<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
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.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
INTEGRATED MEASUREMENT SYSTEMS, INC.
9525 S.W. GEMINI DRIVE
BEAVERTON, OR 97008
(503) 626-7117
----------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 4, 1999
----------------------
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 4, 1999, 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 three 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, 1999; and
4. OTHER BUSINESS. To transact such other business as may properly come
before the meeting or any adjournments or postponements thereof.
The Board of Directors of the Company has fixed the close of business
on March 12, 1999 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 2, 1999
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 4, 1999
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 4,
1999, and at any adjournments or postponements thereof (the "Annual Meeting").
At the Annual Meeting, shareholders will be asked to: (i) elect three members to
the Company's Board of Directors; (ii) approve an amendment to the Company's
1995 Stock Incentive Plan; (iii) 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, 1999; and (iv) 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 2, 1999.
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
The Board of Directors has fixed the close of business on March 12,
1999 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 1,347 beneficial holders of the 7,460,616 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.
The two persons named as proxies on the enclosed proxy card, Keith L.
Barnes and H. Raymond Bingham, were designated by the Board of Directors. 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 by the named
proxies in accordance with the instructions marked thereon. EXECUTED BUT
UNMARKED PROXIES WILL BE VOTED FOR THE ELECTION OF THE THREE 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, 1999. 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.
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.
1
<PAGE>
ELECTION OF DIRECTORS
At the Annual Meeting, three 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 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 2, 1999, 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
NOMINEES AGE SINCE OF TERM POSITIONS HELD WITH IMS
-------- --- -------- ---------- -----------------------
<S> <C> <C> <C> <C>
Thomas R. Franz 40 1999 2002 Director
Paul A. Gary 58 1998 2002 Director
James E. Solomon 62 1995 2002 Director
CONTINUING DIRECTORS
--------------------
H. Raymond Bingham 53 1993 2000 Chairman of the Board
Milton R. Smith 63 1997 2000 Director
Keith L. Barnes 47 1989 2001 President, Chief Executive
Officer and Director
C. Scott Gibson 46 1995 2001 Director
</TABLE>
THOMAS R. FRANZ. Mr. Franz will be a director of the Company beginning
April 1999. Mr. Franz currently serves as Vice President of the Computing
Enhancement Group and General Manager of the Embedded Microcomputer Division at
Intel Corporation ("Intel"). Mr. Franz joined Intel in 1980.
PAUL A. GARY. Mr. Gary has served as a director of the Company since
September 1998. From 1967 until 1996, Mr. Gary served in various capacities for
Bell Laboratories, Western Electric and AT&T Microelectronics/Lucent
Technologies, Inc., with his last position being Vice President of Netcom IC
Business Unit for eight years. Mr. Gary retired from Lucent in June 1996. Mr.
Gary is also on the board of directors of TriQuint Semiconductor, Inc. and Data
I/O Corporation.
2
<PAGE>
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 as 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, ONYX
Software Corporation, Legato Systems, Inc. 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 as a director of several privately
held companies and not-for-profit organizations.
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.
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 Inference Corp., Radisys Corporation, TriQuint Semiconductor, Inc. and
Egghead.com, 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.
3
<PAGE>
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 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 1998 the Company's Board of Directors held five meetings. Each
incumbent director attended more than 75% of the aggregate of the total number
of meetings held by the Board of Directors and the total number of meetings held
by all committees of the Board on which he served during the period that he
served.
The Board of Directors has an Audit Committee, which during the fiscal
year ended December 31, 1998, conducted four 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, 1998, the Compensation
Committee held ten meetings. The members of the Compensation Committee during
1998 were Messrs. Gibson and Smith and Mr. Jim Hurd, a current director who is
not standing for re-election or continuing to serve as a Director.
See "Management - Executive Compensation" for 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 47 President, Chief Executive Officer and Director
Fred Hall 49 Chief Financial Officer, Secretary and Treasurer
Mark Allison 42 General Manager, Memory Products Division
W. Barry Baril 47 Chief Technology Officer
James P. Fraine 43 Vice President, North American Sales and
Worldwide Major Accounts
Donald E. Grant 57 Senior Vice President, Operations and
General Manager, Digital
Test Systems Division
Gwyn Harvey 45 Vice President, Human Resources
Wendell Roberts 56 Vice President, World Wide Sales
Paul Scrivens 51 General Manager, Mixed Signal Product Division
</TABLE>
SIGNIFICANT EMPLOYEES
The following table sets forth certain information with respect to the
significant employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David Flaningam 47 General Manager, Virtual Test Division
Richard Schilling 58 Director, Service Division
</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 and significant employees of the Company who are not also directors of
the Company is set forth below.
FRED HALL. Mr. Hall joined the Company in 1998 as Chief Financial
Officer, Secretary and Treasurer. From 1997 until joining the Company in 1998,
Mr. Hall was Vice President, Finance and Chief Financial Officer of Naiad
Technologies, Inc., a biotechnology start-up company. From October 1994 until
1997, Mr. Hall served as Vice President, Chief Financial Officer, Treasurer and
Assistant Secretary for CFI ProServices, Inc., a provider of integrated,
PC-based software for financial institutions. From June 1992 until October 1994,
Mr. Hall served as Vice President, Finance and Chief Financial Officer,
Secretary and Treasurer of Itronix Corporation, a manufacturer of hand held
computers.
MARK ALLISON. Mr. Allison joined the Company in November 1995 as Vice
President of Marketing and was appointed General Manager, Memory Division in
1998. 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 and was
appointed Chief Technology Officer in 1998. 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.
5
<PAGE>
DAVID FLANINGAM. Mr. Flaningam joined the Company in February 1998 as
Director of Sales, Virtual Test Division and was promoted later in 1998 to
General Manager, Virtual Test Division. Prior to joining the Company, Mr.
Flaningam was Vice President of Asian Operations at Credence Systems, Inc., a
manufacturer of ATE equipment. Prior to that, Mr. Flaningam was Vice President
of International Operations for TSSI, a test software company that he
co-founded.
JAMES P. FRAINE. Mr. Fraine joined the Company in 1994 as Vice
President, Sales and is currently Vice President, North American Sales and
Worldwide Major Accounts. 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 1978 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 and was promoted to Senior Vice President, Operations and General
Manager of the Digital Test Systems Division in 1998. 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 and
engineering positions with Hewlett Packard from 1972 to 1983. Mr. Grant
graduated from the United States Naval Academy with a B.S. in Physics in 1963
and earned an M.B.A. from Harvard in 1972.
GWYN HARVEY. Ms. Harvey is currently Vice President of Human Resources.
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. Ms. Harvey has over 25 years of experience in the high
technology sector.
WENDELL ROBERTS. Mr. Roberts joined the Company in March 1999 as Vice
President, World Wide Sales. From 1997 until joining the Company, Mr. Roberts
was Vice President, U.S. and European Sales and Vice President, Global Accounts
for Mattson Technology Corporation, a supplier of semiconductor wafer processing
equipment. From 1992 until 1997, Mr. Roberts served as President of Summit Sales
Strategies, Inc., a sales process and productivity consulting firm he founded.
From 1990 until 1992, Mr. Roberts served as General Manager, Northwest Area
Sales Operations for Mentor Graphics Corporation, an electronic design
automation company. From 1989 until 1990, Mr. Roberts served as Vice President,
North American Sales for Synopsys, Inc., also an electronic design automation
company.
RICHARD SCHILLING. Mr. Schilling joined the Company in 1991 as Service
Manager and in 1998, he was promoted to General Manager, Services Division. From
1990 until 1991, Mr. Schilling served as Customer Support Manager for Credence
Systems, Inc. For the 20 years prior to 1990, he served in a variety of
capacities with Tektronix, Inc., most recently as the Field Service Manager for
the Semiconductor Test Systems Division.
PAUL SCRIVENS. Mr. Scrivens joined the Company in March 1998 as General
Manager, Mixed Signal Division. From January 1993 until joining the Company, Mr.
Scrivens was employed by Credence Systems, Inc., with his final position being
Vice President of Marketing, which he held since March 1994.
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, 1996, 1997 and 1998 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, 1998 (collectively, the "named executive officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
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.............. 1996 $200,000 $139,250 $18,939(1) 120,000 $ -
President and Chief 1997 237,500 52,000 19,467(1) 180,448 -
Executive Officer 1998 250,000 - 18,194(1) 779,896(2) -
James P. Fraine.............. 1996 136,458 -- 87,839(4) 7,000 -
Vice President, Sales 1997 139,580 9,698 55,056(4) 20,000(3) -
1998 143,150 9,698 63,459(4) 80,000(2) -
Donald E. Grant.............. 1996 116,000 31,844 2,604(1) 10,000 -
Senior Vice President and 1997 131,250 15,300 3,027(1) 70,000(3) -
General Manager, Digital 1998 142,088 694 2,107(1) 150,000(2) 5,192 (5)
Test Systems Division
W. Barry Baril............... 1996 122,500 37,699 1,407(1) 10,000 -
Chief Technology Officer 1997 129,500 15,129 727(1) 30,000 -
1998 136,250 2,725 742(1) 180,000(2) -
Mark Allison............... 1996 112,000 27,473 355(1) - 38,151 (6)
General Manager, Memory 1997 116,200 10,449 372(1) 23,000 -
Division 1998 123,150 7,087 401(1) 115,000(2) -
</TABLE>
(1) Represents Company reimbursements for one or more of the following:
organization dues, Company payments of additional insurance premiums and an
automobile allowance.
(2) Grants during 1998, net of those canceled and reissued, were 66,000,
32,000, 50,000, 50,000 and 25,000, respectively, for Messrs. Barnes,
Fraine, Grant, Baril and Allison, respectively. See "Executive Compensation
-- Stock Option Grants" and "-- 10-Year Option Repricings."
(3) Grants during 1997, net of those canceled and reissued, were 10,000 and
40,000, respectively, for Messrs. Fraine and Grant, respectively. See
"Executive Compensation -- Stock Option Grants" and "-- 10-Year Option
Repricings."
(4) Represents sales commissions of $86,400, $54,589 and $62,977 in 1996, 1997
and 1998 respectively, with the balance of the amount consisting of items
described in (1) above.
(5) Represents a cash pay-out of accrued vacation.
(6) Represents relocation assistance.
7
<PAGE>
STOCK OPTION GRANTS
The following table sets forth certain information concerning stock
options granted to the named executive officers during the year ended December
31, 1998 under the Company's 1995 Stock Incentive Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value
At Assumed Annual
Rates of Stock Price
Appreciation for
Individual Grants Option Term (2)
- ----------------------------------------------------------------------------------- -----------------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Exercise Expiration
Name Granted Fiscal Year Price/Share (1) Date 5% ($) 10% ($)
- ----------------------- -------------- -------------- ---------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Keith L. Barnes...... 16,000 0.6% $11.375 03/05/08 $ 114,459 $ 290,061
316,448(3) 12.2% 9.000 05/05/08 1,791,112 4,539,030
397,448(3) 15.3% 7.000 07/07/08 1,749,670 4,434,007
50,000 1.9% 6.250 09/03/08 196,530 498,045
----------- ------ ------------ ------------
779,896(4) 30.0% $ 3,851,771 $ 9,761,143
James P. Fraine...... 7,000 0.3% $14.375 01/20/08 $ 63,283 $ 160,370
24,000(3) 0.9% 9.000 05/05/08 135,841 344,248
24,000(3) 0.9% 7.000 07/07/08 105,654 267,749
25,000 1.0% 6.250 09/03/08 98,265 249,023
----------- ------ ------------ ------------
80,000(5) 3.1% $ 403,043 $ 1,021,390
Donald E. Grant...... 50,000(3) 1.9% $9.000 05/05/08 $ 283,003 $ 717,184
50,000(3) 1.9% 7.000 07/07/08 220,113 557,810
50,000 1.9% 6.250 09/03/08 196,529 498,044
----------- ------ ------------ ------------
150,000(6) 5.7% $699,645 $1,773,038
W. Barry Baril....... 30,000(3) 1.2% $9.000 05/05/08 $169,802 $ 430,310
100,000(3) 3.8% 7.000 07/07/08 440,226 1,115,620
50,000 1.9% 6.250 09/03/08 196,530 498,045
----------- ------ ------------ ------------
180,000(7) 6.9% $806,558 $2,043,975
Mark Allison......... 5,000 0.2% $11.375 03/05/08 $ 35,768 $ 90,644
45,000(3) 1.7% 9.000 05/05/08 254,702 645,466
45,000(3) 1.7% 7.000 07/07/08 198,102 502,029
20,000 0.8% 6.250 09/03/08 78,612 199,218
----------- ------ ------------ ------------
115,000(8) 4.4% $567,184 $1,437,357
</TABLE>
(1) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock at the time of grant.
(2) The potential realizable value is calculated based upon the term of the
option at its time of grant (10 years) and is calculated by assuming that
the stock price on the date of grant appreciates at the indicated annual
rate compounded annually for the entire term of the option and that the
option is exercised and sold on the last day of its term for the
appreciated price. The 5% and 10% assumed rates of appreciation are derived
from the rules of the Securities and Exchange Commission and do not
represent the Company's estimates or projection of the future Common Stock
price. There can be no assurance that the Common Stock will appreciate at
any particular rate or at all in future periods.
8
<PAGE>
(3) Such option grants represent replacement grants with modified vesting and
exercise prices; the original grants were canceled in connection with the
issuance of the new options.
(4) Of the grants remaining outstanding at December 31, 1998
vesting is as follows:
60,000 vest ratably over a 40 month period, becoming exercisable after
6 months
61,112 vest ratably over a 48 month period, becoming exercisable after
6 months
81,000 vest ratably over a 16 month period, becoming exercisable after
6 months
60,000 vest ratably over a 28 month period, becoming exercisable after
6 months
135,336 vest ten years after date of grant subject to acceleration and
immediate exercisibility upon attainment of certain performance
objectives
50,000 vest ratably over a 48 month period
(5) Of the grants remaining outstanding at December 31, 1998 vesting is as
follows:
7,000 vest ratably over a 27 month period, becoming exercisable after
6 months
17,000 vest ratably over a 48 month period, becoming exercisable after
6 months
25,000 vest ratably over a 48 month period
(6) Of the grants remaining outstanding at December 31, 1998 vesting is as
follows:
10,000 vest ten years after date of grant subject to acceleration and
immediate exercisibility upon attainment of certain performance
objectives
10,000 vest ratably over a 27 month period, becoming exercisable after
6 months
30,000 vest ratably over a 48 month period, becoming exercisable after
6 months
50,000 vest ratably over a 48 month period
(7) Of the grants remaining outstanding at December 31, 1998 vesting
is as follows:
10,000 vest ten years after date of grant subject to acceleration and
immediate exercisibility upon attainment of certain performance
objectives
10,000 vest ratably over a 27 month period, becoming exercisable after
6 months
70,000 vest ratably over a 16 month period, becoming exercisable after
6 months
10,000 vest ratably over a 48 month period, becoming exercisable after
6 months
50,000 vest ratably over a 48 month period
(8) Of the grants remaining outstanding at December 31, 1998 vesting is as
follows:
14,000 vest ten years after date of grant subject to acceleration and
immediate exercisibility upon attainment of certain performance
objectives
5,000 vest ratably over a 48 month period, becoming exercisable after
6 months
26,000 vest ratably over a 24 month period, becoming exercisable after
6 months
20,000 vest ratably over a 48 month period
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, 1998, and
the value of unexercised options held as of December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Securities Underlying
Unexercised Value of Unexercised
Shares Options In-The-Money Options
Acquired Value At FY-End (#) At FY-End ($) (1)
On Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- ------------------------- ------------- ---------- ------------------------ ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Keith L. Barnes........ - - 4,170 443,278 $ 5,213 $ 256,012
James P. Fraine........ - - 16,176 46,824 4,179 39,071
Donald E. Grant........ - - 47,250 99,750 5,208 82,293
W. Barry Baril......... - - 4,170 145,830 5,213 107,288
Mark Allison........... - - 1,668 63,332 2,085 45,415
</TABLE>
(1) Amounts reflected are based upon the market value of the underlying
securities at fiscal year end ($7.50) minus the exercise price.
9
<PAGE>
TEN YEAR OPTION REPRICINGS
The following table provides information regarding all cancellations
and reissuances of stock options since July 21, 1995, the date the Company
became a reporting company under the Securities Exchange Act of 1934, as
amended, held by any officer of the Company at December 31, 1998.
<TABLE>
<CAPTION>
10-YEAR OPTION REPRICINGS
NUMBER OF MARKET
SECURITIES PRICE OF EXERCISE LENGTH OF ORIGINAL
UNDERLYING STOCK AT PRICE AT OPTION TERM REMAINING
OPTIONS TIME OF TIME OF NEW EXERCISE AT DATE OF
NAME DATE REPRICED REPRICING REPRICING PRICE REPRICING
- ---- ---- ---------- --------- --------- ------------ ----------------------
<S> <C> <C> <C> <C> <C> <C>
Keith L. Barnes..... 05/05/98 120,000 $9.00 $13.250 $9.00 7 years, 307 days
05/05/98 180,448 9.00 11.750 9.00 9 years, 58 days
05/05/98 16,000 9.00 11.375 9.00 9 years, 305 days
07/07/98 81,000 7.00 8.500 7.00 6 years, 307 days
07/07/98 316,448 7.00 9.000 7.00 9 years, 303 days
James P. Fraine..... 07/02/97 10,000 $11.75 $18.500 $11.75 9 years, 195 days
05/05/98 7,000 9.00 12.750 9.00 7 years, 278 days
05/05/98 10,000 9.00 11.750 9.00 9 years, 58 days
05/05/98 7,000 9.00 14.375 9.00 9 years, 260 days
07/07/98 24,000 7.00 9.000 7.00 9 years, 303 days
Donald E. Grant..... 07/02/97 30,000 $11.75 $18.500 $11.75 9 years, 195 days
05/05/98 10,000 9.00 12.750 9.00 7 years, 278 days
05/05/98 40,000 9.00 11.750 9.00 9 years, 58 days
07/07/98 50,000 7.00 9.000 7.00 9 years, 303 days
W. Barry Baril...... 07/02/97 10,000 $11.75 $18.500 $11.75 9 years, 195 days
05/05/98 10,000 9.00 12.750 9.00 7 years, 278 days
05/05/98 20,000 9.00 11.750 9.00 9 years, 58 days
07/07/98 70,000 7.00 8.500 7.00 6 years, 307 days
07/07/98 30,000 9.00 7.000 9.00 9 years, 303 days
Mark Allison........ 07/02/97 10,000 $11.75 $17.750 $11.75 9 years, 188 days
05/05/98 19,061 9.00 12.750 9.00 7 years, 208 days
05/05/98 14,000 9.00 11.750 9.00 9 years, 58 days
05/05/98 5,000 9.00 11.375 9.00 9 years, 305 days
07/07/98 42,500 7.00 9.000 7.00 9 years, 303 days
Gwyn Harvey......... 07/02/97 5,000 $11.75 $18.500 $11.75 9 years, 195 days
05/05/98 3,000 9.00 12.750 9.00 7 years, 278 days
05/05/98 10,000 9.00 11.750 9.00 9 years, 58 days
05/05/98 10,000 9.00 11.375 9.00 9 years, 305 days
07/07/98 6,659 7.00 8.500 7.00 6 years, 307 days
07/07/98 23,000 7.00 9.000 7.00 9 years, 303 days
Paul Scrivens....... 05/05/98 30,000 $9.00 $16.500 $9.00 9 years, 305 days
07/07/98 30,000 7.00 9.000 7.00 9 years, 303 days
</TABLE>
10
<PAGE>
In May 1998 and July 1998, the Compensation Committee authorized a
reissuance of all non-director stock options granted to employees, including
executive officers. The new exercise price for these options was fixed at $9.00
and $7.00 per share, the market price of the Company's Common Stock at the time
of the reissuances. 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. Given the prolonged decline in the
semiconductor industry and the impact of that decline on the market price of the
Company's Common Stock since the date the options were granted, and the negative
effect the Compensation Committee felt this would have on employee retention,
the Compensation Committee deemed it to be in the best interests of the Company
to allow employees to elect to reduce the exercise price to the market price at
the time of reissuance, in exchange for modified vesting.
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 and six months for each other named
executive officer. If there is a change in control of the Company, the vesting
schedule of the Company options held by the named executive officers would
accelerate so that all such options would become immediately exercisable.
11
<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
$18,900 and each nonemployee member of the Board of Directors, other than the
Chairman, receives an annual retainer of $12,600. The Chairman also receives
$1,500 and all other nonemployee directors 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 1998, each nonemployee director also received
stock options under the Company's 1995 Stock Incentive Plan covering 10,000
shares of the Company's Common Stock.
COMPENSATION COMMITTEE REPORT
EXECUTIVE COMPENSATION PHILOSOPHY. The Compensation Committee is
composed of Messrs. Gibson, Hurd and Smith, all non-employee, outside directors.
The Compensation Committee of the Board of Directors is composed entirely of
non-employee 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 goals of providing total compensation
that is competitive in the marketplace, rewarding successful financial
performance and aligning 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. In setting the base salaries, the Company has
utilized the AEA Executive Compensation Survey in addition to reviewing
information of other high technology companies of similar size. Some of the
companies included in the AEA survey, as well as certain of the other companies
reviewed, are included in the peer group utilized in the Company's performance
graph. 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. Based on the
above criteria, the Compensation Committee believes that executive officer base
salaries for 1998 were reasonable.
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 and individual 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
and the individual's achievement of certain performance criteria. For fiscal
1998, the Company's named executive officers received aggregate cash bonuses
equal to approximately 0.0% to 6.8% of the total base salaries paid to such
officers.
12
<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. See "Option Grants In Last Fiscal Year"
table for a detail of options granted to the named executive officers during
1998.
STOCK OPTION REISSUANCES. In May 1998 and July 1998, the Compensation
Committee authorized a reissuance of all non-director stock options granted to
employees, including the named executive officers. The new exercise price for
these options was fixed at $9.00 and $7.00, the market price of the Company's
Common Stock at the time of the reissuances. 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. Given the
prolonged decline in the semiconductor industry and the impact of that decline
on the market price of the Company's Common Stock since the date the options
were granted, the Compensation Committee deemed it to be in the best interests
of the Company to allow employees to elect to reduce the exercise price to the
market price at the time of reissuance, in exchange for modified vesting.
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 1998. Mr. Barnes received a base salary of 250,000 for
1998. He did not earn a cash bonus. Mr. Barnes received options to purchase
66,000 shares (net of canceled and reissued option grants) of the Company's
Common Stock during 1998.
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, 1998 were C. Scott Gibson, James M. Hurd and Milton R. Smith, all
non-employee, outside directors.
13
<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 U.S. 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 U.S. 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.
<TABLE>
<CAPTION>
Indexed Returns
Base Year Ending
Period -----------------------------------------------
Company/Index 7/21/95 12/31/95 12/31/96 12/31/97 12/31/98
- ----------------------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Integrated Measurement 100.00 134.09 157.95 155.68 68.18
Systems, Inc.
Nasdaq U.S. Index 100.00 105.64 129.91 159.38 224.04
Peer Group 100.00 108.35 145.22 169.50 217.05
</TABLE>
The peer group companies are weighted based on market capitalization
and 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.
14
<PAGE>
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 are also 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 1998 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 1998, except that Mr. Smith, a director of the Company, filed
one late Form 4, Statement of Changes in Beneficial Ownership, related to the
purchase of 3,000 shares.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
In certain foreign markets, primarily Europe, Cadence employees act as
sales agents for the Company. The Company reimburses Cadence 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
personnel. During 1998 the costs of the above services provided by Cadence
totaled approximately $1,746,000. In 1998 the Company sold Virtual Test Software
to Cadence for resale to Cadence customers in the amount of $1,176,000.
15
<PAGE>
STOCK OWNED BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
ownership of the Common Stock as of February 26, 1999 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 37.0%
2655 Seely Road, Bldg 5, MS 5B2
San Jose, CA 95134
State of Wisconsin Investment Board (2).... 893,000 12.0%
121 East Wilson Street
Madison, Wisconsin 53707
Invista Capital Management, LLC (3)........ 771,400 10.3%
Principal Mutual Holding Co.
699 Walnut, 1800 Hub Tower
Des Moines, IA 50309
Dalton Greiner Hartman Maher & Co. (4)..... 458,100 6.1%
1100 Fifth Avenue South, Suite 301
Naples, Florida 34102
Dimensional Fund Advisors, Inc. (5)........ 384,400 5.2%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Keith L. Barnes............................ 108,387 1.4%
James E. Solomon........................... 70,084 *
Donald E. Grant............................ 66,700 *
W. Barry Baril............................. 62,350 *
C. Scott Gibson (6)........................ 34,284 *
James P. Fraine............................ 26,318 *
H. Raymond Bingham ........................ 22,084 *
James M. Hurd.............................. 20,084 *
Mark Allison............................... 17,792 *
Milton R. Smith............................ 16,583 *
Paul A. Gary .............................. 7,667 *
Thomas R. Franz............................ - -
Executive Officers and Directors as a group
(16 persons)............................... 478,301 6.1%
- ---------------------------
* less than one percent
</TABLE>
16
<PAGE>
(1) Beneficial ownership is determined in accordance with rules of the SEC, and
includes voting power and investment power with respect to shares. The
Company had 7,460,616 shares of its common stock outstanding on February
26, 1999. Shares issuable upon the exercise of outstanding stock options
that are currently exercisable or become exercisable within 60 days from
February 26, 1999 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 February
26, 1999 is as follows: Mr. Barnes - 97,102; Mr. Grant - 65,572; Mr. Baril
- 59,385; Mr. Allison - 17,792; Mr. Fraine - 23,820; Messrs. Bingham,
Gibson, Hurd and Solomon - 20,084; Mr. Smith - 9,583; Mr. Gary - 1,667; all
Executive Officers and Directors as a group - 379,154.
(2) This information as to beneficial ownership is based on a Schedule 13G
filed by State of Wisconsin Investment Board ("SWIB"). SWIB is a government
agency which manages public pension funds subject to provisions comparable
to ERISA. SWIB has sole voting and dispositive power with respect to all
893,000 shares held.
(3) This information as to beneficial ownership is based on a Schedule 13G
filed by Invista Capital Management, LLC ("Invista") and Principal Mutual
Holding Co. ("Principal"). Invista and Principal are Investment Advisers
registered under Section 203 of the Investment Advisers Act of 1940.
Invista and Principal have shared voting and dispositive power over all
771,400 shares held.
(4) This information as to beneficial ownership is based on a Schedule 13G
filed by Dalton Greiner Hartman Maher & Co. ("Dalton"). Dalton is an
Investment Adviser registered under Section 203 of the Investment Advisers
Act of 1940. Dalton has sole voting and dispositive power with respect to
all 458,100 shares held.
(5) The following information is obtained solely from a Form 13G filing
prepared by Dimensional Fund Advisors Inc. ("Dimensional"). Dimensional, an
Investment Adviser registered under Section 203 of the Investment Advisers
Act of 1940, furnishes investment advice to four investment companies
registered under the Investment Company Act of 1940, and serves as
investment manager to certain other investment vehicles, including
commingled group trusts. (These investment companies and investment
vehicles are the "Portfolios"). In its role as investment advisor and
investment manager, Dimensional possesses both voting and dispositive power
over the securities listed herein that are owned by the Portfolios. All
securities reported in this schedule are owned by the Portfolios, and
Dimensional disclaims beneficial ownership of such securities.
(6) Includes 4,100 shares held in Mr. Gibson's self-employed pension and 10,100
in various trusts over which Mr. Gibson maintains voting and dispositive
control.
17
<PAGE>
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 1,995,000 shares of
Common Stock have been reserved for issuance under the 1995 Plan. As of December
31, 1998, approximately 289,408 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 1,995,000
shares to 2,215,000 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 in the future. The following is a summary of
the basic terms and provisions of the 1995 Plan.
GENERAL
The 1995 Plan, which was approved by the Company's sole shareholder on
May 11, 1995, provides for grants of both "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and "non-qualified stock options" which are not qualified for treatment
under Section 422 of the Code, and for direct stock grants and sales to
employees or consultants of the Company. The purposes of the 1995 Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentives to the employees and
consultants of the Company and to promote the Company's business. The 1995 Plan
is administered by the Compensation Committee of the Board of Directors. At
December 31, 1998, eight officers, six outside directors and approximately 280
other employees were eligible to participate in the 1995 Plan.
OPTION TERM
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.
18
<PAGE>
EXERCISE PRICE
The exercise price of incentive stock options granted under the 1995
Plan may not be less than 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.
TERM OF 1995 PLAN
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 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.
19
<PAGE>
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.
NEW PLAN BENEFITS
The following table summarizes options granted under the 1995 Plan from
January 1, 1999 up to March 12, 1999, the record date of this proxy statement.
<TABLE>
<CAPTION>
Name and Position Number of Units (1)
----------------- -------------------
<S> <C>
Keith L. Barnes, President, Chief Executive Officer and Director -
James P. Fraine, Vice President, Sales 7,000
Donald E. Grant, Senior Vice President and General Manager,
Digital Test Systems Division 6,700
W. Barry Baril, Chief Technology Officer 2,500
Mark Allison, General Manager, Memory Products Division 2,500
H. Raymond Bingham, Director -
Paul A. Gary, Director -
C. Scott Gibson, Director -
Thomas R. Franz, Director -
James M. Hurd, Director -
Milton R. Smith, Director -
James E. Solomon, Director -
All Current Executive Officers as a Group (9 people) 68,700
All Non-Executive Officer Directors
as a Group (7 people) -
All Non-Executive Officer Employees as a Group (280 people) 46,750
</TABLE>
(1) Options to purchase shares of the Company's Common Stock, totaling 115,450
shares, have been granted from January 1, 1999 through March 12, 1999. All
such options were granted at an exercise price per share that is equal to
the fair market value of the Company's Common Stock on the date of grant.
The average per share exercise price of all option grants included in the
above table is $8.96. Except as otherwise indicated, the options granted
vest equally over 48 months. Grants for newly hired employees vest ratably
over 48 months, but are not exercisable until 12 months after the date of
grant. Options granted to the Named Executive Officers fully vest 10 years
after the grant date, with accelerated vesting provisions upon the
attainment of certain performance objectives. Grants under the 1995 Plan
are discretionary and therefore, grants for the remainder of 1999 or
thereafter cannot be determined.
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.
20
<PAGE>
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,
1999, 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, 1999. 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.
21
<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 2000 annual meeting of shareholders
must be received by the Company not later than December 2, 1999, 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
1999 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.
ADDITIONAL INFORMATION
A copy of the Company's Annual Report to Shareholders for the fiscal
year ended December 31, 1998 accompanies this Proxy Statement. The Company is
required to file an Annual Report on Form 10-K for its fiscal year ended
December 31, 1998 with the Securities and Exchange Commission. Shareholders may
obtain, free of charge, a copy of the Form 10-K (without exhibits) by writing to
Secretary, 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 2, 1999
22
<PAGE>
INTEGRATED MEASUREMENT SYSTEMS, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 4, 1999
The undersigned hereby names, constitutes and appoints Keith L. Barnes and H.
Raymond Bingham, or either of them acting in absence of the other, with full
power of substitution, my true and lawful attorneys and Proxies for me and in
my place and stead to attend the Annual Meeting of the Shareholders of
Integrated Measurement Systems, Inc. (the "Company") to be held at 10:00 a.m.
on Tuesday, May 4, 1999, and at any adjournment thereof, and to vote all the
shares of Common Stock held of record in the name of the undersigned on March
12, 1999, with all the powers that the undersigned would possess if he were
personally present.
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<PAGE>
Please mark /X/
your vote, as
indicated in
this example
FOR all WITHHOLD AUTHORITY
nominees to vote for all nominees
listed below listed below
1. Election of Directors / / / /
To withhold authority to vote for any individual nominee, strike a line
through the nominee's name in the list below:
Thomas R. Franz Paul A. Gary James E. Solomon
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE NOMINEES
NAMED ABOVE.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
PROPOSALS 2 AND 3.
FOR AGAINST ABSTAIN
2. To approve an amendment to the / / / / / /
Integrated Measurement Systems, Inc.
1995 Stock Incentive Plan.
3. To ratify the appointment of / / / / / /
Arthur Andersen LLP as the Company's
independent auditors for the year
ending December 31, 1999.
4. Upon such other matters as may properly come before, or incident to the
conduct of the Annual Meeting, the Proxy holders shall vote in such manner
as they determine to be in the best interests of the Company. Management
is not presently aware of any such matters to be presented for action at
the meeting.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY. IF NO
SPECIFIC DIRECTION IS GIVEN AS TO ANY OF THE ABOVE ITEMS, THIS PROXY WILL BE
VOTED FOR EACH OF THE NOMINEES NAMED IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3.
I do ( ) do not ( ) plan to attend the meeting. (Please check)
The shareholder signed above reserves the right to revoke this Proxy at any
time prior to its exercise by written notice delivered to the Company's
Secretary at the Company's corporate offices at 9525 S.W. Gemini Drive,
Beaverton, Oregon 97008, prior to the Annual Meeting. The power of the Proxy
holders shall also be suspended if the shareholder signed above appears at
the Annual Meeting and elects in writing to vote in person.
Signature(s) Dated , 1999
---------------------------------------- ---------------
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
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