<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:
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(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):
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(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:
-----------------------------------------------------------------------
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(4) Date Filed:
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<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 5, 1998
---------------------
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 5, 1998, 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 AMENDMENT TO THE COMPANY'S 1995 STOCK INCENTIVE PLAN. To
approve an amendment 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, 1998; 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 13, 1998 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,
Keith L. Barnes
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Beaverton, Oregon
April 6, 1998
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>
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 5, 1998
---------------------
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 5, 1998, and at any adjournments or postponements thereof (the "Annual
Meeting"). At the Annual Meeting, shareholders will be asked to elect two
members of the Company's Board of Directors, approve an amendment 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, 1998, 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 6, 1998.
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
The Board of Directors has fixed the close of business on March 13, 1998
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 1,990 beneficial holders of the
7,541,130 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
AMENDMENT 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, 1998. 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 Articles of Incorporation, 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 6, 1998, 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
Age Since of Term Positions held with IMS
--- -------- ---------- -----------------------
<S> <C> <C> <C> <C>
NOMINEES:
Keith L. Barnes 46 1989 1998 President, Chief Executive
Officer and Director
C. Scott Gibson 45 1995 1998 Director
CONTINUING DIRECTORS:
James M. Hurd 49 1995 1999 Director
James E. Solomon 61 1995 1999 Director
H. Raymond Bingham 52 1993 2000 Chairman of the Board
Milton R. Smith 62 1997 2000 Director
</TABLE>
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. Mr. Barnes is a member of the Board of
Trustees for the Oregon Graduate Institute of Science and Technology. 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. Mr. Barnes is a director of VXI
Electronics, a private manufacturer of power systems modules.
2
<PAGE>
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. Prior to forming Sequent Computer Systems, Mr. Gibson
was General Manager of Intel's Memory Components Operation. Mr. Gibson
serves as a director of Adaptive Solutions, Inc., Inference Corp., Radisys
Corporation and Triquint Semiconductor, Inc., which are public companies.
Mr. Gibson also serves as Chairman of the Oregon Graduate Institute of
Science and Technology and as a director of several privately held technology
companies.
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 Design Systems, Inc.
("Cadence") from February 1994 to May 1996. Mr. Solomon has served as Senior
Vice President and General Manager of Cadence's Analog Division from June
1989 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.
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 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 owned and operated a
chain of hotels. Mr. Bingham serves as a director of Sunstone Hotel Investors
Inc., Cadence and Innotech.
MILTON R. SMITH. Mr. Smith has been a director of the Company since
1997. Mr. Smith currently serves as President of Smith Investments, a private
investing and consulting firm. From September 1994 to February 1995 Mr.
Smith served as President and Chief Executive Officer of Zeelan Technology,
Inc., a software company. Mr. Smith was co-founder of and from October 1992
to May 1994 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. Mr.
Smith was co-founder of and from October 1986 until January 1992, held at
various times the positions of Chairman of the Board, President and Chief
Executive Officer of Floating Point Systems, Inc. Mr. Smith serves on the
Board of Directors of ThrustMaster, Inc., a public company, and TFR
Technologies, Inc., a private company.
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 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
3
<PAGE>
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 1997 the Company's Board of Directors held four 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 a standing Audit Committee which, during the
fiscal year ended December 31, 1997, conducted two meetings. The members of
the Audit Committee currently are Messrs. Bingham, Gibson and Smith. The
Audit Committee reviews the scope of the independent annual audit and 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' response to that letter, if deemed necessary.
The Board of Directors also has 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, 1997, the
Compensation Committee held five meetings. The members of the Compensation
Committee currently are Messrs. Gibson, Hurd 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 46 President, Chief Executive Officer and Director
Sar Ramadan 55 Chief Financial Officer, Secretary and Treasurer
Mark Allison 41 Vice President, Marketing
W. Barry Baril 46 Vice President, Engineering
David L. Brinker 47 General Manager, Test Software Division
James P. Fraine 42 Vice President, Sales
Donald E. Grant 56 Vice President, Operations
Gwyn Harvey 44 Director of Human Resources
Kenneth R. Lindsay 53 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 management and professional 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 for the fiscal
years ended December 31, 1995, 1996 and 1997 concerning compensation of the
Company's Chief Executive Officer and each of the four other most highly
compensated executive officers of the Company for the fiscal year ended
December 31, 1997 (collectively, the "named executive officers").
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> <C> <C>
Keith L. Barnes . . . . . . . . . 1995 $195,000 $98,886 $11,538(1) 84,000 $7,654(2)
President and Chief Executive 1996 200,000 139,250 12,939(3) 120,000 6,000(4)
Officer 1997 237,500 52,000 13,467(3) 180,448 6,000(4)
David L. Brinker . . . . . . . . 1995 -- -- -- -- --
General Manager, Test Software 1996 500 -- -- 50,000 --
Division 1997 130,000 51,938 -- 25,000 731(5)
Sar Ramadan . . . . . . . . . . . 1995 112,250 32,246 -- 47,000 2,223(5)
Chief Financial Officer 1996 127,744 41,909 -- 10,000 2,130(5)
1997 138,250 23,580 -- 95,000(6) 1,630(5)
James P. Fraine . . . . . . . . . 1995 132,250 -- 83,101(7) 14,000 7,331(5)
Vice President, Sales 1996 136,458 -- 86,400(7) 7,000 1,439(5)
1997 139,580 9,698 54,589(7) 20,000(6) 467(5)
Donald E. Grant . . . . . . . . . 1995 102,302 25,705 4,000(1) 47,000 891(5)
Vice President, Operations 1996 116,000 31,844 -- 10,000 2,604(5)
1997 131,250 15,300 -- 70,000(6) 3,027(5)
</TABLE>
- ------------------
(1) Reflects a cash payment in lieu of vacation
(2) Represents automobile allowance and Company payments of additional
insurance premiums
(3) Represents Company reimbursements for organization dues, Company
payments of additional insurance premiums and reimbursement of certain
travel expenses.
(4) Represents automobile allowance.
(5) Represents Company payments of additional insurance premiums and, in
certain cases, reimbursement of certain travel expenses.
(6) Includes the issuance of 40,000, 10,000 and 30,000 options to Messrs.
Ramadan, Fraine and Grant, respectively, that were subsequently
cancelled in connection with the grant of replacement options.
Consequently, of the numbers reported above only 55,000, 10,000 and
40,000 of the options granted during 1997 continue to be held by
Messrs. Ramadan, Fraine and Grant, respectively. See "Executive
Compensation - Stock Option Grants" and "10-Year Option Repricings."
(7) Represents sales commissions.
7
<PAGE>
STOCK OPTION GRANTS
The following table sets forth certain information concerning stock
options granted to the named executive officers during the year ended
December 31, 1997 under the Company's 1995 Stock Incentive Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Number of Percent of Value at Assumed
Securities Total Options Annual Rates of Stock
Underlying Granted to Exercise Price Appreciation for
Options Employees in Price Per Expiration Option Term(3)
Granted(1) Fiscal 1997 Share(2) Date 5% 10%
---------- ------------- --------- ---------- ------- -------
Name
----
<S> <C> <C> <C> <C> <C> <C>
Keith L. Barnes . . . . . . . . . . 45,112 7% $11.75 7/2/07 $333,356 $ 844,789
45,112(4) 7% 11.75 7/2/07 333,356 844,789
90,224(5) 14% 11.75 7/2/07 666,712 1,689,578
David L. Brinker . . . . . . . . . 25,000 4% 13.00 4/2/07 204,391 517,966
Sar Ramadan . . . . . . . . . . . . 40,000(6) 6% 18.50 1/13/07 465,382 1,179,369
40,000 6% 11.75 7/2/07 295,580 749,059
15,000(5) 3% 11.75 7/2/07 110,843 280,897
James P. Fraine . . . . . . . . . . 10,000(6) 2% 18.50 1/13/07 116,346 294,842
10,000 2% 11.75 7/2/07 73,895 187,265
Donald E. Grant . . . . . . . . . . 30,000(6) 5% 18.50 1/13/07 349,036 884,527
30,000 5% 11.75 7/2/07 221,685 561,794
10,000(5) 2% 11.75 7/2/07 73,895 187,265
</TABLE>
- ---------------------------
1) Unless otherwise indicated, 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.
4) Options vest four years after date of grant, subject to acceleration and
immediate exercisibility upon attainment of certain performance
objectives.
5) Options vest ten years after date of grant, subject to acceleration and
immediate exercisibility upon attainment of certain performance
objectives.
6) Options were cancelled in connection with issuance of replacement
options with a new vesting schedule and exercise price.
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, 1997,
and the value of unexercised options held as of December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FY-END OPTION VALUES
<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 . . . . 3,000 $27,750 98,648 282,800 $642,479 $1,491,054
David L. Brinker . . . -- -- 14,689 60,311 65,592 268,783
Sar Ramadan . . . . . . -- -- 41,126 70,874 318,096 426,654
James P. Fraine . . . . -- -- 13,938 17,062 101,895 103,230
Donald E. Grant . . . . -- -- 39,876 57,124 311,377 352,748
</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
of Cadence subsidiaries. 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 1997 to any officers of the Company.
In 1997, Company employees, including officers, exercised 359,454
options to acquire Common Stock of Cadence and realized gains of
approximately $6,390,785. Of the 359,454 options exercised, officers of
the Company exercised options for 132,846 shares of Cadence Common Stock
and realized gains of approximately $2,495,559. The named executive
officers accounted for gains of approximately $1,949,467.
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-48,766;
$898,009; 3,767/7,501; $81,736/$162,756; Mr. Brinker-0; $0; 0/0; $0/$0;
Mr. Ramadan-23,440; $384,804; 4,220/9,844; $89,538/$208,364; Mr.
Fraine-28,080; $499,773; 107/16,407; $2,282/$349,846; Mr. Grant-19,676;
$372,930; 1,419/4,219; $30,612/$91,016.
(2) Amounts reflected are based upon the market value of the underlying
securities at fiscal year end minus the exercise price.
9
<PAGE>
TEN YEAR OPTION REPRICINGS
The following table provides information regarding all repricings of
stock options held by any named executive officer of the Company since July
21, 1995, the date the Company became a reporting company under the
Securities Exchange Act of 1934, as amended.
10-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
Number of Market
Securities Price of Exercise Length of Original
Underlying Stock at Price at New Option Term
Options Time of Time of Exercise Remaining at Date of
Name Date Repriced Repricing Repricing Price Repricing
- ---- ---- ---------- --------- --------- -------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Keith L. Barnes . . . . -- -- -- -- -- --
David L. Brinker . . . -- -- -- -- -- --
Sar Ramadan . . . . . . 7/2/97 40,000 $11.75 $18.50 $11.75 9 years, 195 days
James P. Fraine . . . . 7/2/97 10,000 11.75 18.50 11.75 9 years, 195 days
Donald E. Grant . . . . 7/2/97 30,000 11.75 18.50 11.75 9 years, 195 days
</TABLE>
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 up to 90% of compensation, the limitation
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. 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 vested by July 1, 1997
(or the in-the-money value) would also be paid.
10
<PAGE>
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 each meeting of a
committee of the Board attended if not on the date of a regularly scheduled
Board meeting. Committee chairs receive an additional $500 per meeting. In
1997, each nonemployee director received certain stock options under the
Company's 1995 Stock Incentive Plan.
COMPENSATION COMMITTEE REPORT
Under rules established by the Securities and Exchange Commission (the
"SEC"), the Company is required to provide certain data and information
regarding 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 compensation 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 overall performance of the Company. 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 1997 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 1997, the
Company's executive officers received aggregate cash bonuses equal to
approximately 15% of the total base salaries paid to such officers based on
the Company's achievement of established performance goals.
11
<PAGE>
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 1997, options to purchase a total of 448,448 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.
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. The vesting of certain options granted to executive officers in 1997
was tied to the attainment of certain performance objectives.
STOCK OPTION REPRICING. In July 1997, the Compensation Committee
authorized a reissuance of all non-director stock options which had an
exercise price of $18.50 granted to employees, including certain executive
officers, in January 1997. The new exercise price for these options was
fixed at $11.75, the market price of the Company's Common Stock at the time
of the reissuance. Stock options granted to employees under the Company's
1995 Stock Incentive Plan are intended to provide incentives to the employees
to work to achieve long-term success for the Company. A decline in the
market price of the Company's Common Stock since the date the options were
granted frustrated the purpose of the options, and the Compensation Committee
deemed it to be in the best interests of the Company to reduce the exercise
price to the market price at the time of repricing. See "10-Year Option
Repricings" table for further information concerning the option repricing.
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 1997. Mr. Barnes received a base
salary of $237,500 for 1997. He also earned a $52,000 cash bonus. Mr.
Barnes received the bonus based upon achieving a performance goal specified
in advance by the Compensation Committee. In July 1997, Mr. Barnes received
options to purchase 180,448 shares of the Company's Common Stock.
COMPENSATION COMMITTEE
C. Scott Gibson
James M. Hurd
Milton R. Smith
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during the fiscal year ended
December 31, 1997 were C. Scott Gibson, James M. Hurd and Milton R. Smith.
12
<PAGE>
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>
Name 7/21/95 9/30/95 12/31/95 3/31/96 6/30/96 9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97
- ---- ------- ------- -------- ------- ------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
IMSC 100.00 120.45 134.09 142.05 234.09 150.00 157.95 136.36 134.66 163.64 155.73
Nasdaq Index 100.00 104.37 105.65 110.57 119.60 123.85 129.94 122.90 145.42 170.02 159.45
Peer Group 100.00 103.71 109.15 105.24 122.51 132.92 142.45 117.97 131.85 197.85 173.66
</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-Tencor, Inc., LTX Corp., Mentor Graphics, Inc.,
Synopsys, Inc. and Teradyne, Inc. The past performance of the 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.
Based solely on its review of the copies of such reports received by it
with respect to fiscal 1997 and written representations from reporting
persons that no other reports were required, the Company believes that all
filing requirements applicable to its directors, officers and persons who own
more than 10% of a registered class of the Company's equity securities have
been complied with for fiscal 1997, except that David L. Brinker, an
executive officer of the Company, inadvertently filed one Form 5 reflecting
one exempt transaction late and Cadence was delinquent in filing the Form 4
required by virtue of its sale of Company Common Stock in the February, 1997
secondary public offering.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
In certain foreign markets, primarily Europe, Cadence employees act as
sales agents for the Company. The Company reimburses Cadence through
intercompany accounts for related costs incurred on the Company's behalf,
plus an administrative fee. Cadence provides selling, service and production
support related to the Company's Virtual Test Software. The Company has paid
Cadence based upon estimated costs to provide this support. Cadence provides
facilities for certain domestic Company sales
13
<PAGE>
personnel. During 1997 the costs of the above services provided by Cadence
totaled approximately $2,648,000. In 1997 the Company sold a mixed-signal
Test Station and related upgrades and peripherals to Cadence, to be used by
Cadence's design services group providing engineering test services to their
customers, for approximately $1,329,000.
On June 4, 1997, the Company loaned to James P. Fraine, the Company's
Vice President, Sales, $70,000 which was to be repaid together with interest
at a rate of 6% per annum under a Promissory Note. Mr. Fraine repaid $35,000
together with accrued interest thereon on December 2, 1997. The remaining
$35,000 principal balance and all interest thereon are to be repaid on March
31, 1998 under the terms of the Promissory Note.
STOCK OWNED BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
ownership of the Common Stock as of March 13, 1998 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 continuing
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 36.6%
2655 Seely Road, Bldg 5, MS 5B2
San Jose, CA 95134 (2)
Kopp Investment Advisors, Inc. (3) . . . . . . 781,175 10.4%
LeRoy C. Kopp
6600 France Avenue South, Suite 672
Edina, MN 55435
Oppenheimer Funds, Inc. (4) . . . . . . . . . . 615,000 8.2%
Two World Trade Center
New York, NY 10048
Invista Capital Management, Inc. (5) . . . . . 521,600 6.9%
Principal Mutual Life Insurance Co.
699 Walnut, 1800 Hub Tower
Des Moines, IA 50309
Keith L. Barnes . . . . . . . . . . . . . . . . 128,461 1.7%
David L. Brinker . . . . . . . . . . . . . . . 20,201 *
Sar Ramadan . . . . . . . . . . . . . . . . . . 51,183 *
W. Barry Baril . . . . . . . . . . . . . . . . 61,266 *
Donald E. Grant . . . . . . . . . . . . . . . . 47,649 *
H. Raymond Bingham . . . . . . . . . . . . . . 15,944 *
C. Scott Gibson . . . . . . . . . . . . . . . 18,044 *
James M. Hurd . . . . . . . . . . . . . . . . . 13,944 *
Milton R. Smith . . . . . . . . . . . . . . . . 4,569 *
James E. Solomon . . . . . . . . . . . . . . . 13,944 *
Executive Officers and Directors as a group
(14 persons) . . . . . . . . . . . . . . . . . 447,101 5.6%
</TABLE>
- ----------------------------
* less than one percent
14
<PAGE>
(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
13, 1998 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
13, 1998 is as follows: Mr. Barnes - 120,074; Mr. Brinker - 20,201; Mr.
Ramadan - 49,625; Mr. Baril - 60,200; Mr. Grant - 47,126; Messrs.
Bingham, Gibson, Hurd and Solomon -13,944; Mr. Smith - 3,569; all
Executive Officers and Directors as a group - 420,329.
(2) On February 20, 1997, the Company consummated a firm underwritten
secondary public offering of its Common Stock in which Cadence Design
Systems, Inc. sold 950,000 shares. As a result of the issuance of
additional shares by the Company in such secondary offering and the sale
by Cadence of shares in such offering, Cadence's ownership interest in
the Company was reduced from approximately 55.1% prior to the offering
to 37.2% after the offering.
(3) This information as to beneficial ownership is based on a Schedule 13G
filed by Kopp Investment Advisors, Inc. on behalf of itself, Kopp
Holding Company and LeRoy C. Kopp. Kopp Investment Advisors, Inc. had
sole voting and dispositive power of 101,500 shares, sole dispositive
power over 25,500 shares and shared dispositive power over 735,675
shares; LeRoy C. Kopp had sole voting power over 20,000 shares. The
Schedule 13G states that 761,175 shares are held in a representative or
fiduciary capacity.
(4) This information as to beneficial ownership is based on a Schedule 13G
filed by Oppenheimer Funds, Inc. on behalf of itself and Oppenheimer
Discovery Fund. Oppenheimer Funds, Inc. had shared dispositive power
over 615,000 shares and Oppenheimer Discovery Fund had sole voting power
and shared dispositive power over 585,000 shares.
(5) This information as to beneficial ownership is based on a Schedule 13G
filed by Invista Capital Management, Inc. and Principal Mutual Life
Insurance Company. Each such entity had shared voting power and shared
dispositive power over 521,600 shares.
APPROVAL OF AMENDMENT 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 1,620,000 shares of
Common Stock have been reserved for issuance under the 1995 Plan. As of
March 31, 1998, approximately 172,343 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. Accordingly, the Board of Directors has approved, and
recommends shareholder adoption of, an amendment to the 1995 Plan that would
increase from 1,620,000 shares to 1,995,000 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 following is a summary of the basic terms and provisions
of the 1995 Plan.
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
15
<PAGE>
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 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
16
<PAGE>
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,
1998, 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, 1998. No
determination has been made as to what action the Board of Directors would
take if the shareholders do not ratify the appointment.
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.
17
<PAGE>
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 1999 annual meeting of
shareholders must be received by the Company not later than December 7, 1998,
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 1998 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.
ADDITIONAL INFORMATION
A copy of the Company's Annual Report to Shareholders for the fiscal
year ended December 31, 1997 accompanies this Proxy Statement. The Company
is required to file an Annual Report on Form 10-K for its fiscal year ended
December 31, 1997 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
Keith L. Barnes
President and Chief Executive Officer
Beaverton, Oregon
April 6, 1998
18
<PAGE>
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 Board of Directors of the Company.
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 not
compensated by the Company for their services as Directors.
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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; 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 1,995,000
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;
4.2.11 to accelerate or defer (with the consent of the Optionee) the
exercise date of
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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;
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.
5.2 ISO LIMITATION. To the extent that the aggregate fair market value:
(i) of Shares subject to an Optionee's Incentive Stock Options granted by the
Company, any Parent or Subsidiary,
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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 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
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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
per Share exercise/purchase price shall be determined by the
Administrator.
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 price or sale price of the Common Stock.
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;
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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 a fair market value on the date of surrender
equal to the aggregate exercise price of the Shares to be acquired;
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 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
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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 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
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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
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 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
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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.
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.
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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.
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.
A-12
<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 5, 1998 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.)
KEITH L. BARNES C. SCOTT GIBSON
2. PROPOSAL TO APPROVE AMENDMENT TO THE 1995 STOCK INCENTIVE PLAN.
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO RATIFY SELECTION OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS
FOR THE 1998 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
