-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NzjDKxesBgBTQ1Hype3YpquEfrdEmorezJ92NoJLG1hcjFLdNczk9T9rb7R6OYNK J4ygiLx8y8Ptg+pFFlUPzA== 0000912057-96-009654.txt : 19960517 0000912057-96-009654.hdr.sgml : 19960517 ACCESSION NUMBER: 0000912057-96-009654 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTEGRATED MEASUREMENT SYSTEMS INC /OR/ CENTRAL INDEX KEY: 0000945441 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 930840631 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26274 FILM NUMBER: 96564916 BUSINESS ADDRESS: STREET 1: 9525 SW GEMINI DR CITY: BEAVERTON STATE: OR ZIP: 97008 BUSINESS PHONE: 5036267117 MAIL ADDRESS: STREET 1: 9525 SW GEMINI DR CITY: BEAVERTON STATE: OR ZIP: 97008 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 - ------------------------------------------------------------------------------- FORM 10-Q [ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-26274 - ------------------------------------------------------------------------------- INTEGRATED MEASUREMENT SYSTEMS, INC. (Exact name of registrant as specified in its charter) OREGON 93-0840631 (State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 9525 S.W. GEMINI DRIVE, BEAVERTON, OR 97008 (Address of principal executive offices) (zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (503) 626-7117 - ------------------------------------------------------------------------------- NO CHANGE Former name, and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ---- At April 30, 1996, there were 6,700,542 shares of Integrated Measurement Systems, Inc. common stock, $0.01 par value, outstanding. (Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.) INTEGRATED MEASUREMENT SYSTEMS, INC. INDEX TO FORM 10-Q PART 1 FINANCIAL INFORMATION PAGE NUMBER Item 1. Financial Statements Statements of Income for the three months ended March 31, 1996 and 1995 Balance Sheets as of March 31, 1996 and December 31, 1995 Statements of Cash Flows for the three months ended March 31, 1996 and 1995 Notes to the Financial Statements Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. SIGNATURES 2 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INTEGRATED MEASUREMENTS SYSTEMS, INC. STATEMENTS OF INCOME (In thousands, except net income per share) (Unaudited)
Three Months Ended March 31, 1996 1995 ---- ---- Product sales $ 9,170 $ 7,304 Service and other sales 2,745 1,780 -------- -------- Net sales 11,915 9,084 -------- -------- Cost of product sales 3,213 2,949 Cost of service and other sales 1,195 689 -------- -------- Total cost of sales 4,408 3,638 -------- -------- Gross margin 7,507 5,446 Operating expenses: Research, development and engineering 1,988 1,309 Selling, general and administrative 3,448 3,172 -------- -------- Total operating expenses 5,436 4,481 -------- -------- Operating income 2,071 965 Other income, net 101 51 -------- -------- Income before income taxes 2,172 1,016 Provision for income taxes 826 389 -------- -------- Net income $ 1,346 $ 627 -------- -------- -------- -------- Net income per share $ 0.19 $ 0.10 -------- -------- -------- -------- Weighted average number of common and common equivalent shares outstanding 6,922 6,366 -------- -------- -------- --------
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS 3 INTEGRATED MEASUREMENT SYSTEMS, INC. BALANCE SHEETS (In thousands, except per share data)
As of As of March 31, December 31, 1996 1995 ---- ---- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 8,986 $ 8,930 Trade receivables, less allowance for doubtful accounts of $340 and $338 9,359 8,117 Receivable from affiliate, net 870 1,094 Inventories, net 6,620 5,830 Deferred income taxes 1,237 1,237 Prepaid expenses and other current assets 734 735 --------- --------- Total current assets 27,806 25,943 Property, plant and equipment, net 4,909 5,178 Service spare parts, net 1,835 2,223 Software development costs, net 1,676 1,657 --------- --------- $ 36,226 $ 35,001 --------- --------- --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,427 $ 2,660 Accrued compensation 1,855 1,629 Accrued warranty 753 801 Deferred revenue 1,850 2,291 Other current liabilities 522 810 Current tax liability 65 - Capital lease obligations - current 153 164 --------- --------- Total current liabilities 7,625 8,355 Deferred income taxes 108 108 Capital lease obligations, net of current portion 33 54 Shareholders' equity: Preferred stock, $.01 par value, authorized 10,000,000 shares; none issued and outstanding - - Common stock, $.01 par value, authorized 15,000,000 shares; issued and outstanding 6,699,855 and 6,699,803 67 67 Additional paid-in capital 21,097 20,467 Retained earnings 7,296 5,950 --------- --------- Total shareholders' equity 28,460 26,484 --------- --------- $ 36,226 $ 35,001 --------- --------- --------- ---------
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS. 4 INTEGRATED MEASUREMENT SYSTEMS, INC. STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Three Months Ended March 31, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 11,293 $ 7,800 Payments to suppliers (5,230) (3,252) Payments to employees (4,389) (3,243) Income taxes paid (5) -- Other taxes paid (424) (110) Interest received 110 61 Interest paid (14) (9) -------- -------- Net cash provided by operating activities 1,341 1,247 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of equipment (1,036) (211) Additions to service spare parts (23) (150) Software development costs (170) (179) -------- -------- Net cash used in investing activities (1,229) (540) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments under capital leases (60) (70) Proceeds from employee stock option exercises 4 -- -------- -------- Net cash used in financing activities (56) (70) -------- -------- Net increase in cash and cash equivalents 56 637 Beginning cash and cash equivalents balance 8,930 4,384 -------- -------- Ending cash and cash equivalents balance $ 8,986 $ 5,021 -------- -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,346 $ 627 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 1,007 579 Contributed capital -- 177 Provision for deferred income taxes -- 8 Net change in payable to or receivable from affiliate 224 720 Increase in trade receivables (1,242) (891) Increase in inventories (790) (665) Decrease (increase) in prepaid expenses and other current assets 1 (219) Increase in current tax liability 691 -- Increase in accounts payable and accrued liabilities 545 843 (Decrease) increase in deferred revenue (441) 68 -------- -------- Net cash provided by operating activities $ 1,341 $ 1,247 -------- -------- -------- -------- SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: Purchase of assets through capital lease $ 29 $ 174 -------- -------- -------- -------- Tax benefit from stock option transactions $ 626 $ -- -------- -------- -------- -------- Noncash dividend to Cadence $ -- $ 1,027 -------- -------- -------- --------
SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS. 5 INTEGRATED MEASUREMENT SYSTEMS, INC. NOTES TO THE FINANCIAL STATEMENTS (In thousands) (Unaudited) (1) BASIS OF PRESENTATION The interim financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the management of the Company believes that the disclosures are adequate to make the information presented not misleading. Interim financial statements are by necessity somewhat tentative; judgments are used to estimate interim amounts for items that are normally determinable only on an annual basis. The financial information as of December 31, 1995 is derived from the Company's audited financial statements. The interim period information presented herein includes normally recurring adjustments which are, in the opinion of the management of the Company, only necessary for a fair statement of the results of the respective interim periods. Results of operations for interim periods are not necessarily indicative of results to be expected for an entire year. Net income per common and common equivalent share is calculated by dividing net income by the weighted average number of common stock and common stock equivalents outstanding during the period. Common stock equivalents are calculated using the treasury stock method, and consist of dilutive shares issuable upon the exercise of outstanding common stock options. (2) INVENTORIES Inventories, consisting principally of computer hardware, electronic sub- assemblies and test equipment, are valued at standard costs which approximate the lower of cost (first-in, first-out) or market. Costs utilized for inventory valuation purposes include material, labor and manufacturing overhead. Inventories consists of the following:
March 31, December 31, 1996 1995 ---- ---- Raw Materials . . . . . . . . . . . . . . . $ 2,553 $ 2,613 Work-in-progress. . . . . . . . . . . . . . 3,393 2,945 Finished Goods. . . . . . . . . . . . . . . 674 272 ------- ------- $ 6,620 $ 5,830 ------- ------- ------- -------
6 (3) SERVICE SPARE PARTS The Company has reclassified its rotating service spare parts assets from inventory to non-current assets in the accompanying Balance Sheets to more accurately reflect the use of such parts in the Company's service business. These assets are not held for sale, diminish in value in a reasonably predictable manner, and therefore are subject to depreciation. Beginning January 1, 1996, depreciation of the Company's spare parts is being computed on a straight-line basis over the estimated useful lives of the assets, generally eight years, and charged to Cost of Service and Other Sales. Prior to 1996, the Company charged normally recurring adjustments necessary to present inventory at its estimated net realizable value to Cost of Service and Other Sales. In order to effect this change, the Company has recorded a charge to Cost of Service and Other Sales of $327 during the first quarter of 1996, representing the cumulative difference in financial statement carrying value between the depreciated cost under the new accounting method at January 1, 1996 and the net inventory carrying value of the spare parts assets at December 31, 1995. Cost and accumulated depreciation of service spare parts are as follows:
March 31, December 31, 1996 1995 ---- ---- Service spare parts, at cost $ 2,697 $ 2,675 Less accumulated depreciation (862) (452) ------- ------- Net service spare parts $ 1,835 $ 2,223 ------- ------- ------- -------
7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (All numerical references are in thousands, except for percentages and per share data) RESULTS OF OPERATIONS NET SALES Net sales of $11,915 for the three-month period ended March 31, 1996 reflected an increase of $2,831 or 31% from the first quarter of 1995. The increase in net sales reflects the continued successful introduction of the Company's new ATS FT Test Stations, which contributed 28% of net sales during the first quarter of 1996, and continued strong contribution from the Company's ATS Blazer Test Station products. In addition, sales of Virtual Test software and related services grew to 8% of net sales during the quarter, compared to 5% for the year 1995. During the first quarter of 1996, the Company secured orders from several new accounts for ATS Blazer and ATS FT Test Stations. Manufacturing, as well as customer acceptance of the ATS FT Test Stations have gone as planned to-date. The Company is targeting the new MTS FT Test Station product for the Data Communications, Computer and Medical industries. First customer shipment of the MTS FT is currently scheduled for the second quarter of 1996. Actual net sales to be realized in future periods from these new products are subject to many risks, as discussed below under "Forward Looking Statements." The Company also added several new accounts to the Virtual Test software customer base, and completed model development and distribution agreements with LTX and Hewlett-Packard during the first quarter of 1996. Future sales growth for Virtual Test and related services is subject to continued customer acceptance of Virtual Test and other business risks, and cannot be assured. Product and service sales to the Company's largest customer, Intel, increased to 45% and 2% of net sales, respectively, during the first quarter of 1996, compared to 30% and 2%, respectively, during the year 1995. This increase was due to customer-requested acceleration of product deliveries during the first quarter of 1996. Sales to Tokyo Electron Limited (the Company's largest distributor) during the first quarter of 1996 amounted to 10% of net sales, compared to 6% for the year 1995. Customers individually providing less than 10% of net sales generated the remaining 43% of the Company's net sales for the first quarter of 1996. GROSS MARGIN The Company's gross margin of $7,507 in the first quarter of 1996 increased 38% from $5,446 for the same period of 1995. As a percentage of net sales, gross margin increased from 60% for the three months ended March 31, 1995 to 63% for the three months ended March 31, 1996. The three percentage-point increase reflects the benefits of higher revenues from Test Station sales over fixed manufacturing overhead costs, as gross margins for the Company's Test Stations grew to 64% for the first quarter of 1996, compared to 60% for the same period of 1995. The Company's systems service business yielded gross margin of 49% during the first three months of 1996, down from 59% during the first quarter of 1995, as cost efficiencies in the Company's service business were more than offset by the impact of the cumulative depreciation adjustment of the Company's service parts, as discussed in Note 3 to the Financial Statements. Gross margins for the systems service business are expected to return to levels slightly below historical levels in the future, due to the increased expense of the service parts depreciation. Sales of the Company's Virtual Test software and related services yielded gross margins of 84% during the first quarter of 1996, and are expected to provide upward support for the Company's future overall gross margin percentage, if historical sales growth rates continue. 8 OPERATING EXPENSES Research, development and engineering expenses increased 52% to $1,988 for the three months ended March 31, 1996 from $1,309 for the first quarter of 1995. Research, development and engineering expenses amounted to 17% of net sales in the three months ended March 31, 1996, compared to 14% in the three months ended March 31, 1995. The increase was principally attributable to increased expenditures for the development of future generation hardware and software products, as well as enhancements to the Company's existing products. Selling, general and administrative expenses of $3,448 for the first quarter of 1996 increased 9% from $3,172 for the first quarter of 1995. The increase was principally attributable to higher commissions associated with increased net sales. As a percentage of net sales, selling, general and administrative expense decreased from 35% in the three months ended March 31, 1995 to 29% in the three months ended March 31, 1996 as a result of management's conscious efforts to minimize headcount increases in selling and administrative functions as net sales grow. This trend is not expected to continue, and the Company's spending for selling, general and administrative expenses are expected to grow in amount and as a percentage of net sales, reflecting planned headcount increases required to execute the Company's strategies for growing Test Station and Virtual Test sales volume. OTHER INCOME Other income, net, increased from $51 in the quarter ended March 31, 1995 to $101 in the three months ended March 31, 1996, reflecting interest income generated on higher cash balances. INCOME TAXES The Company's effective tax rate was 38% for each of the three-month periods ended March 31, 1995 and March 31, 1996. NET INCOME As a result of the various factors discussed above, net income for the first quarter of 1996 increased 115% to $1,346 or $0.19 per share compared to $627 or $0.10 per share for the corresponding period in 1995. FUTURE OPERATING RESULTS Future operating results will depend on many factors, including demand for the Company's products, the introduction of new products by the Company and by its competitors, and industry acceptance of Virtual Test software. There can be no assurance that the Company's net sales will grow or that such growth will be sustained in future periods or that the Company will remain profitable in any future period. LIQUIDITY AND CAPITAL RESOURCES The Company generated positive cash flows from operating activities for the three months ended March 31, 1996 of $1,341 compared to $1,247 million for the same period last year. This increase is the net result of higher collections from customers as net sales increase, partially offset by higher payments to suppliers and employees. The Company's trade receivables have increased by $1,242 since December 31, 1995, reflecting the effect of higher sales volume, and extended payment terms granted to selected customers. Inventories have grown by $790 during the first quarter of 1996, to a level necessary to meet customer demands for the Company's new and existing product lines. The increase in accounts payable since December 31, 1996 is driven by the increase in inventory purchases. The decrease in deferred revenue is due to first quarter, 1996, achievement of milestones necessary for revenue recognition on certain product deliveries initiated in 1995, partially offset by normal seasonal renewals of annual maintenance contracts during the first quarter of 1996. 9 During the first quarter of 1996, the Company invested $1,036 in property, plant and equipment, as necessary to develop and distribute new and enhanced Test Station and Virtual Test products. Capitalization of software development costs of $170 during the first quarter of 1996 was only slightly higher than related amortization of $151. The Company began building out additional leased facility space to meet the sales-driven demands for manufacturing and engineering capacity during the first quarter of 1996. In addition, the Company is moving forward with the implementation of new information systems for the manufacturing, service and finance functions during 1996. During the first quarter of 1996, the Company realized reductions in current tax liabilities of $626 resulting from the benefit of tax deductions of employee gains upon exercise of stock options of Cadence Design Systems, Inc. (Cadence), the Company's majority shareholder. The noncash benefit of the stock option deduction is reflected as an increase to Additional Paid-in Capital in the accompanying Balance Sheets. The employee gains are not expenses of the Company for financial reporting purposes, and the exercise of Cadence stock options does not increase the number of shares of the Company's common stock outstanding. The Company believes that cash on hand and cash generated from operations, as well as cash available from the Company's existing $10.0 million short-term line of credit, will be sufficient to meet the Company's working capital and other cash requirements for at least the next twelve months. Company management is continually evaluating opportunities to develop and introduce new products, and to acquire complementary businesses or technologies. At present, the Company has no significant understandings, commitments or agreements with respect to any such opportunities. Any transactions resulting from such opportunities, if consummated, may require the use of some of the Company's cash or necessitate funding from other sources. FORWARD LOOKING STATEMENTS Results of operations for the periods discussed above should not be considered indicative of the results to be expected for any future period, and fluctuations in the operating results may also result in fluctuations in the market price of the Company's common stock. Like most high technology and high growth companies, the Company faces certain business risks that could have adverse effects on the Company's results of operations. Sales of the Company's products to a limited number of customers is expected to continue to account for a significant percentage of net sales over the foreseeable future. The Company purchases some key components from sole or single source vendors for which alternative sources are not currently available. The Company is dependent on high dollar customer orders, deriving a substantial portion of its net sales from the sale of Test Stations which typically range in price from $0.2 to $1.2 million per unit and may be priced as high as $1.8 million for a single unit. In addition, the Company's future operating results and financial condition are subject to influences driven by rapid technological changes, a highly competitive industry, a lengthy sales cycle, and the cyclical nature of general economic conditions. The Company has thus far avoided any material adverse impact on its results of operations resulting from such risks, and does not anticipate such an impact in the near term. However, no assurance can be given that such risks will not affect the Company's financial position or results of operations in the future. Additionally, all statements in this Quarterly Report (Form 10-Q) relative to future sales, gross margins, and expenses shall be considered to be "forward looking statements" as defined by the Private Securities Reform Act of 1995. These forward looking statements are subject to the above business and economic risks the Company faces. 10 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (exhibit reference numbers refer to Item 601 of Regulation S- K) 10.a. Employment Contract - Keith Barnes, Chief Executive Officer 10.b. Employment Contract - Sar Ramadan, Chief Financial Officer 18. Letter regarding change in accounting principle 27. Financial Data Schedule 11 (b) No reports were filed on Form 8-K during the quarter for which this report is filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on May 11, 1996. INTEGRATED MEASUREMENT SYSTEMS, INC. (Registrant) /s/ ------------------------------ Sar Ramadan Chief Financial Officer 12 EX-10.A 2 EXHIBIT 10.A Exhibit 10.a EMPLOYMENT AGREEMENT Integrated Measurement Systems, Inc. (Company), whose address is 9525 S.W. Gemini Drive, Beaverton, Oregon 97005, and KEITH L. BARNES (Executive), enter this agreement, effective March 15, 1996. Executive is an experienced manager of Company's business, and Company believes Executive's continued employment by Company enhances shareholder value and will contribute to Company's future success. The parties agree as follows: 1. EMPLOYMENT. 1.0.1 LENGTH. Executive's employment with Company will continue until ended as this Agreement provides. 1.1 FULL TIME. Executive will work full time. Executive will devote his good faith efforts in support of Company's operations and goals, during the entire term of this Agreement. While Executive's employment by Company under this Agreement continues, Executive will not engage in any other employment without Company's advanced written consent. Company consents to service on boards and commissions, both commercial and public, to the extent that service does not interfere with Executive's commitments and obligations to Company. 1.2 EXECUTIVE'S DUTIES. Executive will serve in the Position shown on Exhibit A, and in that position will assume such duties and perform such tasks as Company from time to time requires. 2. COMPENSATION PLAN. 2.1 SALARY. Company will pay Executive initially at the rate per year shown as the Base Salary on Exhibit A, payable in equal increments on Company's standard payroll schedules. Executive's Base Salary will not be reduced during the first year of employment. With that limitation, Executive's compensation will otherwise be reviewed on an annual basis, as with other executives of the Company. 2.2 BONUS. Company will pay Executive an annual bonus of up to the amount shown on Exhibit A as "Annual Bonus", which will be disbursed quarterly in accordance with the conditions established in the Company's approved annual bonus plan, as applicable to the Executive. 2.3 STOCK. Executive has been or may in the future be granted rights to purchase stock or stock options in IMS on the exercise and vesting schedules and terms and conditions shown in the grant documents. These are referred to as "options" herein. 2.4 OTHER COMPENSATION. Company will also provide medical insurance, life insurance, disability insurance, 401(k) plan, vacation time, sick leave, and other fringe benefits in accordance with Company's then-existing policies applicable generally to senior executives. Page 1 --Executive Employment Agreement 2.5 OTHER BENEFITS. Any other benefits particularly applicable to Executive are shown on Exhibit A. 3. TERM AND TERMINATION. 3.1 AT WILL, CONDITIONS. Executive is hired for employment at will, subject to the agreements described here. 3.2 TERMINATION BY COMPANY. Company may terminate Executive's employment with or without cause. A termination is effective as of the date specified in the Notice of termination. 3.3 CAUSE. For the purposes of this Agreement, termination is "with cause" if the Executive's employment is terminated because Executive is convicted of a crime involving the company's business; or has misappropriated Company monies or assets; or has committed fraud; or has been grossly negligent in or willfully fails to accomplish the performance of his duties; and if the Company has given Executive five days' Notice of the allegations with an opportunity to respond and provide evidence refuting them within that period. 3.4 EFFECT OF VOLUNTARY RESIGNATION OR WITH CAUSE TERMINATION. If Executive resigns voluntarily, or is properly terminated for cause, pay and benefits will cease as of the effective date of the resignation or termination. Executive will also forfeit any entitlement to the rights on change in control described in Section 4. Executive will use good faith efforts to provide Company as much notice as possible of any such resignation. 3.5 COMPENSATION ON TERMINATION WITHOUT CAUSE BY COMPANY. If Executive is terminated without cause, however, Company will give Executive severance benefits as follows. 3.5.1 COMPENSATION EARNED THROUGH TERMINATION DATE. On termination by Company without cause, Company will pay Executive's Base Salary, any commissions, and any bonuses, all as earned through the termination date, and a buyout of all accumulated but unused vacation and sick leave time, to be paid within thirty days of termination. 3.5.2 BASE PAY. On termination by Company without cause, Company will in addition pay Executive's Base Salary and benefits for the Severance Period defined in Exhibit A. Payment of the Executive's Base Salary shall be made on Company's standard payroll schedules from the date of termination, as if the Executive had not been terminated. 3.5.3 OPTIONS. As of the date of termination, Company will accelerate the exercise schedule of those options held by Executive that would have vested during the Severance Period, or alternatively, pay Executive the in-the-money value of those options, calculated according to the fair market value of the stock those options represent as of the termination date. 3.6 COMMITMENT CONCERNING COMPETITION. While Company continues to pay Executive's base salary during Executive's employment or after termination, unless Company Page 2 --Executive Employment Agreement consents in writing, Executive will not consult for, be employed by, serve on the board of, or otherwise take other than a passive investor role in, any company that is in the business of integrated circuit verification, characterization, or virtual test; nor will Executive encourage, influence, or assist any employee or former employee of the Company in securing other employment with a competitor so defined. 3.7 OFFSET. To the extent permissible under applicable law, without prejudice to other remedies, Company may offset any amounts Executive owes Company against any amounts (net of taxes and other deductions) due employee upon termination or thereafter. 4. CHANGE IN CONTROL AGREEMENTS. 4.1 "CONTROL CHANGE." A "Control Change" is the sale of substantially all Company's assets to, or acquisition of a majority of Company's voting stock or entry into a voting or common control agreement covering a majority of the company's voting stock by, an entity (or a set of entities under effective common control) in which those controlling the acquiring entity or entities are not the same as those who have majority ownership and effective control of Company before the sale or acquisition. 4.2 "CONTROL CHANGE WINDOW." The Control Change Window begins sixty days before the LOI Date, and ends one year after the date of closing of the control change. 4.3 "LOI DATE." The "LOI Date" is the date a letter of intent, term sheet, or other similar document is first executed by the Company or one or more of its Shareholders and by anyone acting on behalf of an entity (or collection of entities under common control) who acquires substantially all the Company's assets or majority control of the Company's stock, that evidences an agreement in principle to pursue a course of action that is intended to result in a Control Change. 4.4 ACCELERATION OF OPTIONS ON CONTROL CHANGE. Company shall accelerate the exercise date of all stock options held by Executive so that they become fully exercisable upon a Control Change. 4.5 TERMINATION DURING CONTROL CHANGE WINDOW, BEFORE CONTROL CHANGE. If Executive is terminated without cause before a Control Change occurs, the vesting and expiration date for all options beyond those that would have vested during the Severance Period (called the "Future Options" here) is modified as of the Executive's employment termination date, as follows. As of the employment termination date, the vesting condition is changed, so that the Future Options will become vested upon a Control Change. The expiration date of the Future Options is changed, so that they expire either: 1) Sixty days following the termination date, if the employment termination does not occur during a Control Change Window; or 2) ninety days following a Control Change, if the employment termination occurs during a Control Change Window. 4.5 TERMINATION DURING CONTROL CHANGE WINDOW. If Executive is terminated without cause before a Control Change takes place, but within a Control Change Window, then Company shall accelerate the exercise date of all Executive's options, both those that would have become vested during the Severance Period ("Severance Options") and those that would have Page 3 --Executive Employment Agreement become vested after the Severance Period ("Future Options"), so that all become fully exercisable immediately prior to the termination date. If as of the employment termination date, it is not yet known whether a Control Change will occur, Company may accelerate or not accelerate the exercise date of all Executive's Future Options, at its choice. 4.5.1 Usual Effect of Non-Acceleration. If the Company elects not to accelerate Future Options as of the employment termination date, then the vesting and expiration dates for all Future Options is modified as follows. As of the employment termination date, the vesting conditions are changed, so that the Future Options will become vested upon a Control Change. The expiration date of the Future Options is changed, so that they expire either: 1) Sixty days following the termination date, if the employment termination does not occur during a Control Change Window; or 2) ninety days following a Control Change, if the employment termination occurs during a Control Change Window. 4.5.2 SPECIAL EFFECT OF NON-ACCELERATION IN PURCHASE TRANSACTIONS. If the Company elects not to accelerate the Future Options, and it later becomes apparent that the termination was within a Control Change Window with respect to a transaction that cannot be accounted for through pooling accounting for reasons independent of any employment agreement issued by the Company, then on the date the transaction embodying the Control Change closes, the Company shall pay Executive the in-the-money value of all options held by Executive on the termination date and not subsequently exercised. That value shall be measured as of the date of closing of the Control Change or as of the date of employment termination, whichever value is greater. 4.5.3 COMPUTATION OF IN-THE-MONEY VALUE. The "in-the-money value" means, with respect to each share of stock represented by the options, the difference between the exercise price for that option and the fair market value as of the measurement date. For purposes of this calculation, options as to which there is no in-the-money value, or as to which the in- the-money value is negative, shall not be included in the calculation of the amount due. 5. CONFIDENTIALITY. 5.1 CONFIDENTIALITY. Executive will keep Company's data confidential. In doing so, Executive will not disclose Company's data directly or indirectly to any person, other than an employee of Company or a person to whom disclosure is reasonably necessary or appropriate to further Company's business, either during or after Executive's employment. 5.2 COMPANY DATA. Company's data consists of any trade secret or proprietary or confidential information of Company or of any Company affiliate. Company data includes, but is not limited to, records, files, memoranda, reports, price lists, software, customer lists, personnel information, designs and inventions whether or not patentable or copyrightable, drawings, sketches, documents, equipment, know-how and negative know-how, and the like relating to Company's business which Executive uses, prepares, or comes in contact with during the course of his work for Company. Any information known generally to the public or any information of a type not otherwise generally considered confidential by persons engaged in the same business will not be treated as confidential. Page 4 --Executive Employment Agreement 5.3 THIRD PARTY DATA. Executive will also keep third party data confidential as required by Company obligations to the third party, for at least as long as is required for Company data, but longer if required by any agreement Company enters into with the third party. 5.4 RETURN ON TERMINATION. Executive will return all Company data and third party data held by Executive, on termination of Executive's employment or upon any earlier request. 6. INVENTIONS. 6.1 DEFINITIONS. "Inventions" means new ideas, improvements, or discoveries, whether or not patentable or copyrightable, as well as other newly discovered or newly applied information or concepts. An Invention is a "Covered Invention" if it relates to Company's actual or anticipated business; or was developed in any part using Company resources (time, supplies, facilities, or data); or if it results from or is suggested by a task assigned to, or work performed for Company by, Executive. As used in this Section 6, "Company" includes Company's sister corporations or subsidiaries and Company's clients, consultants, and contractors. 6.2 ASSIGNMENT. All Executive's right, title and interest to any Covered Inventions that Executive makes or conceives while employed by Company, belong to Company. This Agreement operates as a prospective assignment of all those rights to Company. 6.3 OBLIGATION SURVIVES. The provisions of this Section 6 shall survive termination of this Agreement. 7. OTHER MATTERS. 7.1 NOTICE. Notice to Executive shall be sent to Executive's most recent address shown in Company's personnel records. Notice to Company shall be sent to Company's headquarters address, marked attention: Chief Financial Officer. Either party may change its address by Notice. Notice shall be effective when the person to whom it is sent actually gets it, if sent by any method that leaves a paper or electronic record in the hands of the recipient. If sent certified or registered mail, postage prepaid, return receipt requested, to the proper address this section defines, notice shall be considered effective whether or not actually received on the date the return receipt shows the notice was accepted, refused, or returned undeliverable. 7.2 SEVERABILITY. Each clause of this agreement is severable. If any clause is ruled void or unenforceable, the balance of the agreement shall nonetheless remain in effect. 7.3 NON-WAIVER. A waiver of one or more breaches of any clause of this agreement shall not act to waive any other breach, whether of the same or different clauses. 7.4 ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of Company, its successors and assigns and shall be binding upon and inure to the benefit of Executive, and Executive's administrators, executors, legatees, and heirs. This Agreement shall not be assigned by Executive. Page 5 --Executive Employment Agreement 7.5 GOVERNING LAW. This agreement is entered in, and is governed by, the laws of the state of Oregon. 7.6 JURISDICTION, SERVICE, INJUNCTIVE RELIEF. Jurisdiction over disputes arising under this Agreement rests exclusively in the state or federal courts located in Multnomah County, Oregon, and each party consents to that jurisdiction. Each party consents to service of process through the method prescribed for notice. As violation of the non-competition or non-solicitation obligations of this agreement, or those related to rights in intellectual property, would result in damage to Company that could not be cured by an award of money alone, Company shall be entitled to injunctive relief in cases where a violation of those obligations is shown. 7.7 ATTORNEYS' FEES. The prevailing party in any suit, action, arbitration, or appeal filed or held concerning this agreement shall be entitled to reasonable attorneys' fees and the actual, reasonably necessary costs of the proceeding, as determined by the court. 7.8 INTEGRATION. This agreement supersedes all prior employment agreements between the parties, written or oral, provided that the parties preserve to the Executive the commitments made by IMS in Executive's employment agreement dated May 10, 1995, with respect to the Executive's stock options for stock of Cadence Design Systems, Inc. This agreement may be modified only in writing signed by the original parties hereto, or by their successors or superiors in office. KEITH L. BARNES INTEGRATED MEASUREMENT SYSTEMS, INC. Sign: By: ----------------------------------- --------------------------------- Date: Print ----------------------------------- ------------------------------ Title: ------------------------------ Date: ------------------------------- Page 6 --Executive Employment Agreement Exhibit A to Employment Agreement Compensation Package for KEITH L. BARNES as of March 15, 1996 1. POSITION: President and Chief Executive Officer 2. ANNUAL SALARY: $200,000 3. BONUS: $100,000 4. SEVERANCE PERIOD: 24 months 5. OTHER BENEFITS: $6,000 per year car allowance; $4,000 per year club dues allowance. If Company reassigns Executive, changes his title, or reduces Executive's compensation without Executive's consent, or directs him to report other than directly to the Board of Directors actually in charge of the Company without Executive's consent, Executive may, at the Executive's option, decline to accept the change in title or the new assignment or reduction in salary or indirect reporting, and elect instead to treat the reassignment as effective termination by Company, without cause. KEITH L. BARNES INTEGRATED MEASUREMENT SYSTEMS By: By: --------------------------------- --------------------------------- Print Print -------------------------------- -------------------------------- Title: Title: ------------------------------ ------------------------------ Date: Date: ------------------------------- ------------------------------- Page 1 --Compensation Package EX-10.B 3 EXHIBIT 10.B Exhibit 10.b EMPLOYMENT AGREEMENT Integrated Measurement Systems, Inc. (Company), whose address is 9525 S.W. Gemini Drive, Beaverton, Oregon 97005, and SAR RAMADAN (Executive), enter this agreement, effective March 15, 1996. Executive is an experienced manager of Company's business, and Company believes Executive's continued employment by Company enhances shareholder value and will contribute to Company's future success. The parties agree as follows: 1. EMPLOYMENT. 1.1 LENGTH. Executive's employment with Company will continue until ended as this Agreement provides. 1.2 FULL TIME. Executive will work full time. Executive will devote his good faith efforts in support of Company's operations and goals, during the entire term of this Agreement. While Executive's employment by Company under this Agreement continues, Executive will not engage in any other employment without Company's advanced written consent. Company consents to service on boards and commissions, both commercial and public, to the extent that service does not interfere with Executive's commitments and obligations to Company. 1.3 EXECUTIVE'S DUTIES. Executive will serve in the Position shown on Exhibit A, and in that position will assume such duties and perform such tasks as Company from time to time requires. 2. COMPENSATION PLAN. 2.1 SALARY. Company will pay Executive initially at the rate per year shown as the Base Salary on Exhibit A, payable in equal increments on Company's standard payroll schedules. Executive's Base Salary will not be reduced during the first year of employment. With that limitation, Executive's compensation will otherwise be reviewed on an annual basis, as with other executives of the Company. 2.2 BONUS. Company will pay Executive an annual bonus of up to the amount shown on Exhibit A as "Annual Bonus", which will be disbursed quarterly in accordance with the conditions established in the Company's approved annual bonus plan, as applicable to the Executive. 2.3 STOCK. Executive has been or may in the future be granted rights to purchase stock or stock options in IMS on the exercise and vesting schedules and terms and conditions shown in the grant documents. These are referred to as "options" herein. 2.4 OTHER COMPENSATION. Company will also provide medical insurance, life insurance, disability insurance, 401(k) plan, vacation time, sick leave, and other fringe benefits in accordance with Company's then-existing policies applicable generally to senior executives. Page 1 -- Executive Employment Agreement 2.5 OTHER BENEFITS. Any other benefits particularly applicable to Executive are shown on Exhibit A. 3. TERM AND TERMINATION. 3.1 AT WILL, CONDITIONS. Executive is hired for employment at will, subject to the agreements described here. 3.2 TERMINATION BY COMPANY. Company may terminate Executive's employment with or without cause. A termination is effective as of the date specified in the Notice of termination. 3.3 CAUSE. For the purposes of this Agreement, termination is "with cause" if the Executive's employment is terminated because Executive is convicted of a crime involving the company's business; or has misappropriated Company monies or assets; or has committed fraud; or has been grossly negligent in or willfully fails to accomplish the performance of his duties; and if the Company has given Executive five days' Notice of the allegations with an opportunity to respond and provide evidence refuting them within that period. 3.4 EFFECT OF VOLUNTARY RESIGNATION OR WITH CAUSE TERMINATION. If Executive resigns voluntarily, or is properly terminated for cause, pay and benefits will cease as of the effective date of the resignation or termination. Executive will also forfeit any entitlement to the rights on change in control described in Section 4. Executive will use good faith efforts to provide Company as much notice as possible of any such resignation. 3.5 COMPENSATION ON TERMINATION WITHOUT CAUSE BY COMPANY. If Executive is terminated without cause, however, Company will give Executive severance benefits as follows. 3.5.1 COMPENSATION EARNED THROUGH TERMINATION DATE. On termination by Company without cause, Company will pay Executive's Base Salary, any commissions, and any bonuses, all as earned through the termination date, and a buyout of all accumulated but unused vacation and sick leave time, to be paid within thirty days of termination. 3.5.2 BASE PAY. On termination by Company without cause, Company will in addition pay Executive's Base Salary and benefits for the Severance Period defined in Exhibit A. Payment of the Executive's Base Salary shall be made on Company's standard payroll schedules from the date of termination, as if the Executive had not been terminated. 3.5.3 OPTIONS. As of the date of termination, Company will accelerate the exercise schedule of those options held by Executive that would have vested during the Severance Period, or alternatively, pay Executive the in-the-money value of those options, calculated according to the fair market value of the stock those options represent as of the termination date. 3.6 COMMITMENT CONCERNING COMPETITION. While Company continues to pay Executive's base salary during Executive's employment or after termination, unless Company Page 2 -- Executive Employment Agreement consents in writing, Executive will not consult for, be employed by, serve on the board of, or otherwise take other than a passive investor role in, any company that is in the business of integrated circuit verification, characterization, or virtual test; nor will Executive encourage, influence, or assist any employee or former employee of the Company in securing other employment with a competitor so defined. 3.7 OFFSET. To the extent permissible under applicable law, without prejudice to other remedies, Company may offset any amounts Executive owes Company against any amounts (net of taxes and other deductions) due employee upon termination or thereafter. 4. CHANGE IN CONTROL AGREEMENTS. 4.1 "CONTROL CHANGE." A "Control Change" is the sale of substantially all Company's assets to, or acquisition of a majority of Company's voting stock or entry into a voting or common control agreement covering a majority of the company's voting stock by, an entity (or a set of entities under effective common control) in which those controlling the acquiring entity or entities are not the same as those who have majority ownership and effective control of Company before the sale or acquisition. 4.2 "CONTROL CHANGE WINDOW." The Control Change Window begins sixty days before the LOI Date, and ends one year after the date of closing of the control change. 4.3 "LOI DATE." The "LOI Date" is the date a letter of intent, term sheet, or other similar document is first executed by the Company or one or more of its Shareholders and by anyone acting on behalf of an entity (or collection of entities under common control) who acquires substantially all the Company's assets or majority control of the Company's stock, that evidences an agreement in principle to pursue a course of action that is intended to result in a Control Change. 4.4 ACCELERATION OF OPTIONS ON CONTROL CHANGE. Company shall accelerate the exercise date of all stock options held by Executive so that they become fully exercisable upon a Control Change. 4.5 TERMINATION DURING CONTROL CHANGE WINDOW, BEFORE CONTROL CHANGE. If Executive is terminated without cause before a Control Change occurs, the vesting and expiration date for all options beyond those that would have vested during the Severance Period (called the "Future Options" here) is modified as of the Executive's employment termination date, as follows. As of the employment termination date, the vesting condition is changed, so that the Future Options will become vested upon a Control Change. The expiration date of the Future Options is changed, so that they expire either: 1) Sixty days following the termination date, if the employment termination does not occur during a Control Change Window; or 2) ninety days following a Control Change, if the employment termination occurs during a Control Change Window. 4.5 TERMINATION DURING CONTROL CHANGE WINDOW. If Executive is terminated without cause before a Control Change takes place, but within a Control Change Window, then Company shall accelerate the exercise date of all Executive's options, both those that would have Page 3 -- Executive Employment Agreement become vested during the Severance Period ("Severance Options") and those that would have become vested after the Severance Period ("Future Options"), so that all become fully exercisable immediately prior to the termination date. If as of the employment termination date, it is not yet known whether a Control Change will occur, Company may accelerate or not accelerate the exercise date of all Executive's Future Options, at its choice. 4.5.1 Usual Effect of Non-Acceleration. If the Company elects not to accelerate Future Options as of the employment termination date, then the vesting and expiration dates for all Future Options is modified as follows. As of the employment termination date, the vesting conditions are changed, so that the Future Options will become vested upon a Control Change. The expiration date of the Future Options is changed, so that they expire either: 1) Sixty days following the termination date, if the employment termination does not occur during a Control Change Window; or 2) ninety days following a Control Change, if the employment termination occurs during a Control Change Window. 4.5.2 SPECIAL EFFECT OF NON-ACCELERATION IN PURCHASE TRANSACTIONS. If the Company elects not to accelerate the Future Options, and it later becomes apparent that the termination was within a Control Change Window with respect to a transaction that cannot be accounted for through pooling accounting for reasons independent of any employment agreement issued by the Company, then on the date the transaction embodying the Control Change closes, the Company shall pay Executive the in-the-money value of all options held by Executive on the termination date and not subsequently exercised. That value shall be measured as of the date of closing of the Control Change or as of the date of employment termination, whichever value is greater. 4.5.3 COMPUTATION OF IN-THE-MONEY VALUE. The "in-the-money value" means, with respect to each share of stock represented by the options, the difference between the exercise price for that option and the fair market value as of the measurement date. For purposes of this calculation, options as to which there is no in-the-money value, or as to which the in- the-money value is negative, shall not be included in the calculation of the amount due. If it is not yet known whether a Control Change will occur on the termination date, Company may accelerate or not accelerate all Executive's options on the termination date, at its choice. If the Company elects not to accelerate all options, and it later becomes apparent that the termination was within a Control Change Window, and it is no longer possible under the terms of applicable stock incentive plans to accelerate the exercisability of all options held as of the termination date in such a way as to give the Executive ninety days' opportunity to exercise after he or she receives Notice of the acceleration, then on the date the transaction embodying the Control Change closes, the Company shall pay Executive the in-the-money value of all options held by Executive on the termination date and not subsequently exercised. That value shall be measured as of the date of closing of the Control Change or as of the date of termination, whichever value is greater. 4.5.4 COMPUTATION OF IN-THE-MONEY VALUE. The "in-the-money value" means, with respect to each share of stock represented by the options, the difference between the exercise price for that option and the fair market value as of the measurement date. For purposes of this calculation, options as to which there is no in-the-money value, or as to which the in- the-money value is negative, shall not be included in the calculation of the amount due. Page 4 -- Executive Employment Agreement 5. CONFIDENTIALITY. 5.1 CONFIDENTIALITY. Executive will keep Company's data confidential. In doing so, Executive will not disclose Company's data directly or indirectly to any person, other than an employee of Company or a person to whom disclosure is reasonably necessary or appropriate to further Company's business, either during or after Executive's employment. 5.2 COMPANY DATA. Company's data consists of any trade secret or proprietary or confidential information of Company or of any Company affiliate. Company data includes, but is not limited to, records, files, memoranda, reports, price lists, software, customer lists, personnel information, designs and inventions whether or not patentable or copyrightable, drawings, sketches, documents, equipment, know-how and negative know-how, and the like relating to Company's business which Executive uses, prepares, or comes in contact with during the course of his work for Company. Any information known generally to the public or any information of a type not otherwise generally considered confidential by persons engaged in the same business will not be treated as confidential. 5.3 THIRD PARTY DATA. Executive will also keep third party data confidential as required by Company obligations to the third party, for at least as long as is required for Company data, but longer if required by any agreement Company enters into with the third party. 5.4 RETURN ON TERMINATION. Executive will return all Company data and third party data held by Executive, on termination of Executive's employment or upon any earlier request. 6. INVENTIONS. 6.1 DEFINITIONS. "Inventions" means new ideas, improvements, or discoveries, whether or not patentable or copyrightable, as well as other newly discovered or newly applied information or concepts. An Invention is a "Covered Invention" if it relates to Company's actual or anticipated business; or was developed in any part using Company resources (time, supplies, facilities, or data); or if it results from or is suggested by a task assigned to, or work performed for Company by, Executive. As used in this Section 6, "Company" includes Company's sister corporations or subsidiaries and Company's clients, consultants, and contractors. 6.2 ASSIGNMENT. All Executive's right, title and interest to any Covered Inventions that Executive makes or conceives while employed by Company, belong to Company. This Agreement operates as a prospective assignment of all those rights to Company. 6.3 OBLIGATION SURVIVES. The provisions of this Section 6 shall survive termination of this Agreement. 7. OTHER MATTERS. 7.1 NOTICE. Notice to Executive shall be sent to Executive's most recent address shown in Company's personnel records. Notice to Company shall be sent to Company's headquarters address, marked attention: Chief Financial Officer. Either party may change its Page 5 -- Executive Employment Agreement address by Notice. Notice shall be effective when the person to whom it is sent actually gets it, if sent by any method that leaves a paper or electronic record in the hands of the recipient. If sent certified or registered mail, postage prepaid, return receipt requested, to the proper address this section defines, notice shall be considered effective whether or not actually received on the date the return receipt shows the notice was accepted, refused, or returned undeliverable. 7.2 SEVERABILITY. Each clause of this agreement is severable. If any clause is ruled void or unenforceable, the balance of the agreement shall nonetheless remain in effect. 7.3 NON-WAIVER. A waiver of one or more breaches of any clause of this agreement shall not act to waive any other breach, whether of the same or different clauses. 7.4 ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of Company, its successors and assigns and shall be binding upon and inure to the benefit of Executive, and Executive's administrators, executors, legatees, and heirs. This Agreement shall not be assigned by Executive. 7.5 GOVERNING LAW. This agreement is entered in, and is governed by, the laws of the state of Oregon. 7.6 JURISDICTION, SERVICE, INJUNCTIVE RELIEF. Jurisdiction over disputes arising under this Agreement rests exclusively in the state or federal courts located in Multnomah County, Oregon, and each party consents to that jurisdiction. Each party consents to service of process through the method prescribed for notice. As violation of the non-competition or non-solicitation obligations of this agreement, or those related to rights in intellectual property, would result in damage to Company that could not be cured by an award of money alone, Company shall be entitled to injunctive relief in cases where a violation of those obligations is shown. 7.7 ATTORNEYS' FEES. The prevailing party in any suit, action, arbitration, or appeal filed or held concerning this agreement shall be entitled to reasonable attorneys' fees and the actual, reasonably necessary costs of the proceeding, as determined by the court. 7.8 INTEGRATION. This agreement supersedes all prior employment agreements between the parties, written or oral, provided that the parties preserve to the Executive the commitments made by IMS in Executive's employment agreement dated May 10, 1995, with respect to the Executive's stock options for stock of Cadence Design Systems, Inc. This Agreement also modifies any stock option agreements executed between IMS and Executive before the date of this Agreement or while this Agreement remains in force, with respect to the vesting and expiration provisions of this Agreement. This agreement may be modified only in writing signed by the original parties hereto, or by their successors or superiors in office. SAR RAMADAN INTEGRATED MEASUREMENT SYSTEMS, INC. Page 6 - Executive Employment Agreement Sign: By: ------------------------------ ----------------------------------- Date: Print: ------------------------------ -------------------------------- Title: -------------------------------- Date: -------------------------------- Page 7 -- Executive Employment Agreement Exhibit A to Employment Agreement Compensation Package for SAR RAMADAN as of March 15, 1996 1. POSITION: Chief Financial Officer 2. ANNUAL SALARY: $ 133,000 3. BONUS: $ 31,150 4. SEVERANCE PERIOD: 18 months 5. OTHER BENEFITS: If Company reassigns Executive, changes his title, or reduces Executive's compensation without Executive's consent, or directs him to report other than directly to the Chief Executive Officer without Executive's consent, Executive may, at the Executive's option, decline to accept the change in title or the new assignment or reduction in salary or indirect reporting, and elect instead to treat the reassignment as effective termination by Company, without cause. SAR RAMADAN INTEGRATED MEASUREMENT SYSTEMS, INC. By: By: -------------------------------- ----------------------------------- Print: Print: ----------------------------- --------------------------------- Title: Title: ----------------------------- --------------------------------- Date: Date: ----------------------------- --------------------------------- EX-18 4 EXHIBIT 18 Exhibit 18. Letter regarding change in accounting principle April 18, 1996 Integrated Measurement Systems, Inc. 9525 SW Gemini Drive Beaverton, Oregon 97005 RE: Form 10-Q Report for the quarter ended March 31, 1996 Gentlemen: This letter is written to meet the requirements of Regulation S-K calling for a letter from a registrant's independent accountants whenever there has been a change in accounting principle or practice. We have been informed that, as of January 1, 1996, the Company changed from accounting for service spares as inventory to accounting for service spares as fixed assets. According to the management of the Company, this change was made to more accurately reflect the use of such parts in the Company's service business. These assets are not held for sale, diminish in value in a reasonably predictable manner and, therefore, are subject to depreciation. A complete coordinated set of financial and reporting standards for determining the preferability of accounting principles among acceptable alternative principles has not been established by the accounting profession. Thus, we cannot make an objective determination of whether the change in accounting described in the preceding paragraph is to a preferable method. However, we have reviewed the pertinent factors, including those related to financial reporting, in this particular case on a subjective basis, and our opinion stated below is based on our determination made in this manner. We are of the opinion that the Company's change in method of accounting is to an acceptable alternative method of accounting which, based upon the reasons stated for the change and our discussions with you, is also preferable under the circumstances in this particular case. In arriving at this opinion, we have relied on the business judgment and business planning of your management. We have not audited the application of this change to the financial statements of any period subsequent to December 31, 1995. Further, we have not examined and do not express any opinion with respect to your financial statements for the three months ended March 31, 1996. Very truly yours, ARTHUR ANDERSEN LLP 16 EX-27 5 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INCOME STATEMENT FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1996, AND THE BALANCE SHEET AS OF MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 8,986 0 9,699 340 6,620 27,806 13,207 8,298 36,226 7,625 33 0 0 67 28,393 36,226 9,170 11,915 3,213 4,408 5,436 0 14 2,172 826 1,346 0 0 0 1,346 .19 .19
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