will be elected, each for a three-year
term and until their successors are duly elected and qualified. Unless
otherwise specified on the proxy, it is the intention of the persons named in
the proxy to vote the shares represented by each properly executed proxy for the
election of the nominees named below. The Board of Directors believes that the
nominees will stand for election and will serve as directors if elected.
However, if any of the persons nominated by the Board of Directors fails to
stand for election or is unable to accept election, the proxies will be voted
for the election of such other persons as the Board of Directors may recommend.
Under the Company's bylaws, the directors are divided into three classes
and, after a transitional period, will serve for terms of three years, with one
class being elected by the shareholders each year. The term of office of only
one class of directors expires in each year, and their successors are elected
for terms of three years and until their successors are duly elected and
qualified. There is no cumulative voting for election of directors.
INFORMATION AS TO NOMINEES AND CONTINUING DIRECTORS. The following table
sets forth the names of the Board of Directors' nominees for election as a
director and those directors who will continue to serve after the Annual
Meeting. Also set forth is certain other information with respect to each such
person's age at April 1, 1997, principal occupation or employment during the
past five years, the periods during which he has served as a director of IMS and
positions currently held with IMS.
<TABLE>
<CAPTION>
DIRECTOR EXPIRATION OF
AGE SINCE TERM POSITIONS HELD WITH IMS
--- -------- ------------ -----------------------
- ----------------------
<S> <C> <C> <C> <C>
NOMINEES:
H. Raymond Bingham 51 1993 1997 Chairman of the Board
Milton R. Smith 61 1997 1997 Director
CONTINUING DIRECTORS:
C. Scott Gibson 44 1995 1998 Director
Keith L. Barnes 45 1989 1998 President, Chief Executive
Officer and Director
James M. Hurd 48 1995 1999 Director
James E. Solomon 60 1995 1999 Director
</TABLE>
H. RAYMOND BINGHAM. Mr. Bingham has been a director of the Company since
1993 and Chairman of the Board since May 1995. Mr. Bingham joined Cadence
Design Systems, Inc. ("Cadence") in June 1993 as Executive Vice President and
Chief Financial Officer. From June 1985 to May 1993 he served as Executive Vice
President and Chief Financial Officer of Red Lion Hotels and Inns, which owns
and operates a chain of hotels. Mr. Bingham serves as a director of Sunstone
Investors Inc.
2
<PAGE>
MILTON R. SMITH. Mr. Smith will commence serving as a director of the
Company on April 1, 1997. Mr. Smith is a private investor and consultant. From
September 1994 to February 1995 Mr. Smith served as President and Chief
Executive Officer of Zeelan Technology, Inc., a software company. From October
1992 to May 1994 Mr. Smith served as President and Chief Executive Officer of
Thrustmaster, Inc., a manufacturer of interactive control devices for personal
computers. From September 1992 to January 1993, Mr. Smith held executive
positions with two software companies, Test System Strategies, Inc. and Analogy,
Inc. From October 1986 until January 1992, Mr. Smith held at various times the
positions of Chairman of the Board, President and Chief Executive Officer of
Floating Point Systems, Inc. In October 1991, Floating Point Systems, Inc.
filed a voluntary petition for relief under Chapter 11 of the United States
Bankruptcy Code. Pursuant to an order of the Bankruptcy Court, substantially
all of the assets of Floating Point Systems, Inc. were sold to a wholly-owned
subsidiary of Cray Research, Inc. Mr. Smith serves on the Board of Directors of
Thrustmaster, Inc., a public company, and RapidFire Software, Inc., TFR
Technologies, Inc. and Distribution Sciences Corporation, private companies.
C. SCOTT GIBSON. Mr. Gibson has served as a director of the Company since
May 1995. Mr. Gibson co-founded Sequent Computer Systems, Inc., a computer
system supplier, in 1983 and served as Sequent's President from 1988 through
March 1992. Mr. Gibson serves as a director of Adaptive Solutions, Inc.,
Inference Corp., Radisys Corporation and Triquint Semiconductor, Inc. Mr. Gibson
also serves as a Vice Chairman of the Oregon Graduate Institute of Science and
Technology and as a director of several privately held technology companies.
KEITH L. BARNES. Mr Barnes has been the Company's Chief Executive Officer
since May 1995, the Company's President since April 1991 and became a director
of the Company in 1989. From 1989 to 1991, Mr. Barnes was the Company's General
Manager. Mr. Barnes is a member of the Board of Trustees for the Oregon
Graduate Institute of Science and Technology. Mr. Barnes is Chairman Ex-officio
of the American Electronics Association, Oregon Council, and was a member of the
Board of Directors of the American Electronics Association in 1993. Mr. Barnes
is a director of Data I/O Corporation, a public company that provides
programming and handling equipment for the design and manufacture of
programmable integrated circuits.
JAMES M. HURD. Mr. Hurd has served as a director of the Company since May
1995. Mr. Hurd co-founded Planar Systems, Inc., a publicly traded manufacturer
of high performance information displays and has served as its President and
Chief Executive Officer since 1983. Mr. Hurd is also a director of Planar
Systems, Inc. Mr. Hurd is a member of the Board of Trustees for the Oregon
Graduate Institute of Science and Technology.
JAMES E. SOLOMON. Mr. Solomon has served as a director of the Company
since April, 1995. Mr. Solomon currently serves as President and Chief
Executive Officer of XULU Entertainment, Inc. Mr. Solomon served a Senior Vice
President and Chief Technology Officer for Cadence from February 1994 to May
1996. Mr. Solomon has served as Senior Vice President of Cadence's Analog
Division from January 1993 to February 1994 and as President of Cadence's Analog
Division from December 1988 until May 1989. Mr. Solomon is also the Chairman of
the Board of Smart Machines, Inc. and XULU Entertainment, Inc., private
companies.
BOARD OF DIRECTORS COMMITTEES AND NOMINATIONS BY SHAREHOLDERS. The Board
of Directors acts as a nominating committee for selecting nominees for election
as directors. The Company's bylaws also permit shareholders to make nominations
for the election of directors, if such nominations are made pursuant to timely
notice in writing to the Company's Secretary. To be timely, notice must be
delivered to, or mailed to and received at, the principal executive offices of
the Company not less than 60 days nor
3
<PAGE>
more than 90 days prior to the date of the meeting, provided that at least 60
days' notice or prior public disclosure of the date of the meeting is given
or made to shareholders. If less than 60 days' notice or prior public
disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder must be received by the Company not later than the
close of business on the tenth day following the date on which such notice of
the date of the meeting was mailed or such public disclosure was made. A
shareholder's notice of nomination must also set forth certain information
specified in Article III, Section 3.16 of the Company's bylaws concerning each
person the shareholder proposes to nominate for election and the nominating
shareholder.
During 1996 the Company's Board of Directors held five meetings. Each
incumbent director attended more than 75% of the aggregate of the total number
of meetings held by the Board of Directors and the total number of meetings held
by all committees of the Board on which he served during the period that he
served.
The Board of Directors has appointed a standing Audit Committee which,
during the fiscal year ended December 31, 1996, conducted two meetings. The
members of the Audit Committee currently are Messrs. Gibson, Hurd and Bingham.
The Audit Committee reviews the scope of the independent annual audit, the
independent public accountants' letter to the Board of Directors concerning the
effectiveness of the Company's internal financial and accounting controls and
the Board of Directors concerning the effectiveness of the Company's internal
financial and accounting controls and the Board of Directors' response to that
letter, if deemed necessary. The Board of Directors also has appointed a
Compensation Committee which reviews executive compensation and establishes
executive compensation levels and also administers the Company's stock option
plans and the 1995 Employee Stock Purchase Plan. During the fiscal year ended
December 31, 1996, the Compensation Committee held 16 meetings. The members of
the Compensation Committee currently are Messrs. Gibson and Smith.
See "Management - Executive Compensation" for certain information regarding
compensation of directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE ELECTION OF ITS NOMINEES NAMED IN THIS PROXY STATEMENT. If a quorum is
present, the Company's bylaws provide that directors are elected by a plurality
of the votes cast by the shares entitled to vote. Abstentions and broker non-
votes are counted for purposes of determining whether a quorum exists at the
Annual Meeting, but are not counted and have no effect on the determination of
whether a plurality exists with respect to a given nominee.
4
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Keith L. Barnes 45 President, Chief Executive Officer and Director
Sar Ramadan 54 Chief Financial Officer, Secretary and Treasurer
Mark Allison 40 Vice President, Marketing
W. Barry Baril 45 Vice President, Engineering
David L. Brinker 46 General Manager, Test Software Division
James P. Fraine 41 Vice President, Sales
Donald E. Grant 55 Vice President, Operations
Gwyn Harvey 43 Director of Human Resources
Kenneth R. Lindsay 52 Vice President, Asia Operations
</TABLE>
Information concerning the principal occupation of Mr. Barnes is set forth
under the heading "Election of Directors." Information concerning the principal
occupation during at least the last five years of the executive officers of the
Company who are not also directors of the Company is set forth below.
SAR RAMADAN. Mr. Ramadan joined the Company in 1993 as Chief Financial
Officer and was elected Secretary and Treasurer in 1995. Prior to joining IMS,
Mr. Ramadan held the positions of Finance Director and Chief Accounting Officer
of Mentor Graphics Corp., a supplier of EDA software, from 1987 to 1993. In
addition he was Vice President of Finance for CAD/CAM Resources Inc., between
1985 and 1987, and Vice President Group Controller at Computervision
Corporation, a computer aided mechanical design business, from 1979 to 1985.
MARK ALLISON. Mr. Allison joined the Company in November 1995 as Vice
President of Marketing. Prior to joining the Company, Mr. Allison was Director
of Memory Marketing for Credence Corporation during 1995 and Director of
Marketing for Megatest Corporation, from 1985 to 1995. Both companies are ATE
manufacturers.
W. BARRY BARIL. Mr. Baril is a founder of the Company, and has been the
Vice President of Engineering since the Company's inception in 1983.
Previously, Mr. Baril was Engineering Group Manager for the Logic Analyzer
Division of Tektronix, a high technology company, for one year, Hybrid Circuit
Project Manager and Group Leader for three years in Tektronix labs, and a Hybrid
Circuit Project Manager and Design Engineer for four years at Burr Brown, an
analog integrated circuit company.
DAVID L. BRINKER. Mr. Brinker joined the Company in December 1996 as
General Manager, Test Software Division. Prior to joining the Company, Mr.
Brinker was President and Chief Executive Officer of TView, Inc., a multimedia
hardware company. From 1994 to July 1996, Mr. Brinker was Chief Financial
Officer of Summit Design Systems, a supplier of EDA software. Between 1986 and
1994, Mr. Brinker held a variety of positions with Mentor Graphics, a supplier
of EDA software, including Vice President of Worldwide Sales, Vice President of
International Sales and Vice President of Asia.
5
<PAGE>
JAMES P. FRAINE. Mr. Fraine joined the Company in 1994 as Vice President
of Sales. Prior to joining the Company, he was the National Sales Manager at
Teradyne, Inc., an ATE company, from 1989 to 1994 and held the position of
Account Manager at GenRad, Inc. from 1976 to 1986. In addition, Mr. Fraine has
held several sales and marketing positions at STS/Axiom Technology, Inc., a
mixed signal test equipment company.
DONALD E. GRANT. Mr. Grant joined the Company in 1989 as Vice President of
Operations. Prior to joining the Company, Mr. Grant was Director of
Manufacturing at Protocol Systems, Inc., a medical device manufacturer, from
1986 to 1989 and Director of Operations at Kentrox Industries from 1983 to 1986.
Mr. Grant held various manufacturing positions with Hewlett Packard from 1972 to
1983.
GWYN HARVEY. Ms. Harvey joined the Company in 1987 as Director of Human
Resources. Prior to joining the Company, Ms. Harvey worked in a variety of
human resources positions with Metheus Corporation, Computervision Corporation,
Metheus-Computervision, Inc., Sierracin-EOI and Fairchild, a Schlumberger
Company.
KENNETH R. LINDSAY. Mr. Lindsay is a founder of the Company, and has
served as Vice President of Asia Operations since 1992, Asian Business Manager
from 1989 to 1992 and Vice President and Director of Marketing from 1983 to
1989. Prior to joining the Company, Mr. Lindsay was Worldwide Marketing Manager
for the Semiconductor Test Systems Division of Tektronix, and also held other
marketing, management, and engineering positions at Tektronix.
6
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning compensation
of the Company's Chief Executive Officer and each of the five other most highly
compensated executive officers of the Company (collectively, the "named
executive officers"), for the fiscal years ended December 31, 1994, 1995 and
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
---------------------------- -------------
Other Annual Stock Options All Other
Name and Principal Position Year Salary Bonus Compensation Granted Compensation
--------------------------- ---- ------- ------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Keith L. Barnes . . . . . . . . . 1994 $185,000 $58,366 $ 7,115(1) 157,500(2) $7,493(3)
President and Chief Executive 1995 195,000 98,886 11,538(1) 84,000 7,654(3)
Officer 1996 200,000 139,250 12,939(4) 120,000 6,000(5)
Sar Ramadan . . . . . . . . . . . 1994 $104,813 20,528 -- 33,750(2) 920(6)
Chief Financial Officer 1995 112,250 32,246 -- 47,000 2,223(6)
1996 127,744 41,909 -- 10,000 2,130(6)
W. Barry Baril . . . . . . . . . 1994 108,760 30,831 -- 33,750(2) 1,579(6)
Vice President, Engineering 1995 113,440 31,149 4,423(1) 70,000 361(6)
1996 122,500 37,699 -- 10,000 1,407(6)
Marvin S. Wolfson(7) . . . . . . 1994 124,080 37,626 -- -- 404(6)
Former General Manager, Test 1995 124,080 28,265 -- 31,000 404(6)
Software Division 1996 124,080 28,705 -- 5,000 404(6)
Don Grant . . . . . . . . . . . . 1994 97,207 16,166 -- 33,750(2) 832(6)
Vice President, Operations 1995 102,302 25,705 4,000(1) 47,000 891(6)
1996 116,000 31,844 -- 10,000 2,604(6)
Mark Allison . . . . . . . . . . 1994 -- -- -- -- --
Vice President, Marketing 1995 10,195 -- -- 26,000 19(6)
1996 112,000 27,473 -- -- 38,506(8)
</TABLE>
__________________
(1) Reflects a cash payment in lieu of vacation
(2) Reflects options to purchase shares of Cadence Common Stock (after giving
effect to 3-for-2 stock splits of the outstanding shares of Cadence
effective October 16, 1995 and May 16, 1996).
(3) Represents automobile allowance and Company payments of additional
insurance premiums
(4) Represents Company reimbursements for organization dues, Company payments
of additional insurance premiums and reimbursement of certain travel
expenses.
(5) Represents automobile allowance.
(6) Represents Company payments of additional insurance premiums and, in
certain cases, reimbursement of certain travel expenses.
(7) Mr. Wolfson ceased to be an executive of the Company immediately prior to
the Company's fiscal year end.
(8) Represents relocation reimbursement and Company payments of additional
insurance premiums.
7
<PAGE>
STOCK OPTIONS
The following table sets forth certain information concerning options
granted to the named executive officers during the year ended December 31, 1996
under the Company's 1995 Stock Incentive Plan.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
NUMBER OF PERCENT OF VALUE AT ASSUMED
SECURITIES TOTAL OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION FOR OPTION TERM(3)
GRANTED(1) FISCAL 1996 SHARE(2) DATE 5% 10%
----------- --------------- -------- ---------- ----- -----
NAME
----
<S> <C> <C> <C> <C> <C> <C>
Keith L. Barnes............ 120,000 27% $13.25 3/8/06 $999,942 $2,534,051
Sar Ramadan................ 10,000 2% 12.75 2/7/06 80,184 203,202
W. Barry Baril............. 10,000 2% 12.75 2/7/06 80,184 203,202
Marvin S. Wolfson.......... 5,000 1% 12.75 2/7/06 40,092 101,601
Don Grant.................. 10,000 2% 12.75 2/7/06 80,184 203,202
Mark Allison............... -- -- -- -- -- --
</TABLE>
___________________________
1) Options granted become exercisable starting with the end of the month of
the grant date, with 1/48th of the total number of options granted becoming
exercisable at that time and with an additional 1/48th of such options
becoming exercisable each month thereafter, with a total four-year vesting
period.
2) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock at the time of grant.
3) The potential realizable value is calculated based upon the term of the
option at its time of grant (10 years) and is calculated by assuming that
the stock price on the date of grant appreciates at the indicated annual
rate compounded annually for the entire term of the option and that the
option is exercised and sold on the last day of its term for the
appreciated price. The 5% and 10% assumed rates of appreciation are
derived from the rules of the Securities and Exchange Commission and do not
represent the Company's estimates or projection of the future Common Stock
price. There can be no assurance that the Common Stock will appreciate at
any particular rate or at all in future periods.
8
<PAGE>
OPTION EXERCISES AND HOLDING
The following table sets forth certain information with respect to the
named executive officers concerning the exercise of options granted under the
Company's 1995 Stock Incentive Plan during the year ended December 31, 1996, and
the value of unexercised options held as of December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT FY-END(1) AT FY-END (1)(2)
ON VALUE ---------------------------- --------------------------
NAME EXERCISE(1) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------ ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Keith L. Barnes.... -- -- 47,506 156,494 $362,227 $878,274
Sar Ramadan........ -- -- 21,877 35,123 184,417 278,958
W. Barry Baril..... -- -- 31,456 48,544 269,431 398,069
Marvin S. Wolfson.. -- -- 14,063 21,937 119,939 178,311
Don Grant.......... -- -- 21,877 35,123 184,417 278,958
Mark Allison....... -- -- 7,057 18,943 32,639 87,611
</TABLE>
_____________________
(1) The above table excludes information regarding exercises and the year-end
value of options to acquire shares of Common Stock of Cadence Design
Systems, Inc. granted prior to the Company's initial public offering while
the Company was a wholly-owned subsidiary of Cadence. Cadence offers its
employees a stock option program, including employees employed by
subsidiaries of Cadence. Prior to contemplation of the Company's initial
public offering, Cadence offered options to acquire Common Stock of Cadence
to Company employees and officers under the stock option program. All of
the options to acquire Common Stock of Valid Logic, Inc. held by Company
employees as of the 1991 merger of Cadence and Valid Logic, Inc., of which
the Company was then a subsidiary, were exchanged for options to acquire
shares of Common Stock of Cadence. The options to acquire Common Stock of
Cadence have been vesting since Cadence's merger with Valid Logic, Inc. No
options to acquire Common Stock of Cadence were granted in 1996 to any
officers of the Company. In 1996, Company employees, including officers,
exercised 196,627 options to acquire Common Stock of Cadence and realized
gains of approximately $5,556,000. Of the 196,627 options exercised,
officers of the Company exercised options for 92,732 shares of Cadence
Common Stock and realized gains of approximately $2,490,000. The named
executive officers accounted for gains of approximately $2,051,000.
Gains from the exercise and sale of Cadence options do not impact the
Company's expenses or results of operations. Furthermore, such options do
not enter into the calculation of the Company's outstanding shares nor its
earnings per share calculations.
The Shares Acquired on Exercise, Value Realized, Number of Securities
Underlying Unexercised Options at FY-End (Exercisable/Unexercisable) and
Value of Unexercised In-the-Money Options at FY-End (Exercisable/
Unexercisable) with respect to the Cadence options held by the named
executive officers is as follows: Mr. Barnes-23,732, $655,843, 3,765,
26,252, $125,265 and $873,426; Mr. Ramadan-14,060, $393,841, 2,344, 16,408,
$77,196 and $534,314; Mr. Baril-13,750, $420,711, 51, 11,392, $1,684 and
$377,158; Mr. Wolfson-5,500, $198,458, 5,435, 0, $190,338 and $0; Mr.
Grant-11,498, $381,651, 2,109, 10,548, $69,641 and $348,304; Mr. Allison-0,
$0, 0, 0, $0, $0.
(2) Amounts reflected are based upon the market value of the underlying
securities at fiscal year end minus the exercise price.
9
<PAGE>
EXECUTIVE DEFERRED COMPENSATION PLAN
On July 1, 1996, the Company implemented an Executive Deferred Compensation
Plan (the "Deferred Compensation Plan") for the purpose of providing eligible
executives and employees with a program for deferring compensation earned during
employment. Under the terms of the Deferred Compensation Plan, eligible
executives and employees of the Company may make voluntary contributions to the
Plan as a percentage of compensation, but such percentage may not exceed the
limitations stated in the Deferred Compensation Plan. The voluntary
contributions are invested in a variety of investment funds for the intended use
of paying plan benefits when participating executives and employees become
eligible to receive such benefits under the terms of the Deferred Compensation
Plan. The Company currently does not match executive or employee contributions
and does not intend to do so in the foreseeable future.
EMPLOYMENT CONTRACTS
The Company has entered into Employment Agreements with each of the named
executive officers. Each such Employment Agreement is terminable by either
party. If the executive officer resigns voluntarily or is properly terminated
for cause, all pay and benefits under the agreement will cease as of the date of
such resignation or termination. If the executive officer is terminated other
than for cause (including the voluntary resignation by an officer upon a breach
by the Company of its obligations to the executive officer), the executive
officer would receive all base salary, commissions and bonuses earned through
the date of termination plus a payment equal to all accumulated but unused
vacation and sick leave. In addition, the officer would be entitled to
continued vesting of options (or alternatively be paid the in-the-money value of
such options), certain benefits, and payment of base salary for a severance
period, which is two years in the case of Mr. Barnes, 18 months in the case of
Mr. Ramadan and six months for each other executive officer. By agreement with
Cadence, Cadence would also accelerate any Cadence options that the executive
officer may hold which would, by their original vesting schedule, vest on or
before July 1, 1997. If there is a change in control of the Company, then the
vesting schedule of the Company options held by the named executive officers
would accelerate so that all such options would become immediately exercisable.
Additionally, all Cadence options that would have vested by July 1, 1997 (or the
in-the-money value) would also be paid.
The Company has entered into a separation agreement with Marvin S. Wolfson,
the Company's former General Manager, Test Software Division. Under this
Agreement, Mr. Wolfson will remain an employee of the Company at his current
salary and benefits through June 1997. From July through December 1997, Mr.
Wolfson will remain a consultant of the Company and would be compensated for
consulting services as rendered.
DIRECTOR COMPENSATION
The members of the Company's Board of Directors are reimbursed for out-of-
pocket and travel expenses incurred in attending Board meetings. In addition,
the Company's Chairman of the Board receives an annual retainer of $18,000 and
each nonemployee member of the Board of Directors, other than the Chairman,
receives an annual retainer of $12,000. Each nonemployee director also receives
$1,000 for each Board meeting attended and $1,000 for each meeting of a
committee of the Board attended. In 1996, each nonemployee director received
certain stock options under the Company's 1995 Stock Option Plan for Nonemployee
Directors. If the proposed amendments to the 1995 Stock Incentive Plan are
approved at the Annual Meeting, the 1995 Stock Option Plan for Nonemployee
Directors will be terminated and nonemployee directors will receive future
option grants under the Company's 1995 Stock Incentive Plan.
10
<PAGE>
COMPENSATION COMMITTEE REPORT
Under rules established by the Securities and Exchange Commission (the
"SEC"), the Company is required to provide certain data and information in
regard to the compensation and benefits provided to the Company's President and
Chief Executive Officer and the four other most highly compensated executive
officers. In fulfillment of this requirement, the Compensation Committee, at
the direction of the Board of Directors, has prepared the following report for
inclusion in this Proxy Statement.
EXECUTIVE COMPENSATION PHILOSOPHY. The Compensation Committee of the Board
of Directors is composed entirely of nonemployee directors. The Compensation
Committee is responsible for setting and administering the policies and programs
that govern both annual compensation and stock ownership programs for the
executive officers of the Company. The Company's executive compensation policy
is based on principles designed to ensure that an appropriate relationship
exists between executive pay and corporate performance, while at the same time
motivating and retaining executive officers.
EXECUTIVE COMPENSATION COMPONENTS. The key components of the Company's
compensation program are base salary, cash bonuses and equity participation.
These components are administered with the goal of providing total compensation
that is competitive in the marketplace, rewards successful financial performance
and aligns executive officers' interests with those of shareholders. The
Compensation Committee reviews each component of executive compensation on an
annual basis.
BASE SALARY. Base salaries for executive officers are set at levels
believed by the Compensation Committee to be sufficient to attract and retain
qualified executive officers. Base pay increases are provided to executive
officers based on an evaluation of each executive's performance, as well as the
performance of the Company as a whole. In establishing base salaries, the
Compensation Committee not only considers the financial performance of the
Company, but also the success of the executive officers in developing and
executing the Company's strategic plans, developing managers and employees and
exercising leadership. The Compensation Committee believes that executive
officer base salaries for 1996 were reasonable as compared to amounts paid by
companies of similar size.
CASH BONUSES. The Compensation Committee believes that a significant
proportion of total cash compensation for executive officers should be subject
to attainment of specific Company performance criteria. This approach creates a
direct incentive for executive officers to achieve desired performance goals and
places a significant percentage of each executive officer's compensation at
risk. Consequently, each year the Compensation Committee establishes cash
bonuses for executive officers based on the Company's achievement of certain
performance criteria. For fiscal 1996, the Company's executive officers
received aggregate cash bonuses equal to approximately 29% of the total base
salaries paid to such officers based on the Company's achievement of established
performance goals.
STOCK OPTIONS. The Compensation Committee believes that equity
participation is a key component of its executive compensation program. Stock
options are granted to executive officers primarily based on the officer's
actual and potential contribution to the Company's growth and profitability and
competitive marketplace practices. Option grants are designed to retain
executive officers and motivate them to enhance stockholder value by aligning
the financial interests of executive officers with those of stockholders. Stock
options also provide an effective incentive for management to create shareholder
value over the long term since the full benefit of the compensation package
cannot be realized unless an appreciation in the price of the Company's Common
Stock occurs over a number of years. In 1996, options to purchase a total of
220,000 shares of the Company's Common Stock were granted to the Company's
executive officers (including the Company's Chief Executive Officer) with
exercise prices equal to the fair market value of the underlying Common Stock on
the date of grant.
11
<PAGE>
These options generally vest 1/48th per month commencing at the end of the month
in which the options were granted and expire ten years from the date of grant.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. Consistent with the executive
compensation policy and components described above, the Compensation Committee
determined the salary, bonus and stock options received by Keith L. Barnes, the
Company's President and Chief Executive Officer and a director of the Company,
for services rendered in 1996. Mr. Barnes received a base salary of $200,000
for 1996. He also earned a $139,250 cash bonus. Mr. Barnes received the bonus
payable based upon achieving a performance goal specified in advance by the
Compensation Committee. In March 1996, Mr. Barnes received options to purchase
120,000 shares of the Company's Common Stock.
COMPENSATION COMMITTEE
C. Scott Gibson
Milton R. Smith
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during the fiscal year ended
December 31, 1996 were C. Scott Gibson and Delbert W. Yocam. Mr. Yocam resigned
from the Board of Directors in January 1997 and, on April 1, 1997, Milton R.
Smith was appointed to fill the vacancy created by such resignation.
STOCK PERFORMANCE GRAPH
The following line graph compares the cumulative total return on the
Company's Common Stock with the cumulative total return of the Nasdaq Stock
Market Index and an index of peer companies selected by the Company. The total
cumulative return on investment (change in stock price plus reinvested
dividends) for each of the periods for the Company's Common Stock, the Nasdaq
Stock Market Index and the peer group index is based upon an assumed investment
of $100 in the Company's Common Stock and each index on July 21, 1995, the date
of the Company's initial public offering.
DATA POINTS FOR PERFORMANCE GRAPH
<TABLE>
<CAPTION>
DATA POINTS FOR PERFORMANCE GRAPH
NAME 7/21/95 8/31/95 9/30/95 10/31/95 11/30/95 12/31/95 1/31/96 2/27/96 3/31/96
---- ------- ------- ------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
IMSC 100.00 130.68 120.45 122.73 119.32 134.09 127.27 118.18 142.05
Nasdaq Index 100.00 102.03 104.37 103.77 106.21 105.65 106.17 110.21 110.58
Peer Group 100.00 102.56 103.23 109.42 102.83 105.13 93.85 102.71 101.13
NAME 4/30/96 5/31/96 6/30/96 7/31/96 8/31/96 9/30/96 10/30/96 11/30/96 12/31/96
---- ------- ------- ------- ------- ------- ------- -------- -------- --------
IMSC 172.73 238.64 234.09 120.45 156.82 150.00 142.05 161.36 157.95
Nasdaq Index 119.75 125.25 119.61 108.95 115.06 123.87 122.51 130.10 129.95
Peer Group 120.42 131.53 117.59 107.37 104.85 127.37 130.31 136.34 136.67
</TABLE>
The above graph compares the performance of the Company with that of the
Nasdaq Stock Market Index and a group of peer companies with the investment
weighted on market capitalization. Companies in the peer group are as follows:
Cadence Design Systems, Inc., Credence Design Systems, Inc., Electroglas, Inc.,
KLA Instruments, Inc., LTX Corp., Mentor Graphics, Inc., Synopsys, Inc., Tencor
Instruments, Inc., Teradyne, Inc. and Viewlogic Systems, Inc. The past
performance of the
12
<PAGE>
Company's Common Stock is not an indication of future performance. There can be
no assurance that the price of the Company's Common Stock will appreciate at any
particular rate or at all in future years.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "1934
Act") requires that the Company's directors, officers and persons who own more
than 10% of a registered class of the Company's equity securities file initial
reports of ownership and reports of changes in ownership with the Securities and
Exchange Commission. Such persons also are required to furnish the Company with
copies of all Section 16(a) reports they file.
To the Company's knowledge, based solely on its review of the copies of
such reports received by it with respect to fiscal 1996 and written
representations from reporting persons that no other reports were required,
during fiscal 1996 its directors, officers and persons who own more than 10% of
a registered class of the Company's equity securities have complied with all
applicable Section 16(a) filing requirements.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
In certain foreign markets, primarily Europe, the Company invoices its
customers through Cadence subsidiaries. The Company reimbursed Cadence through
the intercompany account for the cost of the Company's dedicated sales agents in
these markets due to the fact that these dedicated sales agents are employees of
Cadence subsidiaries and are located in Cadence facilities. During the last
fiscal year the amount of such reimbursements was approximately $2,223,000. The
dedicated sales agents, who are employees of Cadence subsidiaries, sell and
support Company products on a full time basis and coordinate their efforts with
the Company's manufacturing facility in the United States.
Cadence provides selling, service and production support related to the
Company's Virtual Test Software and charges the Company for the cost of such
services. These costs, which have been charged to the Company, were
approximately $287,000 for the fiscal year ended December 31, 1996.
For the fiscal year ended December 31, 1996, Cadence charged the Company
for the costs of utilization of certain domestic sales offices and other
services. The amount of such costs was approximately $98,000.
In December 1996, the Company sold a mixed-signal Test Station to Cadence
for a purchase price of approximately $1,260,000.
13
<PAGE>
STOCK OWNED BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the ownership
of the Common Stock as of March 12, 1997 with respect to: (i) each person
known by the Company to beneficially own more than 5% of the outstanding shares
of Common Stock, (ii) each of the Company's directors, (iii) each of the
Company's nominees for election as director, (iv) each of the Company's named
executive officers and (v) all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY PERCENT OF COMMON
NAME AND BUSINESS ADDRESS OWNED (1) STOCK OUTSTANDING
- ------------------------- ------------------ -----------------
<S> <C> <C>
Cadence Design Systems, Inc.......... 2,759,000 36.9%
2655 Seely Road, Bldg 5, MS 5B2
San Jose, CA 95134
Kopp Investment Advisors, Inc. (2)... 702,550 9.4%
LeRoy C. Kopp
6600 France Avenue South, Suite 672
Edina, MN 55435
Keith L. Barnes...................... 67,396 *
Sar Ramadan.......................... 31,520 *
W. Barry Baril....................... 38,906 *
Marvin S. Wolfson.................... -- --
Donald E. Grant...................... 29,404 *
Mark Allison......................... 10,038 *
H. Raymond Bingham................... 9,389 *
C. Scott Gibson...................... 11,489 *
James M. Hurd........................ 7,389 *
Milton R. Smith...................... 1,000 *
James E. Solomon..................... 7,389 *
Executive Officers and Directors as a
group (14 persons).................. 248,260 3.2%
</TABLE>
___________________________
* less than one percent
(1) Beneficial ownership is determined in accordance with rules of the SEC, and
includes voting power and investment power with respect to shares. Shares
issuable upon the exercise of outstanding stock options that are currently
exercisable or become exercisable within 60 days from March 12, 1997 are
considered outstanding for the purpose of calculating the percentage of
Common Stock owned by such person, but not for the purpose of calculating
the percentage of Common Stock owned by any other person. The number of
shares that are issuable upon the exercise of options that are currently
exercisable or exercisable within 60 days of March 12, 1997 is as follows:
Mr. Barnes - 62,009; Mr. Ramadan - 29,972; Mr. Baril - 38,330; Mr. Grant -
29,128; Mr. Allison - 10,038; Messrs. Bingham, Gibson, Hurd and Solomon -
7,389; all Executive Officers and Directors as a group - 230,879.
(2) This information as to beneficial ownership is based on a Schedule 13G
filed by Kopp Investment Advisors, Inc. on behalf of itself, LeRoy C. Kopp
and the Caring and Sharing Foundation. Kopp Investment Advisors, Inc. had
sole voting power of 55,000 shares and shared dispositive power over
682,000 shares; LeRoy C. Kopp had sole voting power over 702,550 shares;
the Caring and Sharing Foundation had sole voting power and sole
dispositive power of 20,000 shares. The Schedule 13G states that the
parties disclaim beneficial ownership of 702,550 shares which are held in a
representative of fiduciary capacity.
14
<PAGE>
APPROVAL OF AMENDMENTS TO 1995 STOCK INCENTIVE PLAN
The Company maintains its 1995 Stock Incentive Plan (the "1995 Plan") to
attract and retain experienced and competent employees and others who provide
services to the Company and to provide an incentive to such persons to exert
their best efforts on behalf of the Company. A total of 1,250,000 shares of
Common Stock have been reserved for issuance under the 1995 Plan. As of
April 1, 1997, approximately 331,270 shares remained available for grant under
the 1995 Plan. The Board of Directors believes that additional shares will be
needed under the 1995 Plan to provide appropriate incentives to employees and
others, as well as to provide for option grants to the Company's nonemployee
directors, which grants, if the proposed amendments to the 1995 Plan are
approved, will in the future be made under the 1995 Plan rather than under a
separate formula plan. Accordingly, the Board of Directors has approved, and
recommends shareholder adoption of, an amendment to the 1995 Plan that would
increase from 1,250,000 shares to 1,620,000 shares the number of shares of
Common Stock that are reserved for issuance under the 1995 Plan. Because the
officers, directors and employees of the Company who may participate in the 1995
Plan and the amount of their options will be determined on a discretionary basis
by the Compensation Committee or the full Board of Directors, it is not possible
to state the names or positions of, or the number of options that may be granted
to, the Company's officers, directors and employees.
The Board of Directors has also approved, and recommends shareholder
adoption of, amendments to the 1995 Plan to conform its provisions to certain
requirements of the regulations promulgated under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"). Under Section 162(m) of the
Code, publicly-held companies may be limited as to income tax deductions to the
extent total remuneration (including compensation received through the exercise
of stock options) for certain executive officers exceeds $1 million in any one
year. However, Section 162(m) provides an exception for "performance-based"
remuneration, including stock options. Section 162(m) requires that certain
actions must be taken by a compensation committee of two or more outside
directors and that the material terms of such remuneration must be approved by a
majority vote of the shareholders in order for stock options to qualify as
"performance-based" remuneration.
Although the 1995 Plan was previously approved by shareholders, regulations
adopted pursuant to Section 162(m) which establish the requirements for
determining whether options will be treated as "performance-based" remuneration
require stock option plans to set forth the maximum number of options that may
be awarded to any employee in any one year. Accordingly, the Board of Directors
approved an amendment to the 1995 Plan to establish a limitation on the number
of options that may be awarded to any employee under the 1995 Plan in any
calendar year of 200,000.
Other amendments approved by the Board of Directors and submitted to the
shareholders for approval principally relate to the elimination of certain
restrictions in the 1995 Plan that are no longer necessary or appropriate based
on recent changes to the rules promulgated under Section 16 of the Securities
Exchange Act of 1934. These amendments include amending the definition of
"Consultant" to include nonemployee directors, eliminating the requirement that
shareholders approve certain amendments to the 1995 Plan, amending the
transferability restriction to give the plan administrator the ability to grant
transferable options and eliminating a six month holding period requirement for
Company affiliates.
The following is a summary of the basic terms and provisions of the 1995
Plan. Shareholders are encouraged to review the complete copy of the 1995 Plan
attached to this Proxy Statement as Exhibit A, which is marked to indicate the
proposed amendments.
15
<PAGE>
The 1995 Plan, which was approved by the Company's sole shareholder on May
11, 1995, provides for grants of both "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and "non-qualified stock options" which are not qualified for treatment
under Section 422 of the Code, and for direct stock grants and sales to
employees or consultants of the Company. The purposes of the 1995 Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentives to the employees and
consultants of the Company and to promote the Company's business. The 1995 Plan
is administered by the Compensation Committee of the Board of Directors.
The term of each option granted under the 1995 Plan will generally be ten
years from the date of grant, or such shorter period as may be established at
the time of the grant. An option granted under the 1995 Plan may be exercised
at such times and under such conditions as determined by the Compensation
Committee. If a person who has been granted an option ceases to be an employee
or consultant of the Company, such person may exercise that option only during
the exercise period established by the Compensation Committee at the time the
options were granted, which shall not exceed 90 days after the date of
termination, and only to the extent that the option was exercisable on the date
of termination. If a person who has been granted an option ceases to be an
employee or consultant as a result of such person's total and permanent
disability, such person may exercise that option at any time within twelve
months after the date of termination, but only to the extent that the option was
exercisable on the date of termination. Except as otherwise provided in the
agreement evidencing the terms of an option grant, no option granted under the
1995 Plan is transferable other than at death, and each option is exercisable
during the life of the optionee only by the optionee. In the event of the death
of a person who has received an option, the option generally may be exercised by
a person who acquired the option by bequest or inheritance during the twelve
month period after the date of death to the extent that such option was
exercisable on the date of death.
The exercise price of incentive stock options granted under the 1995 Plan
may not be less that the fair market value of a share of Common Stock on the
last market trading day prior to the date of grant of the option and incentive
options granted to greater than 10% shareholders may not be granted for less
than 110% of fair market value. Non-qualified stock options may be granted at
the price determined by the plan administrator. The consideration to be paid
upon exercise of an option, including the method of payment, will be determined
by the Compensation Committee and may consist entirely of cash, check, shares of
Common Stock or any combination of such methods of payment as permitted by the
Compensation Committee.
The 1995 Plan will continue in effect until May 2005, unless earlier
terminated by the Board of Directors, but such termination will not affect the
terms of any options outstanding at that time. The Board of Directors may
amend, terminate or suspend the 1995 Plan at any time as it may deem advisable.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below is included for general
information only. Optionees are urged to consult their tax advisors to
determine the particular tax consequences applicable to them, including the
application and effect of foreign, state and local income and other tax laws.
INCENTIVE STOCK OPTIONS. Certain options authorized to be granted under
the 1995 Plan are intended to qualify as incentive stock options for federal
income tax purposes. Under federal income tax law currently in effect, the
optionee will recognize no income upon grant or upon exercise of an incentive
stock option. If an employee exercises an incentive stock option and does not
dispose of any of the option shares within two years following the date of grant
and within one year following the date of
16
<PAGE>
exercise, then any gain realized upon subsequent disposition of the shares will
be treated as income from the sale or exchange of a capital asset. If an
employee disposes of shares acquired upon exercise of an incentive stock option
before the expiration of either the one-year holding period or the two-year
waiting period, any amount realized will be taxable as ordinary compensation
income in the year of such disqualifying disposition to the extent that the
lesser of the fair market value of the shares on the exercise date or the
fair market value of the shares on the date of disposition exceeds the exercise
price. The Company will not be allowed any deduction for federal income tax
purposes at either the time of the grant or exercise of an incentive stock
option. Upon any disqualifying disposition by an employee, the Company will
be entitled to a deduction to the extent the employee realized ordinary income.
NON-QUALIFIED STOCK OPTIONS. Certain options authorized to be granted
under the 1995 Plan will be treated as non-qualified stock options for federal
income tax purposes. Under federal income tax law presently in effect, no
income is realized by the grantee of a non-qualified stock option pursuant to
the 1995 Plan until the option is exercised. At the time of exercise of a non-
qualified stock option, the optionee will realize ordinary compensation income,
and the Company will be entitled to a deduction, in the amount by which the
market value of the shares subject to the option at the time of exercise exceeds
the exercise price. The Company's deduction is conditioned upon withholding on
the income amount. Upon the sale of shares acquired through the exercise of a
non-qualified stock option, the excess of the amount realized from the sale over
the market value of the shares on the date of exercise will be taxable.
CONSEQUENCES TO THE COMPANY. The Company recognizes no deduction at the
time of grant or exercise of an incentive stock option. The Company will
recognize a deduction at the time of exercise of a non-qualified stock option on
the difference between the option price and the fair market value of the shares
on the date of grant. The Company also will recognize a deduction to the extent
the optionee recognizes income upon a disqualifying disposition of shares
acquired through the exercise of an incentive stock option.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL. If a quorum is
present, this proposal will be approved if a majority of the votes cast on the
proposal are voted for approval of the proposal. Abstentions and broker non-
votes are counted for purposes of determining whether a quorum exists at the
Annual Meeting, but are not counted as votes cast and have no effect on the
results of the vote on this proposal.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Arthur Andersen LLP to act as
independent auditors for the Company for the fiscal year ending December 31,
1997, subject to ratification of such appointment by the Company's shareholders.
Unless otherwise indicated, properly executed proxies will be voted in
favor of ratifying the appointment of Arthur Andersen LLP to audit the books and
accounts of the Company for the fiscal year ending December 31, 1997. No
determination has been made as to what action the Board of Directors would take
if the shareholders do not ratify the appointment.
17
<PAGE>
A representative of Arthur Andersen LLP is expected to be present at the
Annual Meeting and will be given an opportunity to make a statement if he or she
desires to do so and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Any shareholder proposal intended for inclusion in the proxy statement and
form of proxy relating to the Company's 1998 annual meeting of shareholders must
be received by the Company not later than December 1, 1997, pursuant to the
proxy soliciting regulations of the Securities and Exchange Commission (the
"SEC"). In addition, the Company's Bylaws require that notice of shareholder
proposals and nominations for director be delivered to the Secretary of the
Company not less than 60 days, nor more than 90 days, prior to the date of an
annual meeting, unless notice or public disclosure of the date of the meeting
occurs less than 60 days prior to the date of such meeting, in which event,
shareholders may deliver such notice not later than the 10th day following the
day on which notice of the date of the meeting was mailed or public disclosure
thereof was made. Nothing in this paragraph shall be deemed to require the
Company to include in its proxy statement and form of proxy for such meeting any
shareholder proposal which does not meet the requirements of the SEC in effect
at the time.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
know of any other matters to be presented for action by the shareholders at the
1997 Annual Meeting. If, however, any other matters not now known are properly
brought before the meeting, the persons named in the accompanying proxy will
vote such proxy in accordance with the determination of a majority of the Board
of Directors.
COST OF SOLICITATION
The cost of soliciting proxies will be borne by the Company. In addition
to use of the mails, proxies may be solicited personally or by telephone by
directors, officers and employees of the Company, who will not be specially
compensated for such activities. Also, Allen Nelson & Co. may solicit proxies
at an approximate cost of $1,200 plus reasonable expenses. Such solicitations
may be made personally, or by mail, facsimile, telephone, telegraph or
messenger. Integrated Measurement Systems, Inc. will also request persons,
firms and companies holding shares in their names or in the name of their
nominees, which are beneficially owned by others, to send proxy materials to and
obtain proxies from such beneficial owners. The Company will reimburse such
persons for their reasonable expenses incurred in that connection.
18
<PAGE>
ADDITIONAL INFORMATION
A copy of the Company's Annual Report to Shareholders for the fiscal year
ended December 31, 1996 accompanies this Proxy Statement. The Company is
required to file an Annual Report on Form 10-K for its fiscal year ended
December 31, 1996 with the Securities and Exchange Commission. Shareholders may
obtain, free of charge, a copy of the Form 10-K (without exhibits) by writing to
Mr. Sar Ramadan, Integrated Measurement Systems, Inc., 9525 S.W. Gemini Drive,
Beaverton, Oregon 97008.
By Order of the Board of Directors
/s/ Keith L. Barnes
----------------------------------
Keith L. Barnes
President and Chief Executive Officer
Beaverton, Oregon
April 1, 1997
19
<PAGE>
EXHIBIT A
INTEGRATED MEASUREMENT SYSTEMS, INC.
1995 STOCK INCENTIVE PLAN
1. PURPOSES OF THE PLAN.
The purposes of this Stock Incentive Plan are to attract and retain the
best available personnel for positions of substantial responsibility, to provide
additional incentive to the Employees and Consultants of the Company and to
promote the success of the Company's business.
Options granted hereunder may be either "incentive stock options," as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
"nonqualified stock options," at the discretion of the Board and as reflected in
the terms of the written option agreement. In addition, shares of the Company's
Common Stock may be Sold hereunder independent of any Option grant.
2. DEFINITIONS.
As used herein, the following definitions shall apply:
2.1 "ADMINISTRATOR" shall mean the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4.1 of the Plan.
2.2 "BOARD" shall mean the [X]Committee, if one has been appointed, or
the[/X] Board of Directors of the Company[X], if no Committee is appointed[/X].
2.3 "CODE" shall mean the Internal Revenue Code of 1986, as amended.
2.4 "COMMITTEE" shall mean a Committee appointed by the Board in
accordance with Section 4.1 of the Plan.
2.5 "COMMON STOCK" shall mean the Common Stock of the Company.
2.6 "COMPANY" shall mean Integrated Measurement Systems, Inc, an Oregon
corporation.
2.7 "CONSULTANT" shall mean any person who is engaged by the Company or
any Parent or Subsidiary to render consulting services and is compensated for
such consulting services and any Director of the Company whether or[X], provided
that the term "Consultant" shall not include Directors who are only paid a
director's fee or who are[/X] not compensated by the Company for their services
as Directors.
NOTE: DOUBLE UNDERSCORES INDICATES LANGUAGE ADDED AND STRIKE THROUGHS INDICATE
LANGUAGE DELETED.
IN THE EDGAR VERSION, DELETED LANGUAGE IS INDICATED BEGINNING WITH [X]
AND ENDING WITH [/X]. INSERTED LANGUAGE IS NOT SPECIFICALLY IDENTIFIED IN
THE EDGAR VERSION.
A-1
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2.8 "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) any sick leave, military leave, or
any other leave of absence approved by the Company [X]Board[/X]; provided,
however, that for purposes of Incentive Stock Options, any such leave is for
a period of not more than ninety days or reemployment upon the expiration of
such leave is guaranteed by contract or statute, provided, further, that on
the ninety-first day of such leave (where re-employment is not guaranteed by
contract or statute) the Optionee's Incentive Stock Option shall
automatically convert to a Nonqualified Stock Option; or (ii) transfers
between locations of the Company or between the Company, its Parent, its
Subsidiaries or its successor.
2.9 "DIRECTOR" shall mean a member of the Board.
2.10 "DISABILITY" shall mean total and permanent disability as defined in
Section 22(e)(3) of the Code.
2.11 "EMPLOYEE" shall mean any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. Neither the
payment of a director's fee by the Company nor service as a Director shall be
sufficient to constitute "employment" by the Company.
2.12 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
2.13 "INCENTIVE STOCK OPTION" shall mean an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
2.14 "NONQUALIFIED STOCK OPTION" shall mean an Option not intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
2.15 "NOTICE OF GRANT" shall mean a written notice evidencing certain
terms and conditions of an individual Option grant. The Notice of Grant is part
of the Option Agreement.
2.16 "OFFICER" shall mean a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
2.17 "OPTION" shall mean a stock option granted pursuant to the Plan.
2.18 "OPTION AGREEMENT" shall mean a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of
the Plan.
2.19 "OPTIONED STOCK" shall mean the Common Stock subject to an Option.
2.20 "OPTIONEE" shall mean an Employee or Consultant who receives an
Option.
2.21 "PARENT" shall mean a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
2.22 "PLAN" shall mean this 1995 Stock Incentive Plan.
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2.23 "RULE 16B-3" shall mean Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
2.24 "SALE" or "SOLD" shall include, with respect to the sale of Shares
under the Plan, the sale of Shares for consideration in the form of cash or
notes, as well as a grant of Shares for consideration in the form of past or
future services.
2.25 "SHARE" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
2.26 "SUBSIDIARY" shall mean a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN.
Subject to the provisions of Section 11 of the Plan, the maximum aggregate
number of Shares which may be optioned and/or Sold under the Plan is 1,620,000
[X]1,250,000[/X] shares of Common Stock. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
Option grants and/or Sales under the Plan; provided, however, that Shares that
have actually been issued under the Plan shall not be returned to the Plan and
shall not become available for future distribution under the Plan.
4. ADMINISTRATION OF THE PLAN.
4.1 PROCEDURE.
4.1.1 MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-3,
the Plan may be administered by different bodies with respect to Directors,
Officers who are not Directors, and Employees who are neither Directors nor
Officers.
4.1.2 ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS SUBJECT
TO SECTION 16(B). With respect to Option grants made to Employees who are
also Officers or Directors subject to Section 16(b) of the Exchange Act,
the Plan shall be administered by (A) the Board, if the Board may
administer the Plan in compliance with the rules governing a plan intended
to qualify as a discretionary plan under Rule 16b-3, or (B) a Committee
designated by the Board to administer the Plan, which Committee shall be
constituted to comply with the rules, if any, governing a plan intended to
qualify as a discretionary plan under Rule 16b-3. Once appointed, such
Committee shall continue to serve in its designated capacity until
otherwise directed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members, remove members
(with or without cause) and substitute new members, fill vacancies (however
caused), and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the rules governing a
plan intended to qualify as a discretionary plan under Rule 16b-3. With
respect to persons subject to Section 16 of the Exchange Act, transactions
under the Plan are intended to comply with all applicable conditions of
Rule 16b-3. To the extent any provision of the Plan or action by the
Administrator fails to so comply, it shall
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be deemed null and void, to the extent permitted by law and deemed
advisable by the Administrator.
4.1.3 ADMINISTRATION WITH RESPECT TO OTHER PERSONS. With respect
to Option grants made to Employees or Consultants who are neither Directors
nor Officers of the Company, the Plan shall be administered by (a) the
Board or (b) a Committee designated by the Board, which Committee shall be
constituted to satisfy the legal requirements relating to the
administration of stock option plans under state corporate and securities
laws and the Code. Once appointed, such Committee shall serve in its
designated capacity until otherwise directed by the Board. The Board may
increase the size of the Committee and appoint additional members, remove
members (with or without cause) and substitute new members, fill vacancies
(however caused), and remove all members of the Committee and thereafter
directly administer the Plan, all to the extent permitted by the legal
requirements relating to the administration of stock option plans under
state corporate and securities laws and the Code.
4.2 POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan,
and in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
4.2.1 to grant Incentive Stock Options in accordance with
Section 422 of the Code, or Nonqualified Stock Options;
4.2.2 to authorize Sales of Shares of Common Stock hereunder;
4.2.3 to determine, upon review of relevant information and in
accordance with Section 8.2 of the Plan, the fair market value of the
Common Stock;
4.2.4 to determine the exercise/purchase price per Share of Options
to be granted or Shares to be Sold, which exercise/purchase price shall be
determined in accordance with Section 8.1 of the Plan;
4.2.5 to determine the Employees or Consultants to whom, and the
time or times at which, Options shall be granted and the number of Shares
to be represented by each Option;
4.2.6 to determine the Employees or Consultants to whom, and the
time or times at which, Shares shall be Sold and the number of Shares to be
Sold;
4.2.7 to interpret the Plan;
4.2.8 to prescribe, amend and rescind rules and regulations relating
to the Plan;
4.2.9 to determine the terms and provisions of each Option granted
(which need not be identical) and, with the consent of the holder thereof,
modify or amend each Option;
4.2.10 to determine the terms and provisions of each Sale of Shares
(which need not be identical) and, with the consent of the purchaser
thereof, modify or amend each Sale;
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4.2.11 to accelerate or defer (with the consent of the Optionee) the
exercise date of any Option;
4.2.12 to accelerate or defer (with the consent of the Optionee or
purchaser of Shares) the vesting restrictions applicable to Shares Sold
under the Plan or pursuant to Options granted under the Plan;
4.2.13 to authorize any person to execute on behalf of the Company
any instrument required to effectuate the grant of an Option or Sale of
Shares previously granted or authorized by the Board;
4.2.14 to determine the restrictions on transfer, vesting
restrictions, repurchase rights, or other restrictions applicable to Shares
issued under the Plan;
4.2.15 to effect, at any time and from time to time, with the
consent of the affected Optionees, the cancellation of any or all
outstanding Options under the Plan and to grant in substitution therefor
new Options under the Plan covering the same or different numbers of
Shares, but having an Option price per Share consistent with the provisions
of Section 8 of this Plan as of the date of the new Option grant;
4.2.16 to establish, on a case-by-case basis, different terms and
conditions pertaining to exercise or vesting rights upon termination of
employment, whether at the time of an Option grant or Sale of Shares, or
thereafter;
4.2.17 to approve forms of agreement for use under the Plan;
4.2.18 to reduce the exercise price of any Option to the then
current fair market value if the fair market value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;[X] and[/X]
4.2.19 to determine whether and under what circumstances an Option
may be settled in cash under subsection 9.6 instead of Common Stock; and
4.2.20 to make all other determinations deemed necessary or
advisable for the administration of the Plan.
4.3 EFFECT OF BOARD'S DECISION. All decisions, determinations and
interpretations of the Administrator shall be final and binding on all Optionees
and any other holders of any Options granted under the Plan or Shares Sold under
the Plan.
5. ELIGIBILITY.
5.1 PERSONS ELIGIBLE. Options may be granted and/or Shares Sold only to
Employees and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been granted an Option or Sold
Shares may, if he or she is otherwise eligible, be granted an additional Option
or Options or Sold additional Shares.
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5.2 ISO LIMITATION. To the extent that the aggregate fair market
value: (i) [X]5.2.1[/X] of [X]s[/X]Shares subject to an Optionee's Incentive
Stock Options granted by the Company, any Parent or Subsidiary, which (ii)
become exercisable for the first time during any calendar year (under all
plans of the Company or any Parent or Subsidiary) exceeds $100,000, such
excess Options shall be treated as Nonqualified Stock Options. For purposes
of this Section 5.2, Incentive Stock Options shall be taken into account in
the order in which they were granted, and the fair market value of the Shares
shall be determined as of the time of grant.
5.3 SECTION 5.2 LIMITATIONS. Section 5.2 of the Plan shall apply only
to an Incentive Stock Option evidenced by an Option Agreement which sets forth
the intention of the Company and the Optionee that such Option shall qualify as
an Incentive Stock Option. Section 5.2 of the Plan shall not apply to any
Option evidenced by a Option Agreement which sets forth the intention of the
Company and the Optionee that such Option shall be a Nonqualified Stock Option.
5.4 NO RIGHT TO CONTINUED EMPLOYMENT. The Plan shall not confer upon
any Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his employment or consulting
relationship at any time, with or without cause.
5.5 OTHER LIMITATIONS. The following limitations shall apply to grants
of Options to Employees:
5.5.1 No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 200,000 Shares.
5.5.2 In connection with his or her initial employment, an
Employee may be granted Options to purchase up to an additional 200,000
Shares which shall not count against the limit set forth in subsection
5.5.1 above.
5.5.3 The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's
capitalization as described in Section 11.
5.5.4 If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a
transaction described in Section 11), the canceled Option shall be counted
against the limits set forth in subsections 5.5.1 and 5.5.2 above). For
this purpose, if the exercise price of an Option is reduced, the
transaction will be treated as a cancellation of the Option and the grant
of a new Option.
6. TERM OF PLAN.
The Plan shall become effective upon the earlier to occur of its adoption
by the Board or its approval by the stockholders of the Company as described in
Section 17 of the Plan. It shall continue in effect for a term of ten (10)
years, unless sooner terminated under Section 13 of the Plan.
7. TERM OF OPTION.
The term of each Option shall be stated in the Notice of Grant; provided,
however, that in the case of an Incentive Stock Option, the term shall be ten
(10) years from the date of grant or such shorter
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term as may be provided in the Notice of Grant. However, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Incentive Stock Option shall be five (5) years from
the date of grant thereof or such shorter term as may be provided in the Notice
of Grant.
8. EXERCISE/PURCHASE PRICE AND CONSIDERATION.
8.1 EXERCISE/PURCHASE PRICE. The per-Share exercise/purchase price for
the Shares to be issued pursuant to exercise of an Option or a Sale shall be
such price as is determined by the Administrator, but shall be subject to the
following:
8.1.1 In the case of an Incentive Stock Option
(a) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price
shall be no less than one hundred ten percent (110%) of the fair
market value per Share on the date of the grant.
(b) granted to any other Employee, the per Share exercise
price shall be no less than one hundred percent (100%) of the fair
market value per Share on the date of grant.
8.1.2 In the case of a Nonqualified Stock Option or Sale, the
[X](a) granted or Sold to a person who, at the time of
the grant of such Option or authorization of such Sale, owns
stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or
Subsidiary, the[/X] per Share exercise/purchase price shall be [X]no
less than one hunderd ten percent (110%) of the fair market value
per Share on the date of the grant or authorization of Sale,
unless otherwise expressly[/X] determined by the Administrator.
[X](b) granted or Sold to any other person, the per Share
exercise/purchase price shall be no less than eighty five percent
(85%) of the fair market value per Share on the date of grant or
authorization of Sale, unless otherwise expressly determined by
the Administrator.
(c) Any determination to sell stock at less than fair
market value on the date of the grant or authorization of Sale
shall be accompanied by an express finding by the Administrator
specifying that the sale is in the best intereset of the Company,
and specifying both the fair market value and the grant or sale
price of the stock.[/X]
8.1.3 Any determination to establish an Option exercise price or
effect a Sale of Common Stock at less than fair market value on the date of
the grant or authorization of Sale shall be accompanied by an express
finding by the Administrator specifying that the sale is in the best
interest of the Company, and specifying both the fair market value and the
Option exercise
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price or sale price of the Common Stock. [X]In the case of an Option
granted or Sale authorized on or after the effective date of registration
of any class of equity security of the Company pursuant to Section 12 of
the Exchange Act and prior to six (6) months after the termination of such
registration, the per Share exercise/purchase price shall be no less
than one hundred percent (100%) of the fair market value per Share on
the date of grant or authorization of Sale.[/X]
8.2 FAIR MARKET VALUE. The fair market value per Share shall be
determined by the Administrator in its discretion; provided, however, that where
there is a public market for the Common Stock, the fair market value per Share
shall be the closing price of the Common Stock (or the closing bid if no sales
were reported) for the last market trading day prior to the date of grant of the
Option or authorization of Sale or other determination, as reported in THE WALL
STREET JOURNAL (or, if not so reported, as otherwise reported by the National
Association of Securities Dealers Automated Quotation (NASDAQ) System) or, in
the event the Common Stock is listed on a stock exchange, the fair market value
per Share shall be the closing price on such exchange for the last market
trading day prior to the date of grant of the Option or authorization of Sale or
other determination, as reported in THE WALL STREET JOURNAL.
8.3 CONSIDERATION. The consideration to be paid for the Shares to be
issued upon exercise of an Option or pursuant to a Sale, including the method of
payment, shall be determined by the Administrator. In the case of an Incentive
Stock Option, the Administrator shall determine the acceptable form of
consideration at the time of grant. Such consideration may consist of:
8.3.1 cash;
8.3.2 check;
8.3.3 transfer to the Company of Shares which
(a) in the case of Shares acquired upon exercise of an
Option, have been owned by the Optionee for more than six months on
the date of surrender, and
(b) have [X]having[/X] a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares to be
acquired [X]as to which said Option shall be exercised[/X];
8.3.4 delivery of instructions to the Company to withhold from
the Shares that would otherwise be issued on the exercise that number of
Shares having a fair market value at the time of such exercise equal to the
Option exercise price;
8.3.5 such other consideration and method of payment for the
issuance of Shares to the extent permitted by legal requirements relating
to the administration of stock option plans and issuances of capital stock
under state corporate and securities laws and the Code; or
8.3.6 any combination of the foregoing methods of payment.
If the fair market value of the number of whole Shares transferred or the
number of whole Shares surrendered is less than the total exercise price of the
Option, the shortfall must be made up in cash or by check. Notwithstanding the
foregoing provisions of this Section 8.3, the consideration for Shares to
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be issued pursuant to a Sale may not include, in whole or in part, the
consideration set forth in subsections (iii) and (iv) above.
9. EXERCISE OF OPTION.
9.1 PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Administrator, including performance criteria with respect to
the Company and/or the Optionee, and as shall be permissible under the terms of
the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under the Option Agreement and
Section 8.3 of the Plan. Each Optionee who exercises an Option shall, upon
notification of the amount due (if any) and prior to or concurrent with delivery
of the certificate representing the Shares, pay to the Company amounts necessary
to satisfy applicable federal, state and local tax withholding requirements. An
Optionee must also provide a duly executed copy of any stock transfer agreement
then in effect and determined to be applicable by the Administrator. Until the
issuance (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a stockholder shall exist with respect to the Optioned Stock
represented by such stock certificate, notwithstanding the exercise of the
Option. No adjustment will be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued, except as
provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
9.2 TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the event
that an Optionee's Continuous Status as an Employee or Consultant terminates
(other than upon the Optionee's death or Disability) the Optionee may exercise
his or her Option, but only within such period of time as is determined by the
Administrator, and only to the extent that the Optionee was entitled to exercise
it at the date of termination (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant). In the case of an
Incentive Stock Option, the Administrator shall determine such period of time
(in no event to exceed ninety (90) days from the date of termination) when the
Option is granted. If, at the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
9.3 DISABILITY OF OPTIONEE. In the event that an Optionee's Continuous
Status as an Employee or Consultant terminates as a result of the Optionee's
Disability, the Optionee may exercise his or her Option at any time within
twelve (12) months from the date of such termination, but only to the extent
that the Optionee was entitled to exercise it at the date of such termination
(but in no event later
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than the expiration of the term of such Option as set forth in the Notice of
Grant). If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
9.4 DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after death, the Optionee's
estate or a person who acquired the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
9.5 RULE 16B-3. Options granted to persons subject to Section 16(b) of
the Exchange Act must comply with Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
9.6 BUYOUT PROVISIONS. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. NONTRANSFERABILITY OF OPTIONS.
Except as otherwise specifically provided in the Option Agreement, an [X]
An[/X]Option may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will, or by the laws of descent and
distribution, and may be exercised during the lifetime of the Optionee only
by the Optionee or, if incapacitated, by his or her legal guardian or legal
representative.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
11.1 CHANGES IN CAPITALIZATION: Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or Sales made or which have been returned to the Plan upon cancellation
or expiration of an Option, as well as the price per share of Common Stock
covered by each such outstanding Option, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock
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of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option.
11.2 DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution
or liquidation of the Company, each outstanding Option will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Administrator. The Administrator may, in the exercise of its
sole discretion in such instances, declare that any Option shall terminate as of
a date fixed by the Board and give each Optionee the right to exercise his or
her Option as to all or any part of the Optioned Stock, including Shares as to
which the Option would not otherwise be exercisable.
11.3 MERGER OR ASSET SALE. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding Option shall be assumed or an
equivalent option shall be substituted by such successor corporation or a Parent
or Subsidiary of such successor corporation, unless the Administrator
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to all of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. If the Administrator makes an Option
fully exercisable in lieu of assumption or substitution in the event of a merger
or sale of assets, the Administrator shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice or such shorter period as the Administrator may specify in the
notice, and the Option will terminate upon the expiration of such period. For
the purposes of this paragraph, the Option shall be considered assumed if,
following the merger or sale of assets, the Option confers the right to
purchase, for each Share of Optioned Stock subject to the Option immediately
prior to the merger or sale of assets, the consideration (whether stock, cash,
or other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets was not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation and the
Optionee, provide for the consideration to be received upon the exercise of the
Option, for each Share of Optioned Stock subject to the Option, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
12. TIME OF GRANTING OPTIONS.
The date of grant of an Option shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option. Notice of
the determination shall be given to each Optionee within a reasonable time after
the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
13.1 AMENDMENT AND TERMINATION. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable[X];
provided, however, that if required to qualify the Plan under Rule 16b 3
promulgated under Section 16 of the Exchange Act no amendment shall be made
more than once every six months that would change the amount, price or timing
of the option grants, other than to comport with changes in the Code or the
rules and regulations promulgated thereunder; and provided, further, that, if
required to qualify the Plan under Rule 16b 3, no amendment
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shall be made without the approval of the stockholders of the Company in the
manner described in Section 17 of the Plan if the amendment would:
13.1.1 increase the number of Shares subject to the Plan, other
than in connection with an adjustment under Section 11 of the Plan;
13.1.2 make a change in the designation of the class of Employees
or Consultants eligible to be granted Options; or
13.1.3 if the Company has a class of equity security registered
under Section 12 of the Exchange Act at the time of such revision or
amendment, cause any material increase in the benefits accruing to
particpants under the Plan.[/X]
13.2 STOCKHOLDER APPROVAL. The Company shall obtain stockholder approval
of any Plan amendment to the extent necessary and desirable to comply with Rule
16b-3 or with Section 422 of the Code (or any successor rule or statute or other
applicable law, rule or regulation, including the requirements of any exchange
or quotation system on which the Common Stock is listed or quoted). Such
stockholder approval, if required, shall be obtained in such a manner and to
such a degree as is required by the applicable law, rule or regulation.
13.3 EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Administrator, which agreement must be in writing and signed by the Optionee
and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES.
Shares shall not be issued pursuant to the exercise of an Option or a Sale
unless the exercise of such Option or consummation of the Sale and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, applicable state securities laws, the Exchange Act, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
(including NASDAQ) upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
15. RESERVATION OF SHARES.
The Company, during the term of this Plan, will at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
16. LIABILITY OF COMPANY.
16.1 INABILITY TO OBTAIN AUTHORITY. Inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
A-12
<PAGE>
As a condition to the exercise of an Option or a Sale, the Company may
require the person exercising such Option or to whom Shares are being Sold to
represent and warrant at the time of any such exercise or Sale that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.
16.2 GRANTS EXCEEDING ALLOTTED SHARES. If the Optioned Stock covered by
an Option exceeds, as of the date of grant, the number of Shares which may be
issued under the Plan without additional stockholder approval, such Option shall
be void with respect to such excess Optioned Stock, unless stockholder approval
of an amendment sufficiently increasing the number of Shares subject to the Plan
is timely obtained in accordance with Section 13 of the Plan.
17. STOCKHOLDER APPROVAL.
Continuance of the Plan shall be subject to approval by the stockholders of
the Company within twelve months before or after the date the Plan is adopted.
Such stockholder approval shall be obtained in the manner and to the degree
required under applicable federal and state law.
[X]
18. SIX MONTH HOLDING PERIOD FOR AFFILIATES
If the Company registers any class of any equity security pursuant to
Section 12 of the Exchange Act, then from the effective date of such
registration until six (6) months after the termination of such registration
(the Public Period), these limits will apply to each Officer, Director and
beneficial owner of ten percent (10%) or more of any class of equity
securities of the Company (Affiliates.) During the Public Period, any
Affiliate shall hold Shares Sold hereunder at least six months from the date
of Sale. During the Public Period, at least six months must elapse from the
date of grant of an Option to an Affiliate to the date the Affiliate disposes
of the Shares acquired upon exercise of the Option, or (if the Option is
disposed of other than be exercise) to the date of disposition of the Option
itself.[/X]
A-13
<PAGE>
INTEGRATED MEASUREMENT SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Integrated Measurement Systems, Inc., an
Oregon corporation (the "Company"), hereby appoints Keith L. Barnes and H.
Raymond Bingham, or either of them, with full power of substitution in each, as
proxies to cast all votes which the undersigned shareholder is entitled to cast
at the Annual Meeting of Shareholders (the "Annual Meeting") to be held at 10:00
a.m. on Tuesday May 6, 1997 at the Embassy Suites, 9000 SW Washington Square
Road in Tigard Oregon and any adjournments or postponements thereof upon the
following matters:
1. PROPOSAL 1 -- Election of Two Directors for a Three-Year Term
/ / FOR the nominees listed below (except as indicated below)
/ / WITHHOLD AUTHORITY to vote for all nominees listed below
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
OUT THAT NOMINEE'S NAME SHOWN.)
H. RAYMOND BINGHAM MILTON R. SMITH
2. PROPOSAL TO APPROVE AMENDMENTS TO THE 1995 STOCK INCENTIVE PLAN.
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO RATIFY SELECTION OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS
FOR THE 1997 FISCAL YEAR.
/ / FOR / / AGAINST / / ABSTAIN
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF.
Please check the box if you plan to attend the Annual Meeting / /
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. UNLESS DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED "FOR" THE ELECTION OF THE NOMINEES LISTED IN PROPOSAL 1, "FOR"
PROPOSALS 2 AND 3, AND IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE MAJORITY OF
THE BOARD OF DIRECTORS AS TO OTHER MATTERS. THE UNDERSIGNED HEREBY ACKNOWLEDGES
RECEIPT OF THE COMPANY'S PROXY STATEMENT AND HEREBY REVOKES ANY OTHER PROXY OR
PROXIES PREVIOUSLY GIVEN.
Dated _________________________
_______________________________
Shareholder (print name)
_______________________________
Shareholder (sign name)
Please sign exactly as your
name appears on the Proxy Card.
If shares are registered in
more than one name, the
signatures of all such persons
are required. A corporation
should sign in its full
corporate name by a duly
authorized officer, stating
his/her title. Trustees,
guardians, executors and
administrators should sign in
their official capacity, giving
their full titles as such. If a
partnership, please sign in the
partnership name by authorized
person(s). If you receive more
than one Proxy Card, please
sign and return all such cards
in the accompanying envelope.
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD TODAY, USING THE ENCLOSED ENVELOPE
