-----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, CtQtwcP4DeUFmyasl6AX0ipvFQxFRawq0ZFJIGHd4+OnYR8ILY7wBeXCEVLZKhC4 0VAyH2X1CdQndBxLZnYXOQ== 0000950149-02-000855.txt : 20020501 0000950149-02-000855.hdr.sgml : 20020501 ACCESSION NUMBER: 0000950149-02-000855 CONFORMED SUBMISSION TYPE: S-8 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 20020501 EFFECTIVENESS DATE: 20020501 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MENTOR GRAPHICS CORP CENTRAL INDEX KEY: 0000701811 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 930786033 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-8 SEC ACT: 1933 Act SEC FILE NUMBER: 333-87364 FILM NUMBER: 02630118 BUSINESS ADDRESS: STREET 1: 8005 SW BOECKMAN RD CITY: WILSONVILLE STATE: OR ZIP: 97070-7777 BUSINESS PHONE: 5036857000 S-8 1 f80175s-8.txt FORM S-8 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 2002 REGISTRATION NO. 333-___________ ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------------- FORM S-8 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 MENTOR GRAPHICS CORPORATION (Exact Name of Registrant as Specified in Its Charter)
Mentor Graphics Corporation 8005 SW Boeckman Road Oregon Wilsonville, Oregon 97070-7777 93-0786033 ------ ------------------------------ ---------- (State or other jurisdiction of (Address, including Zip Code, of (I.R.S. Employer Identification No.) incorporation or organization) Principal Executive Offices
-------------------- OPTIONS ASSUMED BY MENTOR GRAPHICS CORPORATION ORIGINALLY GRANTED UNDER THE VIRTUAL MACHINE WORKS, INC. 1994 INCENTIVE STOCK OPTION PLAN IKOS SYSTEMS, INC. 1995 STOCK OPTION PLAN IKOS SYSTEMS, INC. 1995 OUTSIDE DIRECTORS STOCK OPTION PLAN IKOS SYSTEMS, INC. 2000 NONSTATUTORY STOCK OPTION PLAN (Full title of the Plans) -------------------- Dean M. Freed Vice President and General Counsel Mentor Graphics Corporation 8005 SW Boeckman Road Wilsonville, Oregon 97070-7777 (503) 685-7000 (Name, Address and Telephone Number, including Area Code, of Agent For Service) Copies to: Christopher L. Kaufman Latham & Watkins 135 Commonwealth Drive Menlo Park, California 94025 (650) 328-4600 -------------------- CALCULATION OF REGISTRATION FEE
======================================================================================================================= Title Of Amount Proposed Proposed Amount Of Securities To To Be Maximum Offering Maximum Aggregate Registration Be Registered Registered(1) Price Per Share(2) Offering Price (2) Fee - ----------------------------------------------------------------------------------------------------------------------- Common Stock, no par value 1,190,848 $14.70 $17,505,465.60 $1,610.51 - -----------------------------------------------------------------------------------------------------------------------
(1) Pursuant to the Agreement and Plan of Merger and Reorganization dated as of March 12, 2002, by and among the Registrant, Fresno Corporation and IKOS Systems, Inc., the Registrant assumed all outstanding options to purchase common stock of IKOS Systems, Inc. under the Virtual Machine Works, Inc. 1994 Incentive Stock Option Plan, the IKOS Systems, Inc. 1995 Stock Option Plan, the IKOS Systems, Inc. 1995 Outside Directors Stock Option Plan, and the IKOS Systems, Inc. 2000 Nonstatutory Stock Option Plan, and such options became exercisable to purchase shares of the Registrant's Common Stock, with adjustments to the number of shares and exercise price of each option. This Registration Statement shall also cover any additional shares of Common Stock which become issuable under these plans by reason of any stock dividend, stock split, recapitalization or other similar transaction effected without the receipt of consideration which results in an increase in the number of the outstanding shares of Mentor Graphics Corporation Common Stock. (2) Calculated solely for the purpose of the filing fee under Rule 457(h) of the Securities Act of 1933, as amended, on the basis of a weighted average exercise price of $14.70 per share, as of April 17, 2002. I. INFORMATION REQUIRED IN THE SECTION 10(A) PROSPECTUS The information called for in Part I of Form S-8 is not being filed with or included in this Form S-8 (by incorporation by reference or otherwise) in accordance with the rules and regulations of the Securities and Exchange Commission (the "Commission"). II. INFORMATION REQUIRED IN THE REGISTRATION STATEMENT ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE We incorporate by reference the following documents we have filed with the Commission pursuant to Section 13 of the Securities Exchange Act of 1934, as amended (Commission File Number 0-13442): - Annual Report on Form 10-K for the year ended December 31, 2001, including information specifically incorporated by reference into our Form 10-K from our Proxy Statement for our 2002 Annual Meeting of Stockholders, filed with the SEC on March 19, 2002; - Current Reports on Form 8-K, filed with the SEC on March 13, 2002 and April 10, 2002; - the description of our common stock contained in its Registration Statement on Form 8-A, filed with the SEC under Section 12 of Exchange Act; and - all documents subsequently filed by us with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold. Information that we file later with the Commission will automatically update and supersede this information. ITEM 4. DESCRIPTION OF SECURITIES Not Applicable. ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL Not Applicable. ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS We are an Oregon corporation. Article V of our bylaws indemnifies directors and officers to the fullest extent permitted by the Oregon Business Corporation Act (the "Act"). The effects of Article V are summarized as follows: (a) The Article grants a right of indemnification in respect of any action, suit, or proceeding (other than an action by or in the right of Mentor) against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred, if the persons concerned acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of Mentor, and, with respect to any criminal action or proceeding had no reasonable cause to believe the conduct was unlawful. The termination of an action, suit or proceeding by judgment, order, settlement, conviction, or plea of nolo contendere does not, of itself, create a presumption that the person did not meet the required standards of conduct. 2 (b) The Article grants a right of indemnification in respect of any action or suit by or in the right of Mentor against the expenses (including attorneys' fees) actually and reasonably incurred if the person concerned acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of Mentor, except that no right of indemnification will be granted if the person is adjudged to be liable to us. (c) Every person who has been wholly successful on the merits of a controversy described in (a) or (b) above is entitled to indemnification as a matter of right. (d) We are required to promptly indemnify a director or officer unless it is determined by a majority of disinterested directors or by independent counsel that the person's actions did not meet the relevant standard for indemnification. If the disinterested directors or independent counsel determine that indemnification is not required, the person seeking indemnification may petition a court for an independent determination. In any court action, we will have the burden of proving that indemnification would not be proper. Neither the disinterested directors' failure to make a determination regarding indemnification for the claim nor an actual determination that the person failed to meet the applicable standard will be a defense to such action or create a presumption that the person is not entitled to indemnification. (e) We will advance to a director or officer the expenses incurred in defending any action, suit or proceeding in advance of its final disposition if the director or officer affirms in good faith that he or she is entitled to indemnification and undertakes to repay any amount advanced if it is determined by a court that the person is not entitled to indemnification. (f) We may obtain insurance for the protection of its directors and officers against any liability asserted against them in their official capacities. The rights of indemnification described above are not exclusive of any other rights of indemnification to which the persons indemnified may be entitled under any bylaw, agreement, vote of shareholders or directors or otherwise. We have also entered into Indemnity Agreements with all directors and officers. While the Indemnity Agreements in large part incorporate the indemnification provisions of the Act as described above, they vary from the Act in several respects. The Indemnity Agreements obligate us to provide the maximum indemnification protection allowed under Oregon law, which is intended to provide indemnification broader than that expressly authorized by the Act. The most significant effect of the Indemnity Agreements is to add indemnification for judgments and settlements of derivative lawsuits to the fullest extent permitted by law as may be limited by public policy considerations applied by the courts. ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED Not Applicable. 3 ITEM 8. EXHIBITS 4.1 Restated Articles of Incorporation of the Registrant, as amended. Incorporated by reference to Exhibit 4A to Mentor Graphics' Registration Statement on Form S-3 (Registration No. 33-23024) and Exhibit 3B to Mentor Graphics' Annual Report on Form 10-K for the fiscal year ended December 31, 1998. 4.2 Bylaws of the Registrant. Incorporated by reference to Exhibit 3C to Mentor Graphics' Annual Report on Form 10-K for the fiscal year ended December 31, 1998. 4.3 Rights Agreement, dated as of February 10, 1999, between Mentor Graphics Corporation and American Stock, Transfer & Trust Co. Incorporated by reference to Exhibit 4.1 to Mentor Graphics' Current Report on Form 8-K filed on February 19, 1999. 5.1 Opinion of counsel. 23.1 Consent of Arthur Andersen LLP. 23.2 Consent of KPMG LLP. 23.3 Consent of counsel (included in Exhibit 5.1). 24.1 Power of Attorney (incorporated by reference in the signature page to the Registration Statement). 99.1 Virtual Machine Works, Inc. 1994 Incentive Stock Option Plan. 99.2 IKOS Systems, Inc. 1995 Stock Option Plan. 99.3 IKOS Systems, Inc. 1995 Outside Directors Stock Option Plan. 99.4 IKOS Systems, Inc. 2000 Nonstatutory Stock Option Plan. ITEM 9. UNDERTAKINGS. (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3 or Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is 4 contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. 5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Pleasanton, State of California on this 1st day of May, 2002. MENTOR GRAPHICS CORPORATION By: /s/ DEAN M. FREED ---------------------------------- Dean M. Freed Vice President and General Counsel POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below does hereby constitute and appoint Dean M. Freed with full power of substitution and full power to act without the other, such person's true and lawful attorney-in-fact and agent to act for such person in such person's name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement on Form S-8, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully, to all intents and purposes, as such person might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on May 1, 2002.
Signature Title --------- ----- /s/ WALDEN C. RHINES Chairman of the Board and Chief Executive Officer - --------------------------------------- (Principal Executive Officer) Walden C. Rhines /s/ GREGORY K. HINCKLEY President and Chief Operating Officer and Director - --------------------------------------- (Principal Financial Officer) Gregory K. Hinckley /s/ ANTHONY B. ADRIAN Vice President, Corporate Controller - --------------------------------------- (Principal Accounting Officer) Anthony B. Adrian /s/ SIR PETER BONFIELD Director - --------------------------------------- Sir Peter Bonfield /s/ MARSHA B. CONGDON Director - --------------------------------------- Marsha B. Congdon /s/ JAMES R. FIEBIGER Director - --------------------------------------- James R. Fiebiger /s/ DAVID A. HODGES Director - --------------------------------------- David A. Hodges /s/ KEVIN C. MCDONOUGH Director - --------------------------------------- Kevin C. McDonough /s/ FONTAINE K. RICHARDSON Director - --------------------------------------- Fontaine K. Richardson
INDEX TO EXHIBITS 4.1 Restated Articles of Incorporation of the Registrant, as amended. Incorporated by reference to Exhibit 4A to Mentor Graphics' Registration Statement on Form S-3 (Registration No. 33-23024) and Exhibit 3B to Mentor Graphics' Annual Report on Form 10-K for the fiscal year ended December 31, 1998. 4.2 Bylaws of the Registrant. Incorporated by reference to Exhibit 3C to Mentor Graphics' Annual Report on Form 10-K for the fiscal year ended December 31, 1998. 4.3 Rights Agreement, dated as of February 10, 1999, between Mentor Graphics Corporation and American Stock, Transfer & Trust Co. Incorporated by reference to Exhibit 4.1 to Mentor Graphics' Current Report on Form 8-K filed on February 19, 1999. 5.1 Opinion of counsel. 23.1 Consent of Arthur Andersen LLP. 23.2 Consent of KPMG LLP. 23.3 Consent of counsel (included in Exhibit 5.1). 24.1 Power of Attorney (incorporated by reference in the signature page to the Registration Statement). 99.1 Virtual Machine Works, Inc. 1994 Incentive Stock Option Plan. 99.2 IKOS Systems, Inc. 1995 Stock Option Plan. 99.3 IKOS Systems, Inc. 1995 Outside Directors Stock Option Plan. 99.4 IKOS Systems, Inc. 2000 Nonstatutory Stock Option Plan. EX-5.1 4 f80175ex5-1.txt EXHIBIT 5.1 Exhibit 5.1 May 1, 2002 Mentor Graphics Corporation 8005 SW Boeckman Road Wilsonville, Oregon 97070-7777 Ladies and Gentlemen: I have acted as counsel for Mentor Graphics Corporation, an Oregon corporation (the "Company"), in connection with the filing of a Registration Statement on Form S-8 (the "Registration Statement") under the Securities Act of 1933, as amended, covering the issuance by the Company of 1,190,848 shares of Common Stock, no par value (the "Shares"), of the Company. Pursuant to the Agreement and Plan of Merger and Reorganization dated as of March 12, 2002, by and among the Company, Fresno Corporation("Fresno"), a Delaware corporation and wholly-owned subsidiary of the Company, and IKOS Systems, Inc., a Delaware corporation ("IKOS"), the Company assumed all outstanding options to purchase common stock of IKOS (the "Options") under the Virtual Machine Works, Inc. 1994 Incentive Stock Option Plan, the IKOS Systems, Inc. 1995 Stock Option Plan, the IKOS Systems, Inc. 1995 Outside Directors Stock Option Plan, and the IKOS Systems, Inc. 2000 Nonstatutory Stock Option Plan (collectively, the "Plans"), and, upon the consummation of the merger of Fresno into IKOS by filing a certificate of merger with the Secretary of State of Delaware on April 17, 2002, the Options became exercisable to purchase Shares. I have reviewed the corporate actions of the Company in connection with this matter and have examined those documents, corporate records, and other instruments I deemed necessary for the purposes of this opinion. Based on the foregoing, it is my opinion that: 1. The Company is a corporation duly organized and validly existing under the laws of the State of Oregon. 2. The issuance of the Shares has been duly authorized and, when issued and sold in accordance with the terms of the Plans, will be legally issued, fully paid and nonassessable. I hereby consent to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, /s/ Dean M. Freed Dean M. Freed Vice President and General Counsel EX-23.1 5 f80175ex23-1.txt EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this registration statement of our reports dated January 23, 2002 (except with respect to the matter discussed in Note 21 to the consolidated financial statements, as to which the date is March 12, 2002), included in Mentor Graphics Corporation's Annual Report on Form 10-K for the year ended December 31, 2001 and to all references to our Firm included in this registration statement. Arthur Andersen LLP Portland, Oregon April 26, 2002 EX-23.2 6 f80175ex23-2.txt EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Stockholders Mentor Graphics Corporation: We consent to incorporation by reference herein of our report dated January 31, 2001, relating to the consolidated balance sheet of Mentor Graphics Corporation and subsidiaries as of December 31, 2000, and the related consolidated statements of operations, stockholders' equity and cash flows and related schedule for each of the years in the two-year period ended December 31, 2000, which report appears in the December 31, 2001 annual report on Form 10-K of Mentor Graphics Corporation. KPMG LLP Portland, Oregon April 26, 2002 EX-99.1 7 f80175ex99-1.txt EXHIBIT 99.1 EXHIBIT 99.1 VIRTUAL MACHINE WORKS, INC. 1994 INCENTIVE STOCK OPTION PLAN AS AMENDED VIRTUAL MACHINE WORKS, INC. 1994 STOCK OPTION PLAN (AS AMENDED) 1. PURPOSE The purpose of this 1994 Stock Option Plan (the "Plan") is to encourage directors, consultants and key employees of Virtual Machine Works Inc. (the "Company") and its Subsidiaries (as hereinafter defined) to continue their association with the Company, by providing favorable opportunities for such persons to participate in the ownership of the Company and in its future growth opportunities through the granting of stock options, some of which, as specially designated under Section 4 hereof, are designed to qualify as "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The term "Subsidiary" as used in the Plan means a corporation of which the Company owns, directly or indirectly through an unbroken chain of ownership, fifty percent (50%) or more of the total combined voting power of all classes of stock. 2. ADMINISTRATION OF THE PLAN The Plan shall be administered by the Board of Directors, which shall have the authority to adopt, amend and rescind such rules and regulations as, in its opinion, may be advisable in the administration of the Plan. All questions of interpretation and application of such rules and regulations, of the Plan or of options granted thereunder (the "Options") shall be subject to the determination which shall be final and binding, of a majority of the Board of Directors. The Plan shall be administered in such a manner as to permit those Options granted hereunder and specially designated under Section 4 hereof to qualify as "incentive stock options" as described in Section 422A of the Code. 3. OPTION SHARES The stock subject to Options under the Plan shall be shares of the Company's common stock, par value $0.001 per share (the "Stock"). The total amount of the Stock with respect to which Options may be granted shall not exceed in the aggregate 357,693 shares (the "Option Pool"); provided that such aggregate number of shares shall be subject to adjustment in accordance with the provisions of Section 17. In the event that any outstanding Option shall expire for any reason or shall terminate by reason of the death or severance of employment of the optionee, the surrender of any such Option, or any other cause, the shares of Stock allocable to the unexercised portion of such Option may again be subject to an option under the Plan. 4. AUTHORITY TO GRANT OPTIONS The Board of Directors may grant from time to time, to such eligible individuals as it shall from time to time determine, an Option or Options to buy a stated number of shares of Stock under the terms and conditions of the Plan, each of which Option or Options shall be designated at the time of grant either a nonqualified option or an "incentive stock option" within the meaning of Section 422A of the Code. Subject only to any applicable limitations set forth 1 elsewhere in the Plan, the number of shares of Stock to be covered by any Option shall be as determined by the Board of Directors. 5. WRITTEN AGREEMENT Options granted hereunder shall be embodied in written option agreements (which need not be identical) in such forms as the Board of Directors may from time to time approve. Option agreements shall be subject to the terms and conditions prescribed herein and shall be signed by the optionee and by the President or any Vice President of the Company for and in the name and on behalf of the Company. Such an option agreement shall indicate whether the subject Option has been designated a nonqualified option or an incentive stock option. The written option agreement for any Option shall contain such provisions not inconsistent with this Plan as the Board of Directors in its discretion shall deem advisable. 6. ELIGIBILITY The individuals who shall be eligible for grant of Options under the Plan shall be key employees (including officers who may be members of the Board), directors who are not employees and other individuals who render services of special importance to the management, operation, or development of the Company or a Subsidiary, and who have contributed or may be expected to contribute materially to the success of the Company or a Subsidiary. Options designated incentive stock options shall not be granted to any individual who is not an employee of the Company or a Subsidiary. If required to insure compliance with Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act"), the selection of a director as a participant and the number of shares for which an Option may be granted to such director shall be determined either (i) by the Board of Directors, of which a majority, as well as a majority of the directors acting in the matter, shall be "disinterested persons" (as hereinafter defined) or (ii) by, or only in accordance with, the recommendations of a committee of three or more persons having full authority to act in the matter, of which all members shall be "disinterested persons." For purposes of the Plan, a director or member of such committee shall be deemed to be "disinterested" only if such person qualifies as a "disinterested person" within the meaning of Rule 16b-3 under the Exchange Act, or any successor rule, as such term is interpreted from time to time. 7. OPTION PRICE The price at which shares may be purchased pursuant to an Option shall be specified by the Board of Directors at the time the Option is granted, but in the case of an incentive stock option shall not be less than the fair market value of the shares of Stock on the date the Option is granted. For purposes of the Plan, the "fair market value" of a share of Stock at any particular date shall be determined according to the following rules: (i) if the Stock is not at the time listed or admitted to trading on a stock exchange, the fair market value shall be the mean between the lowest reported bid price and highest reported asked price of the Stock on the date in question in the over-the-counter market, as such prices are reported in a publication of general circulation selected by the Board of Directors and regularly reporting the price of the Stock in such market; provided, however, that if the price of the Stock is not so reported, the fair market value shall be 2 determined by the Board of Directors, which may take into consideration (1) the price paid for the Stock in the most recent trade of a substantial number of shares known to the Board of Directors to have occurred at arm's length between willing and knowledgeable investors, or (2) an appraisal by an independent party, or (3) any other method of valuation undertaken in good faith by the Board of Directors shall in its discretion elect; or (ii) if the Stock is at the time listed or admitted to trading on any stock exchange, then the fair market value shall be the mean between the lowest and highest reported sale prices of the Stock on the date in question on the principal exchange on which the Stock is then listed or admitted to trading. If no reported sale of Stock takes place on the date in question on the principal exchange then the reported closing asked price of the Stock on such date on the principal exchange shall be determinative of fair market value. In case of any employee of the Company or a Subsidiary who owns, directly or indirectly, Stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any corporation which on the date of grant of an Option is a Subsidiary, the price at which shares may be so purchased pursuant to an incentive stock option shall be not less than one hundred ten percent (110%) of the fair market value of the Stock on the date the Option is granted. 8. DURATION OF OPTIONS The duration of any Option shall be specified by the Board of Directors, but no Option designated an incentive stock option shall be exercisable after the expiration of ten (10) years from the date such Option is granted; and no incentive stock option granted to an employee of the Company or a Subsidiary who owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or a Subsidiary shall be exercisable after the expiration of five (5) years from the date such Option is granted. The Board of Directors, in its discretion, may provide that an option shall be exercisable during its entire duration or during any lesser period of time. 9. AMOUNT EXERCISABLE Each Option may be exercised so long as it is valid and outstanding from time to time in part or as a whole, in such manner and subject to such conditions as the Board of Directors in its discretion may provide in the option agreement; provided, however, that incentive stock options granted to an employee under the Plan (and any other incentive stock option plans of the Company and its Subsidiaries) shall not, in the aggregate, become exercisable for the first time in any one calendar year for shares of Stock with an aggregate fair market value (determined as of the respective date or dates of grant) of more than $100,000. Alternative Exercisability Provisions. Notwithstanding the foregoing, unless an option agreement specifically provides to the contrary in any instance, the holder of an Option granted pursuant to the Plan may elect the following Alternative Exercisability Provisions, namely such optionee may at any time exercise such Option in full (notwithstanding any exercise schedule set forth in the Option), provided that the Company shall hold each stock certificate pursuant to such exercise until such shares of stock have vested with the respective optionee pursuant to the stock 3 option exercise vesting schedule set forth in the related option agreement. If an Option is exercised pursuant to the Alternative Exercisability Provisions then the following shall apply: (a) Voting of Shares. (i) For purpose of establishing a quorum, the Unvested Shares shall be deemed present at any meeting of stockholders, (ii) at any meeting of stockholders or in any action by consent of stockholders, the Unvested Shares shall be voted in the same manner as a majority in interest of the other shares of stock voting are voted, (iii) with respect to the Vested Shares the optionee may vote or abstain from voting as he or she sees fit. By his or her exercise of an Option under the Alternative Exercisability Provisions, the optionee irrevocably appoints the officers of the Company as his or her proxy to vote the Unvested Shares in accordance with the foregoing provisions. The term "Vested Shares" shall mean at any time for any option, the number of shares of stock which an optionee could then acquire upon exercise of such Option but for the Alternative Exercisability Provisions. The term "Unvested Shares" shall mean at any time for any Option, the number of shares of stock which are not Vested Shares with respect to such Option. (b) Repurchase Right. If the conditions under which an Option would have become exercisable in accordance with its terms (without giving effect to the Alternative Exercisability Provisions) cease to exist (e.g., because the optionee terminated employment), then the Company shall have the right to repurchase the Unvested Shares at the Option exercise price per share paid by the optionee. This Repurchase Right may be exercised by the Company by giving written notice and tendering the required consideration in cash to the optionee within one hundred and eighty (180) days of the date as of which such condition(s) cease to exist. Acceleration on Acquisition. In addition, unless an option agreement provides to the contrary in any instance, the exercise schedule of such Option (and the vesting of shares issued upon exercise thereof in accordance with the Alternative Exercisability Provisions) shall accelerate fully immediately prior to the consummation of any of the following events: Change in Control. A change in control of the Company such that the stockholders of the Company immediately prior to such change in control would not immediately after such change in control beneficially own voting securities representing in the aggregate more than fifty percent (50%) of the combined voting power of the voting securities of the surviving entity, or the members of the Board of Directors of the Company immediately prior to the change in control would not immediately after the change in control constitute a majority of the Board of Directors of the subsequent corporation or entity; or Sale of Assets. A sale of all or substantially all of the assets of the Company; or Liquidation or Dissolution. A liquidation, dissolution or winding up of the company. 4 10. EXERCISE OF OPTIONS Each Option may be exercised from time to time in such amounts as is provided in the option agreement by the delivery of written notice to the Company setting forth the number of shares with respect to which the Option is to be exercised, accompanied by payment of the option price of such shares, which payment shall be made, subject to the alternative provisions of this Section, in cash or by such cash equivalents, payable to the order of the Company in an amount in United States dollars equal to the option price of such shares, as the Board of Directors in its discretion shall consider acceptable. Such notice shall be delivered in person to the secretary of the Company or shall be sent by registered mail, return receipt requested, to the Secretary of the Company, in which case delivery shall be deemed made on the date such notice is deposited in the mail. Alternatively, payment of the option price may be made, in whole or in part, in shares of Stock owned by the Optionee; provided, however, that the Optionee may not make payment in shares of Stock that he acquired upon the earlier exercise of any ISO, unless he has held the shares until at least two (2) years after the date the ISO was granted and at least one (1) year after the date the ISO was exercised. If payment is made in whole or in part in shares of Stock, then the optionee shall deliver to the Company in payment of the option price of the shares with respect of which such Option is exercised (i) certificates registered in the name of such optionee representing a number of shares of Stock legally and beneficially owned by such optionee, free of all liens, claims and encumbrances of every kind and having a fair market value on the date of delivery of such notice equal to the option price of the shares with respect to which such Option is to be exercised, such certificates to be accompanied by stock powers duly endorsed in blank by the record holder of the shares represented by such certificates; and (ii) if the option price of the shares with respect to which such Option is to be exercised exceeds such fair market value, cash or such cash equivalents payable to the order of the Company, in an amount in United States dollars equal to the amount of such excess, as the Board of Directors in its discretion shall consider acceptable. Notwithstanding the foregoing provisions of this Section, the Board of Directors, in its sole discretion, may refuse to accept shares of Stock in payment of the option price of the shares with respect to which such Option is to be exercised and, in that event any certificates representing shares of Stock which were delivered to the Company with such written notice shall be returned to such optionee together with notice by the Company to such optionee of the refusal of the Board of Directors to accept such shares of Stock. Alternatively, if the option agreement so specifies, payment of the option price may be made in part by a promissory note executed by the optionee and collaterally secured by the Stock obtained upon exercise of the Option, providing for repayment at such time or times as the Board of Directors shall specify; provided, however, (a) that such promissory note shall provide for repayment no later than five (5) years from the date of exercise and for interest at a rate not less than the "base" rate announced on the date of exercise by BayBank, N.A., (b) that in any event an amount not less than the par value of the shares of Stock with respect to which the Option is being exercised must be paid in cash, cash equivalents, of shares of Stock in accordance with this Section and (c) the payment of such exercise price by promissory note does not violate any applicable laws or regulations, including, without limitation, margin lending rules. The decision as to whether to permit partial payment by a promissory note for Stock to be issued upon exercise of any Option granted shall rest entirely in the discretion of the Board of Directors. 5 As promptly as practicable after the receipt by the Company of (i) written notice from the optionee setting forth the number of shares with respect to which such Option is to be exercised and (ii) in payment of the option price of such shares in the form required by the foregoing provisions of this Section, the Company shall cause to be delivered to such optionee certificates representing the number of shares with respect to which such Option has been so exercised. 11. NONTRANSFERABILITY OF OPTIONS No Option shall be transferable by the optionee, either voluntarily or by operation of law, except by will or pursuant to the laws of descent and distribution. During the life of an optionee, an Option shall be exercisable only by such optionee. 12. TERMINATION OF EMPLOYMENT OR INVOLVEMENT OF OPTIONEE WITH THE COMPANY For purposes of this Section, employment by a Subsidiary shall be considered employment by the Company, Non-qualified options shall be exercisable following an optionee's termination of employment or involvement with the Company to the extent provided below with respect to incentive stock options, unless otherwise set forth in the option agreement for such non-qualified options. Except as may be otherwise expressly provided herein, Options designated incentive stock options shall be exercisable after the optionee's termination of employment with the Company only within the period of three (3) months after the date the optionee ceases to be in the employ of the Company, and only to the extent to which the optionee was entitled to exercise the Option immediately prior to the termination of his or her employment. If, before the date of expiration of the Option the optionee shall be retired in good standing from the employ of the Company for reasons of age under the established rules of the Company, the Option shall terminate on the earlier of such date of expiration or three (3) months after the date of such retirement. In the event of the death of the holder of an Option before the date of expiration of such Option and while in the employ of the Company or during the three (3) month period described in the preceding sentence, or in the event of the retirement of such optionee for reasons of disability (within the meaning of Section 22(e)(3) of the Code), such Option shall terminate on the earlier of such date of expiration or one (1) year following the date of such death or retirement. After the death of the optionee, his or her executors, administrators or any persons to whom his or her Option may be transferred by will or by the laws of descent and distribution shall have the right at any time prior to such termination to exercise the Option to the extent to which the optionee was entitled to exercise the Option on the date of his or her death. Authorized leave of absence or absence on military or government service shall not constitute severance of the employment relationship between the Company and the optionee for the purposes of the Plan, provided that either (i) such absence is for a period of no more than ninety (90) days or (ii) the optionee's right to re-employment after such absence is guaranteed either by statute or by contract. For optionees who are not employees of the Company, options shall be exercisable for such periods following the termination of the optionee's involvement with the Company as may be set forth in the specific written option agreement with the optionee. 6 13. REQUIREMENTS OF LAW The Company shall not be required to sell or issue any shares upon the exercise of any Option if the issuance of such shares shall constitute or result in a violation by the optionee or the Company of any provisions of any law, statute or regulation of any governmental authority. Specifically, in connection with the Securities Act of 1933, as amended (the "Securities Act"), upon exercise of any Option the Company shall not be required to issue such shares unless the Board of Directors has received evidence satisfactory to it to the effect that the holder of such Option will not transfer such shares except pursuant to a registration statement in effect under the Securities Act or unless an opinion of counsel satisfactory to the Company has been received by the Company to the effect that such registration is not required. Any determination in this connection by the Board of Directors shall be final, binding and conclusive. The Company shall not be obligated to take any other affirmative action in order to cause the exercise of an Option or the issuance of shares pursuant thereto to comply with any law or regulations or any governmental authority, including, without limitation, the Securities Act or applicable state securities laws. The Company shall not be required to sell or issue any shares upon the exercise of any Option if the Board of Directors is advised by counsel that the issuance of such shares would result in the termination of any then effective election of the Company to be taxed as an S corporation pursuant to the Code. 14. NO RIGHTS AS STOCKHOLDER No optionee shall have rights as a stockholder with respect to shares covered by his or her Option until the date of issuance of a stock certificate for such shares. Except as otherwise provided in Section 17 no adjustment for dividends or other rights shall be made if the record date therefor is prior to the date of issuance of such certificate. 15. EMPLOYMENT OBLIGATION Nothing in this Plan nor the granting of any Option under this Plan shall (i) impose upon the Company or any Subsidiary any obligation to employ or continue to employ any optionee, or to engage or retain the services of any person, (ii) diminish or affect the right of the Company or any Subsidiary to terminate the employment or services of any person or (iii) affect the ability of the Company to increase or decrease the compensation of any person. The existence of any Option shall not be taken into account in determining any damages relating to termination of employment for any reason. 16. FORFEITURE AS A RESULT OF TERMINATION FOR CAUSE Notwithstanding anything to the contrary in the Plan, if the Board of Directors determines after full consideration of the facts presented on behalf of both the Company and an Optionee, that (a) The optionee has been engaged in fraud, embezzlement, theft, commission of a felony or proven dishonesty in the course of his or her employment by or involvement with the Company or a Subsidiary, which damaged the Company or 7 a Subsidiary, or has made unauthorized disclosure of trade secrets or other proprietary information of the Company or a Subsidiary or of a third party who has entrusted such information to the Company or a Subsidiary, (b) the optionee's employment or involvement was otherwise terminated for "cause", as defined in any employment agreement with the optionee, if applicable, or if there is no such agreement, as determined by the Board of Directors, which may determine that "cause" includes among other matters the failure of the optionee to carry out his or her assigned duties diligently and in a manner satisfactory to the Company, then as of the date of such termination of the optionee's employment the optionee's right to exercise an Option shall terminate and the optionee shall forfeit all unexercised Options. If an optionee whose behavior the Company asserts falls within the provisions of (a) or (b) above attempts to exercise an Option prior to a decision of the Board of Directors, the Company shall not be required to recognize such exercise until the Board of Directors has made its decision; provided, however, if the Board of Directors finds in favor of the optionee, then the optionee will be deemed to have exercised such Options retroactively as of the date he or she originally gave written notice of his or her attempt to exercise. The decision of the Board of Directors as to the cause of an optionee's discharge and the damage done to the Company or a Subsidiary shall be final, binding and conclusive. No decision of the Board of Directors, however, shall affect in any manner the finality of the discharge of such optionee by the Company or a Subsidiary. 17. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE This existence of outstanding Options shall not affect in any way the right or power of the Company or its stockholders to make or authorize any adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business or any merger or consolidation of the Company or any issue of bonds, debentures, preferred or preference stock, whether or not convertible into the Stock or other securities, ranking prior to the Stock or affecting the rights thereof, or warrants, rights or options to acquire the same, or the dissolution or liquidation of the Company or any sale or transfer of all or any part of its assets or business or any other corporate act or proceeding, whether of a similar character or otherwise. The number of shares of Stock in the Option Pool (less the number of shares therefore delivered upon exercise of Options) and the number of shares of Stock covered by any outstanding Option and the price per share payable upon exercise thereof (provided that in no event shall the option price be less than the par value of such shares) shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of Stock resulting from the subdivision, split, combination or consolidation of shares of Stock, or any other capital adjustment, the payment of a Stock dividend or any other increase in such shares effected without receipt of consideration by the Company or any other decrease therein effected without a distribution of cash or property in connection therewith, provided, however, that no adjustment shall be made that would constitute a modification as defined in Section 424(h)(3) of the Code. 8 In the event the Company merges or consolidates with one or more corporations and the Company is the surviving corporation, thereafter upon any exercise of an Option, the holder thereof shall be entitled to purchase in lieu of the number of shares of Stock as to which the Option shall then be exercisable, the number and class of shares of stock and securities to which the holder would have been entitled pursuant to the terms of the agreement of merger or consolidation if immediately prior to such merger or consolidation, the holder had been the holder of record of shares of Stock as to which the Option is then exercisable. In the event the Company merges or consolidates with a wholly-owned subsidiary for the purpose of reincorporating itself under the laws of another jurisdiction, the optionees will be entitled to acquire shares of the common stock of the reincorporated Company upon the same terms and conditions as were in effect immediately prior to such reincorporation (unless such reincorporation involves a change in the number of shares, in which case proportional adjustments shall be made as provided above) and the Plan, unless otherwise rescinded by the Board, will remain the Plan of the reincorporated Company. Except as otherwise provided in the preceding paragraph, if the Company is merged into or consolidated with another corporation under circumstances where the Company is not the surviving corporation, or in other circumstances in which the Board in its discretion deems it appropriate for the provisions of this paragraph to apply, or if the Company is liquidated or sells or otherwise disposes of all or substantially all of its assets to another corporation, while unexercised Options remain outstanding under the Plan, (i) subject to the provisions of clause (iii) below, after the effective date of such merger, consolidation or sale, as the case may be, each holder of an outstanding Option shall be entitled, upon exercise of such Option, to receive in lieu of shares of Stock, shares of such stock or other securities as the holders of shares of Stock received pursuant to the terms of the merger, consolidation or sale; (ii) the Board may waive any limitations imposed pursuant to Section 9 (even if the effect of such waiver is to disqualify the option as an incentive stock option) or Section 19 so that all Options from and after a date prior to the effective date of such merger, consolidations, liquidation or sale, as the case may be, specified by the Board, shall be exercisable in full; and (iii) all outstanding Options may be canceled by the Board as of the effective date of any such merger, consolidation, liquidation or sale provided that notice of such cancellation shall be given to each holder of an Option not less than thirty (30) days preceding the effective date of such merger, consolidation, liquidation, sale or disposition and provided that the Board may in its sole discretion waive any limitations imposed pursuant to Section 9 (even if the effect of such waiver is to disqualify the option as an incentive stock option) or Section 19 with respect to any Option so that such Option shall be exercisable in full or in part, as the Board may determine, during such thirty (30) day period. Except as expressly provided herein, the issue by the Company of shares of Stock or other securities convertible into or exchangeable or exercisable for shares of Stock or other securities of any class for cash or property or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe therefor; or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number, class or price of shares of Stock then subject to outstanding Options. 9 18. AMENDMENT OR TERMINATION OF PLAN The Board may modify, revise or terminate the Plan at any time and from time to time; provided, however, that without the further approval of the holders of at least a majority of the outstanding shares of Stock, the Board may not (i) materially increase the benefits accruing to optionees under the Plan or make any "modifications" as that term is defined under Section 424(h)(3) (or its successor) of the Code if such increase in benefits or modifications would adversely affect (a) the availability to the Plan of the protections of Section 16(b) of the Securities Exchange Act of 1934, if applicable to the Company, or (b) the qualification of the Plan or any Options for Incentive Stock Option treatment under Section 422 of the Code; (ii) change the aggregate number of shares of Stock which may be issued under Options pursuant to the provisions of the Plan; (iii) reduce the option price at which incentive stock options may be granted to an amount less than the fair market value per share at the time the Option is granted; or (iv) change the class of persons eligible to receive incentive stock options. Notwithstanding the preceding sentence, the Board of Directors shall in all events have the power to make such changes in the Plan and in the regulations and administrative provisions hereunder or in any outstanding Option as, in the opinion of counsel for the Company, may be necessary or appropriate from time to time to enable any Option granted pursuant to the Plan to qualify as an incentive stock option or such other stock option as may be defined under the Code, as amended from time to time, so as to receive preferential federal income tax treatment. 19. TRANSFER RESTRICTIONS AND REPURCHASE RIGHTS OF THE COMPANY Unless an optionee's option agreement specifically provides to the contrary, or an optionee has entered into an employment, stockholder or other agreement with the Company which provides for the repurchase of options or stock in the event such optionee's employment or involvement with the Company terminates, the provisions of this Section 19 shall apply to each Option granted under the Plan and to the shares of Stock acquired on exercise thereof. a. Right of First Refusal on Dispositions by Optionee. In the event an optionee proposes to sell, assign, transfer or otherwise dispose of any or all of the Shares of Stock which the optionee acquires on exercise of Options or any other securities of the Company (collectively, "Securities"), the optionee will notify in writing (the "Notification") the Company of the optionee's intention to do so, specifying the number of shares of Securities proposed to be transferred (the "Offered Securities"), the name of the person or persons to whom the optionee proposes to transfer the Offered Securities (or if no particular purchaser is identified, then the general class of persons to whom the Optionee proposes to transfer the Offered Securities), and a price per share which shall be the minimum price at which the optionee proposes to effect the transfer (the "Minimum Price"). The Notification shall contain a copy or recitation of all the terms and conditions of the proposed transfer of the Offered Securities at the Minimum Price to such person or persons (or class of persons) and an undertaking that a condition of such transfer shall be the agreement of each transferee to be bound by and be deemed to be an optionee for the purposes of this Section. The Notification shall offer to sell to the Company the Offered Securities, free and clear of any liens or encumbrances in favor of third persons, at the Minimum Price, adjusted for all splits, stock dividends and similar adjustments (the "Acquisition Price"). 10 The Company shall act upon the offer of the optionee by giving written notice (the "Company's Notice") to the optionee setting forth the Company's intention as to any or all of the Offered Securities. The Company's Notice shall be given as soon as practicable after receipt of the Notification, and in all events within thirty (30) days after such receipt, such thirty (30) day period being herein referred to as the "Company's Acceptance Period." In the event the Company shall elect to purchase or acquire any of the Offered Securities, written notice to the optionee of such election to purchase or so acquire any of the Offered Securities shall, when taken in conjunction with the Notification, be deemed to constitute a valid and legally binding purchase and sale agreement as to those Offered Securities. If the Company fails to accept the offer to sell all of the Offered Securities, the optionee shall be free to proceed to sell all but not less than all of the remaining Offered Securities to the person or persons (or class of persons) specified in the Notification at not less than the Minimum Price. If the optionee fails to complete his or her proposed sale within a period of ninety (90) days after the date of the Notification, then the Offered Securities shall once again be subject to the requirement of a prior offer pursuant to the provisions of this Section. The closing of a purchase and sale of Offered Securities pursuant hereto shall take place at the principal executive offices of the Company on the ninetieth (90th) day following the date of the Notification unless another time is mutually agreed upon, at which time the Optionee shall deliver the stock certificate or certificates representing the Offered Securities so sold (duly endorsed or accompanied by a duly executed stock power or assignment to effect transfer of ownership to the purchaser or purchasers on the records of the Company) against the optionee's receipt of payment in cash (by certified check, bank cashier's check or wire transfer). b. Involuntary Disposition. It is the intent of the Company that any involuntary disposition of the shares of Option Stock of the Company owned by an optionee and still subject to the restrictions under Section 19 of this Plan, including dispositions pursuant to a divorce or separation proceeding or any other judicial proceeding, be subject to the prior rights of the Company hereunder and that any such disposition be deemed to be an offer to sell to the Company all shares of Securities at the Repurchase Price. Repurchase Price. As used herein the term "Repurchase Price" shall mean the fair market value of a share of Stock as determined in good faith by a majority of the disinterested members of the Board of Directors; provided, however, in determining the fair market value of the Stock the Directors need not take into account that the Stock may be illiquid or may constitute a minority interest in the Company. The Company shall act upon the deemed offer under this Section within the time periods and following the procedures set forth in Section 19(a), with the date of the deemed offer being the later of the date of the Company's receipt of written notice setting forth the existence of such an involuntary disposition event and the date of such involuntary disposition event, such later date being the date of Notification for the purpose of Section 19(a). Company Note. The term "Company Note" shall mean a promissory note of the Company having a maturity of no more than five (5) years, with equal annual principal payments 11 and bearing interest on the same terms as the Company is required to pay under its bank loans from its primary lending bank, or, if it is not then a borrower, on the same terms as it last was required to pay on such borrowings or, if it has not been a borrower within the prior twelve months, at an annual rate equal to the prime or base commercial lending rate announced by Bank of Boston, N.A. on the date of the note plus one percent (1%) per annum. The note shall provide that if interest is not paid on a due date, the accrued interest shall be added to the principal of the note as of such due date. The note shall provide for prepayment without penalty of principal and interest in whole or in part at any time. The note shall by its terms be subordinate to, and the holder of the note by receiving the same shall be deemed to have subordinated payment thereof to, indebtedness of the Company then or thereafter existing to banks; financial institutions or others who provide debt based working capital to the Company; provided, however, that so long as the Company shall not be in default with respect to said indebtedness, the holder of the note shall be entitled to receive payments of the principal of and interest accrued upon the note in accordance with its terms. c. Permitted Transfers; Lifting of Restrictions. The provisions of Section 19 shall not apply to any proposed sale, assignment, transfer or other disposition of Securities pursuant to a registration statement filed by the Company pursuant to the Securities Act of 1933, as amended (a "Public Offering"). d. Death of an Optionee. In the event of the death of an optionee he will be deemed to have voluntarily terminated his relationship with the Company and to have offered to sell to the Company all of his Securities at the Repurchase Price. The Company shall act upon the deemed offer of a deceased optionee as soon as practicable after the death of the optionee and in any event within ninety (90) days. If the Company fails to accept the offer to sell all of a deceased optionee's shares, the representative of the deceased optionee may proceed to sell, distribute or otherwise dispose of said shares, subject to the other provisions of the Plan. e. Disability of an Optionee. In the event of the disability of an optionee which materially prevents the optionee from performing his work for the Company, he will be deemed to have voluntarily terminated his relationship with the Company and to have offered to sell to the Company all of his Securities at the Repurchase Price. The Company shall act upon the offer of a disabled optionee as soon as practicable after such disability of the optionee and in any event within ninety (90) days. If the Company fails to accept the offer to sell all of a disabled optionee's shares, the disabled optionee or representative of the disabled optionee may proceed to sell, distribute or otherwise dispose of said shares, subject to the other provisions of this Plan. f. Securities Laws; Transfers in Violation of Plan. Notwithstanding any other provision of this Plan the Company may refuse to permit transfer of the Offered Securities if in the opinion of its legal counsel such transfer would violate securities laws or subject the Company to liability thereunder. Any sale, transfer, pledge or other disposition of shares of Stock which is not in accordance with the provisions of this Section 19 shall be void and of no effect and shall not be recognized by the Company. 12 20. EFFECTIVE DATE AND DURATION OF THE PLAN The Plan shall become effective and shall be deemed to have been adopted on February 17, 1994 subject only to ratification by the holders of at least a majority of the outstanding shares of Stock within twelve (12) months after such date. Unless the Plan shall have terminated earlier, the Plan shall terminate on the tenth (10th) anniversary of its effective date, and no Option shall be granted pursuant to the Plan after the day preceding the tenth (10th) anniversary of its effective date. 13 Exhibit 1 to Stock Option Plan Form of Incentive Stock Option Certificate Virtual Machine Works, Inc. Incentive Stock Option Agreement Option Certificate: __________________ Specified Terms of the Option Subject to the terms and conditions hereinafter set forth and the terms and conditions of the Virtual Machine Works, Inc. 1994 Stock Option Plan (the "Plan"), as amended, Virtual Machine Works, Inc., a Delaware corporation (the "Company"), hereby grants the following option to purchase Common Stock, par value $0.001 per share (the "Stock") of the Company. 1. Name of Person to Whom the Option is granted (the "Optionee"); 2. Date of Grant of Option; 3. An Option for _________________ shares of Common Stock; 4. Option Exercise Price (per share); 5. Term of Option: Subject to Section 9 below, this Option expires at 5:00 p.m. Eastern Time on ______________________. 6. Exercise Schedule: Provided that on the dates set forth below the Optionee is still employed by the Company or, if the Optionee is not employed by the Company, the Optionee is still actively involved in the Company (as determined by the Board of Directors), the Option will become exercisable as follows and as provided in Section 9 below: The Option Will Cumulative Becomes Exercisable as Exercisable ----------------------- ---------------------- On This Date Number Percent Number Percent - -------------------------- --------- ---------- ---------- --------- VIRTUAL MACHINE WORKS, Inc. By: X -------------------------------- --------------------------------- Signature of Optionee Title: Date: ---------------------------- ----------------------------- Optionee's Address: 14 OTHER TERMS OF THE OPTION WHEREAS, the Board of Directors (the "Board") has authorized the grant of stock options upon certain terms and conditions set forth herein; and WHEREAS, the Board has authorized the grant of this stock option pursuant and subject to the terms of the Plan, a copy of which is available from the Company and is hereby incorporated herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, the Company and the Optionee agree as set forth above and as follows: 7. Grant. Pursuant and subject to the Plan, the Company does hereby grant to the Optionee a stock option (the "Option") to purchase from the Company the number of shares of its Common Stock set forth in Section 3 upon the terms and conditions set forth in the Plan and upon the additional terms and conditions contained herein. This Option is intended to qualify for special federal income tax treatment as an "incentive stock option" pursuant to Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"). 8. Option Price. This Option may be exercised at the option price per share of Stock set forth in Section 4 hereof, subject to adjustment as provided herein and in the Plan. 9. Term and Exercisability of the Option. This Option shall expire on the date determined pursuant to Section 5 hereof and shall be exercisable prior to the date in accordance with and subject to the conditions set forth in the Plan and those conditions, if any, set forth in Section 6 hereof. In addition, in the event that before this Option has been exercised in full, the Optionee ceases to be an employee of the Company for any reason other than death or a termination for dishonesty or other "cause" as provided in Section 16 of the Plan, the Optionee may exercise this Option to the extent that he might have exercised it on the date of termination of his employment, during the period ending on the earlier of (i) the date on which the Option expires in accordance with Section 5 of this Agreement or (ii) three months after the date of termination of the Optionee's employment by the Company. In the event of the death of the Optionee before this Option has been exercised in full, the personal representative of the Optionee may exercise this Option to the extent that the Optionee might have exercised it on the date of his death, during the period ending on the earlier of (i) the date on which the Option expires in accordance with Section 5 of this Agreement or (ii) the first anniversary of the date of the Optionee's death. 10. Method of Exercise. To the extent that the right to purchase shares of Stock has accrued hereunder, this Option may be exercised from time to time by written notice to the Company substantially in the form attached hereto as Exhibit A, stating the number of shares with respect to which this Option is being exercised, and accompanied by payment in full of the option price for the number of shares to be delivered, by means of payment acceptable to the Company in accordance with Section 10 of the Plan. As soon as practicable after its receipt of such notice, the Company shall, without transfer or issue tax to the Optionee (or other person entitled to exercise this Option), deliver to the Optionee (or other person entitled to exercise this 15 Option), at the principal executive offices of the Company or such other place as shall be mutually acceptable, a certificate or certificates for such shares out of theretofore authorized but unissued shares or reacquired shares of its Stock as the Company may elect, provided, however, that the time of such delivery may be postponed by the Company for such period as may be required for it with reasonable diligence to comply with any applicable requirements of law. Payments of the Option price may be made in cash or cash equivalents. If the Optionee (or other person entitled to exercise this Option) fails to pay for and accept delivery of all of the shares specified in such notice upon tender of delivery thereof, his right to exercise this Option with respect to such shares not paid for may be terminated by the Company. 11. Non-assignability of Option Rights. This Option shall not be assignable or transferable by the Optionee except by will or by the laws of descent and distribution. During the life of the Optionee, this Option shall be exercisable only by him. 12. Compliance with Securities Act. The Company shall not be obligated to sell or issue any shares of Stock or other securities pursuant to the exercise of this Option unless the shares of Stock or other securities with respect to which this Option is being exercised are at that time effectively registered or exempt from registration under the Securities Act of 1933, as amended, and applicable state securities laws. In the event shares or other securities shall be issued which shall not be so registered, the Optionee hereby represents, warrants and agrees that he will receive such shares or other securities for investment and not with a view to their resale or distribution, and will execute an appropriate investment letter satisfactory to the Company and its counsel. 13. Legends. The Optionee hereby acknowledges that the stock certificate or certificates evidencing shares of Stock or other securities issued pursuant to any exercise of this Option will bear a legend setting forth the restrictions on their transferability described in Section 12 hereof and, if applicable to this Option, in Section 19 of the Plan. 14. Rights as Stockholder. The Optionee shall have no rights as a stockholder with respect to any shares of Stock or other securities covered by this Option until the date of issuance of a certificate to him for such shares or other securities. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. 15. Notice to Company of Disqualifying Disposition. The Optionee hereby agrees that he will promptly give notice to the Company in the event that he sells, transfers, exchanges or otherwise disposes of any shares of Stock or other securities obtained pursuant to any exercise of this Option before the day after the later of (a) the second anniversary of the date of grant set forth at the conclusion of this agreement and (b) the first anniversary of the date on which the shares of Stock or other securities were transferred to him pursuant to the exercise of this Option. 16. Termination of Amendment of Plan. The Board may in its sole and absolute discretion at any time terminate or from time to time modify and amend the Plan, but no such termination or amendment will affect rights and obligations under this Option. 16 17. Effect Upon Employment. Nothing in this Option or the Plan shall be construed to impose any obligation upon the Company to employ the Optionee or to retain the Optionee in its employ, or continue its involvement with the Optionee. 18. Time for Acceptance. Unless the Optionee shall evidence his acceptance of this Option by execution of this Agreement within seven (7) days after its delivery to him, the Option and this Agreement shall be null and void. 19. General Provisions. a. Amendment Waivers. This Agreement, including the Plan, contains the full and complete understanding and agreement of the parties hereto as to the subject matter hereof and may be modified or amended, nor may any provision hereof be waived, except by a further written agreement duly signed by each of the parties. The waiver by either of the parties hereto of any provision hereof in any instance shall not operate as a waiver of any other provision hereof or in any other instance. b. Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, representatives, successors and assigns. c. Construction. This Agreement is to be construed in accordance with the terms of the Plan. In case of any conflict between the Plan and this Agreement, the Plan shall control. The titles of the sections of this Agreement and of the Plan are included for convenience only and shall not be construed as modifying or affecting their provisions. The masculine gender shall include both sexes; the singular shall include the plural and the plural the singular unless the context otherwise requires. d. Notices. Any notice in connection with this Agreement shall be deemed to have been properly delivered if it is in writing and is delivered in hand or sent by registered mail to the party addressed as follows, unless another address has been substituted by notice so given: To the Optionee: To this address as listed on the books of the Company. To the Company: Virtual Machine Works, Inc. One Kendall Square, Building 600 Cambridge, Massachusetts 02139 Copy to: Sullivan & Worcester One Post Office Square Boston, MA 02109 Attn: Joseph G. Hadzima, Jr. 17 EXHIBIT A to Incentive Stock Option [FORM FOR EXERCISE OF INCENTIVE STOCK OPTION] Virtual Machine Works, Inc. One Kendall Square, Building 600 Cambridge, Massachusetts 02139 RE: Exercise of Incentive Stock Option under Virtual Machine Works, Inc. 1994 Stock Option Plan Gentlemen: Please take notice that the undersigned hereby elects to exercise the stock option granted to ______________ on ______________ by and to the extent of purchasing ______________ shares of the Common Stock of Virtual Machine Works, Inc. for the option price of ______________ per share, subject to the terms and conditions of the Incentive Stock Option Agreement between ______________ and Virtual Machine Works, Inc. dated as of ____________. The undersigned encloses herewith payment, in case or in such other property as is permitted under the Plan of the purchase price for said shares. If the Undersigned is making payment of any part of the purchase price by delivery of shares of the Common Stock of Virtual Machine Works, Inc. he hereby confirms that he has investigated and considered the possible income tax consequences to him and of making such payments in that form. The undersigned hereby specifically confirms to Virtual Machine Works, Inc. that he is acquiring said shares for investment and not with a view to their sale or distribution, and that said shares shall be held subject to all of the terms and conditions of said Incentive Stock Option Agreement. Very truly yours, - ------------- --------------------------------------- Date (Signed by or other party duly exercising option) 18 Exhibit B to Incentive Stock Option [FORM OF TERM NOTE IN PAYMENT OF EXERCISE PRICE OF OPTIONS] PROMISSORY NOTE $_________________________ Date:________________________ FOR VALUE RECEIVED, the undersigned (the "Payor") hereby promises to pay to the order of Virtual Machine Works, Inc. (the "Payee") at the principal office of Payee in Massachusetts on or before __________, 19____ the sum of __________ ($__________) with interest from the date hereof on the principal amount hereof from time to time unpaid at the rate of ____ percent (___%) per annum (being the "base rate" of BayBank, N.A. on the date hereof). Interest on the outstanding principal amount hereof shall be due and payable quarterly on the last business day of March, June, September and December in each year during the term of this Note, and at maturity commencing __________. All payments on this Note shall be first applied against accrued but unpaid interest to the extent thereof, and then to the outstanding principal amount. The Payor shall have the right to prepay the principal amount of this Note in whole or in part at any time without penalty, but together with all but unpaid accrued interest on the outstanding principal amount. This Note represents the obligation of the Payor to pay on an installment basis the balance of the purchase price of Common Stock of the Payee to be issued to the Payor promptly after the date hereof (the "Shares"), plus interest on such purchase price, pursuant to a Stock Option granted on __________ as detailed in a related Stock Option Agreement (the "Agreement"). [Notwithstanding any other provision of this Note or the Agreement, Payor and Payee agree that Payor shall have no personal liability with respect to the payment of any amount due under this Note, the sole recourse of the Payee being to the Shares.] [In addition to the rights and obligations of the Payor and the holder of this Note specifically set forth in this Note, the Payor and the holder of this Note shall also have the benefit of and be subject to (i) the provisions of Section 19 and 25 of the Massachusetts Business Corporation Law and any other sections of said Law relating to the installment payment for shares and (ii) the rights and obligations of the Payor and the Payee set forth in the Agreement, including but not limited to the provisions relating to acceleration of the obligation to make payment of the purchase price of the Shares.] Upon the occurrence of any of the following events (an "acceleration event"): (a) Failure of the Payor to perform or observe any of his obligations under this Note or the Agreement, or acceleration of the Payor's obligation to make payment of the purchase price of the Shares pursuant to the provisions of the Agreement; or (b) Commencement of voluntary or involuntary proceedings in respect of the Payor under any federal or state bankruptcy, insolvency, receivership or other similar law; or 19 (c) Termination of the Payor's employment by the Payee; then, and in any such event, the holder of this Note at its election may forthwith declare the entire principal amount of such Note, together with accrued interest thereon, immediately due and payable, and this Note shall thereupon forthwith become so due and payable without presentation, protest or further demand or notice of any kind, all of which are expressly waived. The Payor hereby waives the presentment, demand, notice of protest and all other demands and notices in connection with delivery, acceptance, performance, default or enforcement hereof. No delay or omission on the part of the holder of this Note in exercising any right hereunder shall operate as a waiver of such right or of any other right hereunder, no course of dealing between the Payor and the holder shall operate as a waiver of any of the holder's rights hereunder unless set forth in a writing signed by the holder, and a waiver on any one occasion shall not be construed as a bar to or a waiver of any right on any future occasion. The Payor further agrees to pay the costs, fees and expenses (including reasonable attorneys' fees) of collection and enforcement of this Note. All rights and obligations hereunder shall be governed by and interpreted and enforced in accordance with the laws of the Commonwealth of Massachusetts. This Note is executed as, and shall be effective as, a sealed instrument and shall be binding upon the estate and any successor of the Payor. Witness: _____________________ ______________________ Payor 20 Exhibit 2 to Stock Option Plan Form of Non-Qualified Stock Option Certificate Virtual machine Works, Inc. Non-Qualified Stock Option Agreement Option Certificate: ________________ Specific Terms of the Option Subject to the terms and conditions hereinafter set forth and the terms and conditions of the Virtual Machine Works, Inc. 1994 Stock Option Plan (the "Plan"), as amended, Virtual Machine Works, Inc., a Delaware corporation (the "Company") hereby grants the following option to purchase Common Stock, par value $0.001 per share (the "Stock") of the Company; 1. Name of Person to Whom the Option is granted (the "Optionee"); 2. Date of Grant of Option; 3. An Option for _____________________ shares of Common Stock; 4. Option Exercise Price (per share); 5. Term of Option: Subject to Section 9 below, this Option expires at 5:00 p.m. Eastern Time on _____________________. 6. Exercise Schedule: Provided that on the dates set forth below the Optionee is still employed by the Company or, if the Optionee is not employed by the Company, the Optionee is still actively involved in the Company (as determined by the Board of Directors), the Option will become exercisable as follows and as provided in Section 9 below: The Option Will Cumulative Becomes Exercisable as Exercisable ----------------------- ---------------------- On This Date Number Percent Number Percent - -------------------------- --------- ---------- ---------- --------- VIRTUAL MACHINE WORKS, Inc. By: X -------------------------------- --------------------------------- Signature of Optionee Title: Date: ---------------------------- ----------------------------- Optionee's Address: 21 OTHER TERMS OF THE OPTION WHEREAS, the Board of Directors (the "Board") has authorized the grant of stock options upon certain terms and conditions set forth herein; and WHEREAS, the Board has authorized the grant of this stock option pursuant and subject to the terms of the Plan, a copy of which is available from the Company and is hereby incorporated herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, the Company and the Optionee agree as set forth above and as follows: 7. Grant. Pursuant and subject to the Plan, the Company does hereby grant to the Optionee a stock option (the "Option") to purchase from the Company the number of shares of its Common stock set forth in Section 3 upon the terms and conditions set forth in the Plan and upon the additional terms and conditions contained herein. This Option is a non-qualified stock option and is NOT intended to qualify for special federal income tax treatment as an "incentive stock option" pursuant to Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"). 8. Option Price. This Option may be exercised at the option price per share of Stock set forth in Section 4 hereof, subject to adjustment as provided herein and in the Plan. 9. Term and Exercisability of the Option. This Option shall expire on the date determined pursuant to Section 5 on page 1 hereof and shall be exercisable prior to that date in accordance with and subject to the conditions set forth in the Plan and those conditions, if any, set forth in Section 6 on page 1 hereof. In addition, in the event that before this Option has been exercised in full, the Optionee ceases to be an employee of the Company for any reason other than death or a termination for dishonesty or other "cause" as provided in Section 16 of the Plan, the Optionee may exercise this Option to the extent that he might have exercised it on the date of termination, of his employment, during the period ending on the earlier of (i) the date on which the Option expires in accordance with Section 5 of this Agreement or (ii) three months after the date of termination of the Optionee's employment by the Company. In the event of the death of the Optionee before this Option has been exercised in full, the personal representative of the Optionee may exercise this Option to the extent that the Optionee might have exercised it on the date of his death, during the period ending on the earlier of (i) the date on which the Option expires in accordance with Section 5 of this Agreement or (ii) the first anniversary of the date of the Optionee's death. 10. Method of Exercise. To the extent that the right to purchase shares of Stock has accrued hereunder, this Option may be exercised from time to time by written notice to the Company substantially in the form attached hereto as Exhibit A, stating the number of shares with respect to which this Option is being exercised, and accompanied by payment in full of the option price for the number of shares to be delivered, by means of payment acceptable to the Company in accordance with Section 10 of the Plan. As soon as practicable after its receipt of such notice, the Company shall, without transfer or issue tax to the Optionee (or other person entitled to exercise this Option), deliver to the Optionee (or other person entitled to exercise this 22 Option), at the principal executive offices of the Company or such other place as shall be mutually acceptable, a certificate or certificates for such shares out of theretofore authorized but unissued shares or reacquired shares of its Stock as the Company may elect, provided, however, that the time of such delivery may be postponed by the Company for such period as may be required for it with reasonable diligence to comply with any applicable requirements of law. Payment of the option price may be made in cash or cash equivalents. If the Optionee (or other person entitled to exercise this Option) fails to pay for and accept delivery of all of the shares specified in such notice upon tender of delivery thereof, his right to exercise this Option with respect to such shares not paid for may be terminated by the Company. 11. Non-Assignability of Option Rights. This Option shall not be assignable or transferable by the Optionee except by will or by the laws of descent and distribution. During the life of the Optionee, this Option shall be exercisable only by him. 12. Compliance With Securities Act. The Company shall not be obligated to sell or issue any shares of Stock or other securities pursuant to the exercise of this Option unless the shares of Stock or other securities with respect to which this Option is being exercised are at that time effectively registered or exempt from registration under the Securities Act of 1933, as amended, and applicable state securities laws. In the event shares or other securities shall be issued which shall not be so registered, the Optionee hereby represents, warrants and agrees that he will receive such shares or other securities for investment and not with a view to their resale or distribution, and will execute an appropriate investment letter satisfactory to the Company and its counsel. 13. Legends. The Optionee hereby acknowledges that the stock certificate or certificates evidencing shares of Stock or other securities issued pursuant to any exercise of this Option will bear a legend setting forth the restrictions on their transferability described in Section 12 hereof and, if applicable to this Option, in Section 19 of the Plan. 14. Rights as Stockholder. The Optionee shall have no rights as a stockholder with respect to any shares of Stock or other securities covered by this Option until the date of issuance of a certificate to him for such shares or other securities. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. 15. Withholding Taxes. The Optionee hereby agrees, as a condition to any exercise of this Option, to provide to the Company an amount sufficient to satisfy its obligation to withhold certain federal, state and local taxes arising by reason of such exercise (the "Withholding Amount") by (a) authorizing the Company to withhold the Withholding Amount from his or her cash compensation, or (b) remitting the Withholding Amount to the Company in cash; provided that to the extent that the Withholding amount is not provided by one or a combination of such methods, the Company in its discretion may refuse to issue such Stock or may withhold from the Stock delivered upon exercise of this Option that number of shares having a fair market value, on the date of exercise, sufficient to eliminate any deficiency in the Withholding Amount. 23 16. Termination or Amendment of Plan. The Board may in its sole and absolute discretion at any time terminate or from time to time modify and amend the Plan, but not such termination or amendment will affect rights and obligations under this Option. 17. Effect Upon Employment. Nothing in this Option or the Plan shall be construed to impose any obligation upon the Company to employ the Optionee or to retain the Optionee in its employ, or continue its involvement with, the Optionee. 18. Time for Acceptance. Unless the Optionee shall evidence his acceptance of this Option by execution of this Agreement within seven (7) days after its delivery to him, the Option and this Agreement shall be null and void. 19. General Provisions. a. Amendment Waivers. This Agreement, including the Plan, contains the full and complete understanding and agreement of the parties hereto as to the subject matter hereof and may not be modified or amended, nor may any provision hereof be waived, except by a further written agreement duly signed by each of the parties. The waiver by either of the parties hereto of any such provision hereof in any instance shall not operate as a waiver of any other provision hereof or in any other instance. b. Binding Effect. This Agreement shall inure to the benefit of and by binding upon the parties hereto and their respective heirs, executors, administrators, representatives, successors and assigns. c. Construction. This Agreement is to be construed in accordance with the terms of the Plan. In case of any conflict between the Plan and this Agreement, the Plan shall control. The titles of the sections of this Agreement and of the Plan are included for convenience only and shall not be construed as modifying or affecting their provisions. The masculine gender shall include both sexes; the singular shall include the plural and the plural the singular unless the context otherwise requires. d. Notices. Any notice in connection with this Agreement shall be deemed to have been properly delivered if it is in writing and is delivered in hand or sent by registered mail to the party addressed as follows, unless another address has been substituted by notice so given: To the Optionee: To this address as listed on the books of the Company. To the Company: Virtual Machine Works, Inc. One Kendall Square, Building 600 Cambridge, Massachusetts 02139 Copy to: Sullivan & Worcester One Post Office Square Boston, MA 02109 Attn: Joseph G. Hadzima, Jr. 24 EXHIBIT A to Non-Qualified Stock Option [FORM FOR EXERCISE OF NON-QUALIFIED STOCK OPTION] Virtual Machine Works, Inc. One Kendall Square, Building 600 Cambridge, Massachusetts 02139 RE: Exercise of Non-Qualified Option under Virtual Machine Works, Inc. 1994 Stock Option Plan Gentlemen: Please take notice that the undersigned hereby elects to exercise the stock option granted to _________________________ on __________________ by and to the extent of purchasing _______________________ shares of the Common Stock of Virtual Machine Works, Inc. for the option price of __________ per share, subject to the terms and conditions of the Non-Qualified Stock Option Agreement between ________________________ and Virtual Machine Works, Inc. dated as of ___________________. The undersigned encloses herewith payment, in cash or in such other property as is permitted under the Plan, of the purchase price for said shares. If the undersigned is making payment of any part of the purchase price by delivery of shares of the Common Stock of Virtual Machine Works, Inc., he hereby confirms that he has investigated and considered the possible income tax consequences to him and of making such payments in that form. The undersigned hereby agrees to provide the Company an amount sufficient to satisfy the obligation of the Company to withhold certain taxes. The undersigned hereby specifically confirms to Virtual Machine Works, Inc. that he is acquiring said shares for investment and not with a view to their sale or distribution, and that said shares shall be held subject to all of the terms and conditions of said Non-Qualified Stock Option Agreement. Very truly yours, ___________________ ______________________________________ Date (Signed by ___________________________ or other party duly exercising option) 25 Exhibit B to Non-Qualified Stock Option [FORM OF TERM NOTE IN PAYMENT OF EXERCISE PRICE OF OPTIONS] PROMISSORY NOTE $_______________________ Date:_______________ FOR VALUE RECEIVED, the undersigned (the "Payor") hereby promises to pay to the order of Virtual Machine Works, Inc. (the "Payee") at the principal office of Payee in Massachusetts on or before ____________________, 19__ the sum of _____________________ ($_________) with interest from the date hereof on the principal amount hereof from time to time unpaid at the rate of ___percent (__%) per annum (being the "base rate" of BayBank, N.A. on the date hereof). Interest on the outstanding principal amount hereof shall be due and payable quarterly on the last business day of March, June, September and December in each year during the term of this Note, and at maturity commencing __________. All payments on this Note shall be first applied against accrued but unpaid interest to the extent thereof, and then to the outstanding principal amount. The Payor shall have the right to prepay the principal amount of this Note in whole or in part at any time without penalty, but together with all but unpaid accrued interest on the outstanding principal amount. This Note represents the obligation of the Payor to pay on an installment basis the balance of the purchase price of Common Stock of the Payee to be issued to the Payor promptly after the date hereof (the "Shares"), plus interest on such purchase price, pursuant to a Stock Option granted on ________________________ as detailed in a related Stock Option Agreement (the "Agreement"). [Notwithstanding any other provision of this Note or the Agreement, Payor and Payee agree that Payor shall have not personal liability with respect to the payment of any amount due under this Note, the sole recourse of the Payee being to the Shares.] [In addition to the rights and obligations of the Payor and the holder of this Note specifically set forth in this Note, the Payor and the holder of this Note shall also have the benefit of and be subject to (i) the provisions of Section 19 and 25 of the Massachusetts Business Corporation Law and any other sections of said Law relating to the installment payment for shares and (ii) the rights and obligations of the Payor and the Payee set forth in the Agreement, including but not limited to the provisions relating to the acceleration of the obligation to make payment of the purchase price of the Shares.] Upon the occurrence of any of the following events (an "acceleration event"): (a) Failure of the Payor to perform or observe any of his obligations under this Note or the Agreement, or acceleration of the payor's obligation to make payment of the purchase price of the Shares pursuant to the provisions of the Agreement; or (b) Commencement of voluntary or involuntary proceedings in respect of the Payor under any federal or state bankruptcy, insolvency, receivership or other similar law; or 26 (c) Termination of the Payor's employment by the Payee; then, and in any such event, the holder of this Note at its election may forthwith declare the entire principal amount of such Note, together with accrued interest thereon, immediately due and payable, and this Note shall thereupon forthwith become so due and payable without presentation, protest or further demand or notice of any kind, all of which are expressly waived. The Payor hereby waives the presentment, demand, notice of protest and all other demands and notices in connection with delivery, acceptance, performance, default or enforcement hereof. No delay or omission on the part of the holder of this Note in exercising any right hereunder shall operate as a waiver of such right or of any other right hereunder, no course of dealing between the Payor and the holder shall operate as a waiver of any of the holder's rights hereunder unless set forth in a writing signed by the holder, and a waiver on any one occasion shall not be construed as a bar to or a waiver of any right on any future occasion. The Payor further agrees to pay the costs, fees and expenses (including reasonable attorneys' fees) of collection and enforcement of this Note. All rights and obligations hereunder shall be governed by and interpreted and enforced in accordance with the laws of the Commonwealth of Massachusetts. This Note is executed as, and shall be effective as, a sealed instrument and shall be binding upon the estate and any successor of the Payor. Witness: ______________________________ Payor _____________________________ 27 VIRTUAL MACHINE WORKS, INC. Incentive Stock Option Agreement Option Certificate: 1994-1 Specific Terms of the Option Subject to the terms and conditions hereinafter set forth and the terms and conditions of the Virtual Machine Works, Inc. 1994 Stock Option Plan (the "Plan"), Virtual Machine Works, Inc., a Delaware corporation (the "Company") hereby grants the following option to purchase Common Stock par value $0.001 per share (the "Stock") of the Company: 1. Name of Person to Whom the Option is granted (the "Optionee"): Matt Dahl. 2. Date of Grant of Option: February 17, 1994. 3. An Option for 20,000 shares of Common Stock. 4. Option Exercise Price (per share): $0.10. 5. Term of Option: Subject to Section 9 below, this Option expires at 5:00 p.m. Eastern Time on February 16, 2004. 6. Exercise Schedule: Provided that on the dates set forth below the Optionee is still employed by the Company or, if the Optionee is not employed by the Company the Optionee is still actively involved in the Company (as determined by the Board of Directors) the Option will become exercisable as follows and as provided in Section 9 below:
The Option will Become Cumulative On This Exercisable as Number Date To This Number of Shares Exercisable - ------------------ ------------------------ ------------- April 1, 1994 1,000 1,000 July 1, 1994 1,000 2,000 October 1, 1994 1,000 3,000 January 1, 1995 5,000 8,000 April 1, 1995 1,000 9,000 July 1, 1995 1,000 10,000 October 1, 1995 1,000 11,000 January 1, 1996 1,000 12,000 April 1, 1996 1,000 13,000 July 1, 1996 1,000 14,000 October 1, 1996 1,000 15,000 January 1, 1997 1,000 16,000 April 1, 1997 1,000 17,000 July 1, 1997 1,000 18,000 October 1, 1997 1,000 19,000 January 1, 1998 1,000 20,000
VIRTUAL MACHINE WORKS, Inc. By: /s/ JONATHAN BOLB X /s/ MATT L. DAHL ------------------------------ -------------------------------- Signature of Optionee Title: President Date: 4-20-94 --------------------------- --------------------------- Optionee's Address: 193 Stevens Street Marlboro, Massachusetts 01752 28 Virtual Machine Works, Inc. 1994 STOCK OPTION PLAN as amended TABLE OF CONTENTS
Page ---- 1. PURPOSE..............................................................................1 2. ADMINISTRATION OF THE PLAN...........................................................1 3. OPTION SHARES........................................................................1 4. AUTHORITY TO GRANT SHARES............................................................1 5. WRITTEN AGREEMENT....................................................................2 6. ELIGIBILITY..........................................................................2 7. OPTION PRICE.........................................................................2 8. DURATION OF OPTIONS..................................................................3 9. AMOUNT EXERCISABLE...................................................................3 10. EXERCISE OF OPTIONS..................................................................4 11. NONTRANSFERABILITY OF OPTIONS........................................................5 12. TERMINATION OF EMPLOYMENT OR INVOLVEMENT OF OPTIONEE WITH THE COMPANY................6 13. REQUIREMENTS OF LAW..................................................................6 14. NO RIGHTS AS STOCKHOLDER.............................................................7 15. EMPLOYMENT OBLIGATION................................................................7
i TABLE OF CONTENTS
Page ---- 16. FORFEITURE AS A RESULT OF TERMINATION FOR CAUSE......................................7 17. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE...........................................8 18. AMENDMENT OR TERMINATION OF PLAN.....................................................9 19. TRANSFER RESTRICTIONS AND REPURCHASE RIGHTS OF THE COMPANY..........................10 20. EFFECTIVE DATE AND DURATION OF THE PLAN.............................................12
ii EX-99.2 8 f80175ex99-2.txt EXHIBIT 99.2 EXHIBIT 99.2 IKOS SYSTEMS, INC. 1995 STOCK OPTION PLAN (AS AMENDED THROUGH APRIL __, 2001) 1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN. 1.1 ESTABLISHMENT. The IKOS Systems, Inc. 1988 Stock Option Plan was initially established effective as of January 19, 1988 (the "INITIAL PLAN"). The Initial Plan is hereby amended and restated in its entirety as the IKOS Systems, Inc. 1995 Stock Option Plan (the "PLAN") effective as of October 26, 1995 (the "EFFECTIVE DATE"). 1.2 PURPOSE. The purpose of the Plan is to advance the interests of the Participating Company Group and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Participating Company Group and by motivating such persons to contribute to the growth and profitability of the Participating Company Group. 1.3 TERM OF PLAN. The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of Stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Options granted under the Plan have lapsed. However, all Incentive Stock Options shall be granted, if at all, within ten (10) years from the Effective Date. Notwithstanding the foregoing, if the maximum number of shares of Stock issuable pursuant to the Plan as provided in Section 4.1 has been increased at any time, all Incentive Stock Options shall be granted, if at all, no later than the last day preceding the tenth (10th) anniversary of the earlier of (a) the date on which the latest such increase in the maximum number of shares of Stock issuable under the Plan was approved by the stockholders of the Company or (b) the date such amendment was adopted by the Board. 2. DEFINITIONS AND CONSTRUCTION. 2.1 DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" also means such Committee(s). (b) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (c) "COMMITTEE" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted herein, including, without 1 limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (d) "COMPANY" means IKOS Systems, Inc., a Delaware corporation, or any successor corporation thereto. (e) "CONSULTANT" means any person, including an advisor, engaged by a Participating Company to render services other than as an Employee or a Director. (f) "DIRECTOR" means a member of the Board or of the board of directors of any other Participating Company. (g) "EMPLOYEE" means any person treated as an employee (including an officer or a Director who is also treated as an employee) in the records of a Participating Company; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for purposes of the Plan. (h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (i) "FAIR MARKET VALUE" means, as of any date, the value of a share of stock or other property as determined by the Board, in its sole discretion, or by the Company, in its sole discretion, if such determination is expressly allocated to the Company herein. (j) "INCENTIVE STOCK OPTION" means an Option intended to be (as set forth in the Option Agreement) and which qualifies as an incentive stock option within the meaning of Section 422(b) of the Code. (k) "INSIDER" means an officer or a Director of the Company or any other person whose transactions in Stock are subject to Section 16 of the Exchange Act. (l) "NONSTATUTORY STOCK OPTION" means an Option not intended to be (as set forth in the Option Agreement) or which does not qualify as an Incentive Stock Option. (m) "OPTION" means a right to purchase Stock (subject to adjustment as provided in Section 4.2) pursuant to the terms and conditions of the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory Stock Option. (n) "OPTION AGREEMENT" means a written agreement between the Company and an Optionee setting forth the terms, conditions and restrictions of the Option granted to the Optionee and any shares acquired upon the exercise thereof. (o) "OPTIONEE" means a person who has been granted one or more Options. 2 (p) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (q) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (r) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. (s) "RULE 16B-3" means Rule 16b-3 under the Exchange Act, as amended from time to time, or any successor rule or regulation. (t) "SECTION 162(m)" means Section 162(m) of the Code, as amended by the Revenue Reconciliation Act of 1993 (P.L. 103-66). (u) "STOCK" means the common stock of the Company, as adjusted from time to time in accordance with Section 4.2. (v) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code. (w) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at the time an Option is granted to the Optionee, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of a Participating Company within the meaning of Section 422(b)(6) of the Code. 2.2 CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural, the plural shall include the singular, and the term "or" shall include the conjunctive as well as the disjunctive. 3. ADMINISTRATION. 3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the Board, including any duly appointed Committee of the Board. All questions of interpretation of the Plan or of any Option shall be determined by the Board, and such determinations shall be final and binding upon all persons having an interest in the Plan or such Option. Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, determination or election. 3.2 POWERS OF THE BOARD. In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Board shall have the full and final power and authority, in its sole discretion: 3 (a) to determine the persons to whom, and the time or times at which, Options shall be granted and the number of shares of Stock to be subject to each Option; (b) to designate Options as Incentive Stock Options or Nonstatutory Stock Options; (c) to determine the Fair Market Value of shares of Stock or other property; (d) to determine the terms, conditions and restrictions applicable to each Option (which need not be identical) and any shares acquired upon the exercise thereof, including, without limitation, (i) the exercise price of the Option, (ii) the method of payment for shares purchased upon the exercise of the Option, (iii) the method for satisfaction of any tax withholding obligation arising in connection with the Option or such shares, including by the withholding or delivery of shares of stock, (iv) the timing, terms and conditions of the exercisability of the Option or the vesting of any shares acquired upon the exercise thereof, (v) the time of the expiration of the Option, (vi) the effect of the Optionee's termination of employment or service with the Participating Company Group on any of the foregoing, and (vii) all other terms, conditions and restrictions applicable to the Option or such shares not inconsistent with the terms of the Plan; (e) to approve one or more forms of Option Agreement; (f) to amend, modify, extend, or renew, or grant a new Option in substitution for, any Option or to waive any restrictions or conditions applicable to any Option or any shares acquired upon the exercise thereof; (g) to accelerate, continue, extend or defer the exercisability of any Option or the vesting of any shares acquired upon the exercise thereof, including with respect to the period following an Optionee's termination of employment or service with the Participating Company Group; (h) to delegate to the Chief Executive Officer or the Chief Financial Officer of the Company the authority to grant one or more Options, without further approval of the Board, to any person eligible pursuant to Section 5, other than a person who, at the time of such grant, is an Insider; provided, however, that (i) such Options shall not be granted to any one person within any fiscal year of the Company for more than 2,000 shares in the aggregate, (ii) the exercise price per share of each such Option shall be equal to 100% of the closing price per share of the Stock on the date of grant (or, if no price is reported for such date, on the last day preceding the date of grant on which such price is reported) as quoted on the National Association of Securities Dealers Automated Quotation System (or the average of the closing bid and asked prices if the shares of Stock are so quoted instead), or as reported on such other stock exchange or market system which constitutes the primary market for the Stock, and (iii) each such Option shall be subject to the terms and conditions of the appropriate standard form of Option Agreement approved by the Board and shall conform to the provisions of the Plan and such other guidelines as shall be established from time to time by the Board; 4 (i) to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt supplements to, or alternative versions of, the Plan, including, without limitation, as the Board deems necessary or desirable to comply with the laws of, or to accommodate the tax policy or custom of, foreign jurisdictions whose citizens may be granted Options; and (j) to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Option Agreement and to make all other determinations and take such other actions with respect to the Plan or any Option as the Board may deem advisable to the extent consistent with the Plan and applicable law. 3.3 DISINTERESTED ADMINISTRATION. With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered in compliance with the "disinterested administration" requirements of Rule 16b-3, if any. 3.4 COMMITTEE COMPLYING WITH SECTION 162(m). If a Participating Company is a "publicly held corporation" within the meaning of Section 162(m), the Board may establish a Committee of "outside directors" within the meaning of Section 162(m) to approve the grant of any Option which might reasonably be anticipated to result in the payment of employee remuneration that would otherwise exceed the limit on employee remuneration deductible for income tax purposes pursuant to Section 162(m). 4. SHARES SUBJECT TO PLAN. 4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as provided in Section 4.2, as of October 4, 1998, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be three million seven hundred seventy-two thousand eight hundred fifty-seven (3,772,857), increased on the first day of each fiscal year of the Company by a number of shares equal to four and nine tenths percent (4.9%) of the number of shares of Stock issued and outstanding on the last day of the immediately preceding fiscal year, and shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof.(1) Notwithstanding the foregoing, except as adjusted pursuant to Section 4.2, in no event shall more than three million seven hundred seventy-two thousand eight hundred fifty-seven (3,772,857) shares of Stock be cumulatively available for issuance pursuant to the - ---------- (1) Cumulative share reserve: --------------------------------------------------------------- Fixed share reserve 3,772,857 --------------------------------------------------------------- 10/4/98 annual increase 409,702 --------------------------------------------------------------- 10/4/99 annual increase 411,684 --------------------------------------------------------------- 10/4/00 annual increase 430,114 --------------------------------------------------------------- Total cumulative share reserve 5,024,357 ---------------------------------------------------------------
5 exercise of Incentive Stock Options (the "ISO SHARE ISSUANCE LIMIT"). If an outstanding Option for any reason expires or is terminated or canceled or shares of Stock acquired, subject to repurchase, upon the exercise of an Option are repurchased by the Company, the shares of Stock allocable to the unexercised portion of such Option, or such repurchased shares of Stock, shall again be available for issuance under the Plan. 4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number and class of shares subject to the Plan and to any outstanding Options, and in the exercise price per share of any outstanding Options. If a majority of the shares which are of the same class as the shares that are subject to outstanding Options are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event, as defined in Section 8.1) shares of another corporation (the "NEW SHARES"), the Board may unilaterally amend the outstanding Options to provide that such Options are exercisable for New Shares. In the event of any such amendment, the number of shares subject to, and the exercise price per share of, the outstanding Options shall be adjusted in a fair and equitable manner as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 4.2 shall be rounded up or down to the nearest whole number, as determined by the Board, and in no event may the exercise price of any Option be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Board pursuant to this Section 4.2 shall be final, binding and conclusive. 5. ELIGIBILITY AND OPTION LIMITATIONS. 5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to Employees, Consultants, and Directors. For purposes of the foregoing sentence, "Employees" shall include prospective Employees to whom Options are granted in connection with written offers of employment with the Participating Company Group, and "Consultants" shall include prospective Consultants to whom Options are granted in connection with written offers of engagement with the Participating Company Group. Eligible persons may be granted more than one (1) Option. 5.2 DIRECTORS SERVING ON COMMITTEE. At any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, no member of a Committee established to administer the Plan in compliance with the "disinterested administration" requirements of Rule 16b-3, if any, while a member, shall be eligible to be granted an Option. 5.3 OPTION GRANT RESTRICTIONS. Any person who is not an Employee on the effective date of the grant of an Option to such person may be granted only a Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective Employee upon the condition that such person become an Employee shall be deemed granted effective on the date such person commences service with a Participating Company, with an exercise price determined as of such date in accordance with Section 6.1. 6 5.4 FAIR MARKET VALUE LIMITATION. To the extent that the aggregate Fair Market Value of stock with respect to which options designated as Incentive Stock Options are exercisable by an Optionee for the first time during any calendar year (under all stock option plans of the Participating Company Group, including the Plan) exceeds One Hundred Thousand Dollars ($100,000), the portion of such options which exceeds such amount shall be treated as Nonstatutory Stock Options. For purposes of this Section 5.4, options designated as Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of stock shall be determined as of the time the option with respect to such stock is granted. If the Code is amended to provide for a different limitation from that set forth in this Section 5.4, such different limitation shall be deemed incorporated herein effective as of the date and with respect to such Options as required or permitted by such amendment to the Code. If an Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section 5.4, the Optionee may designate which portion of such Option the Optionee is exercising and may request that separate certificates representing each such portion be issued upon the exercise of the Option. In the absence of such designation, the Optionee shall be deemed to have exercised the Incentive Stock Option portion of the Option first. 5.5 SECTION 162(m) GRANT LIMIT. Subject to adjustment as provided in Section 4.2, no Employee shall be granted one or more Options within any fiscal year of the Company which in the aggregate are for the purchase of more than seven hundred fifty thousand (750,000) shares (the "SECTION 162(m) GRANT LIMIT"). An Option which is canceled in the same fiscal year of the Company in which it was granted shall continue to be counted against the Section 162(m) Grant Limit for such period. 6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option Agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish. Option Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions: 6.1 EXERCISE PRICE. The exercise price for each Option shall be established in the sole discretion of the Board; provided, however, that (a) the exercise price per share for an Option shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the Option and (b) no Incentive Stock Option granted to a Ten Percent Owner Optionee shall have an exercise price per share less than one hundred ten percent (110%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than the minimum exercise price set forth above if (a) such Option is granted pursuant to an assumption or substitution for another option in a manner qualifying under the provisions of Section 424(a) of the Code, or (b) such Option is deemed to have been granted as a consequence of an amendment (other than an amendment of the exercise price) made to an outstanding Option, the exercise price of which is less than the minimum exercise price set forth above on the date of such deemed option grant. 7 6.2 EXERCISE PERIOD. Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria, and restrictions as shall be determined by the Board and set forth in the Option Agreement evidencing such Option; provided, however, that (a) no Incentive Stock Option shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Option, (b) no Incentive Stock Option granted to a Ten Percent Owner Optionee shall be exercisable after the expiration of five (5) years after the effective date of grant of such Option, and (c) no Option granted to a prospective Employee or prospective Consultant may become exercisable prior to the date on which such person commences service with a Participating Company. 6.3 PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of shares of Stock owned by the Optionee having a Fair Market Value (as determined by the Company without regard to any restrictions on transferability applicable to such stock by reason of federal or state securities laws or agreements with an underwriter for the Company) not less than the exercise price, (iii) by the assignment of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a "CASHLESS EXERCISE"), (iv) by the Optionee's promissory note in a form approved by the Company, provided that payment by means of a promissory note shall not be permitted after April __, 2001, (v) by such other consideration as may be approved by the Board from time to time to the extent permitted by applicable law, or (vi) by any combination thereof. The Board may at any time or from time to time, by adoption of or by amendment to the standard forms of Option Agreement described in Section 7, or by other means, grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration. (b) TENDER OF STOCK. Notwithstanding the foregoing, an Option may not be exercised by tender to the Company of shares of Stock to the extent such tender of Stock would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's stock. Unless otherwise provided by the Board, an Option may not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. (c) CASHLESS EXERCISE. The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise. (d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be permitted if the exercise of an Option using a promissory note would be a violation of any law. 8 Any permitted promissory note shall be on such terms as the Board shall determine at the time the Option is granted. The Board shall have the authority to permit or require the Optionee to secure any promissory note used to exercise an Option with the shares of Stock acquired upon the exercise of the Option or with other collateral acceptable to the Company. Unless otherwise provided by the Board, if the Company at any time is subject to the regulations promulgated by the Board of Governors of the Federal Reserve System or any other governmental entity affecting the extension of credit in connection with the Company's securities, any promissory note shall comply with such applicable regulations, and the Optionee shall pay the unpaid principal and accrued interest, if any, to the extent necessary to comply with such applicable regulations. 6.4 TAX WITHHOLDING. The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable upon the exercise of an Option, or to accept from the Optionee the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to such Option or the shares acquired upon the exercise thereof. Alternatively or in addition, in its sole discretion, the Company shall have the right to require the Optionee, through payroll withholding, cash payment or otherwise, including by means of a Cashless Exercise, to make adequate provision for any such tax withholding obligations of the Participating Company Group arising in connection with the Option or the shares acquired upon the exercise thereof. The Company shall have no obligation to deliver shares of Stock or to release shares of Stock from an escrow established pursuant to the Option Agreement until the Participating Company Group's tax withholding obligations have been satisfied by the Optionee. 6.5 REPURCHASE RIGHTS. Shares issued under the Plan may be subject to a right of first refusal, one or more repurchase options, or other conditions and restrictions as determined by the Board in its sole discretion at the time the Option is granted. The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company. Upon request by the Company, each Optionee shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions. 7. STANDARD FORMS OF OPTION AGREEMENT. 7.1 INCENTIVE STOCK OPTIONS. Unless otherwise provided by the Board at the time the Option is granted, an Option designated as an "Incentive Stock Option" shall comply with and be subject to the terms and conditions set forth in the form of Incentive Stock Option Agreement adopted by the Board concurrently with its adoption of the Plan and as amended from time to time. 7.2 NONSTATUTORY STOCK OPTIONS. Unless otherwise provided by the Board at the time the Option is granted, an Option designated as a "Nonstatutory Stock Option" shall comply with and be subject to the terms and conditions set forth in the form of Nonstatutory 9 Stock Option Agreement adopted by the Board concurrently with its adoption of the Plan and as amended from time to time. 7.3 STANDARD TERM OF OPTIONS. Except as otherwise provided in Section 6.2 or by the Board in the grant of an Option, any Incentive Stock Option granted hereunder shall have a term of ten (10) years from the effective date of grant of the Option. 7.4 AUTHORITY TO VARY TERMS. The Board shall have the authority from time to time to vary the terms of any of the standard forms of Option Agreement described in this Section 7 either in connection with the grant or amendment of an individual Option or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of Option Agreement are not inconsistent with the terms of the Plan. Such authority shall include, but not by way of limitation, the authority to grant Options which are immediately exercisable subject to the Company's right to repurchase any unvested shares of Stock acquired by an Optionee upon the exercise of an Option in the event such Optionee's employment or service with the Participating Company Group is terminated for any reason, with or without cause. 8. TRANSFER OF CONTROL. 8.1 DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "TRANSFER OF CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "TRANSFEREE CORPORATION(s)"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations 10 which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 8.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of a Transfer of Control, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may either assume the Company's rights and obligations under outstanding Options or substitute for outstanding Options substantially equivalent options for the Acquiring Corporation's stock. In the event the Acquiring Corporation elects not to assume or substitute for outstanding Options in connection with a Transfer of Control, any unexercisable or unvested portion of the outstanding Options shall be immediately exercisable and vested in full as of the date ten (10) days prior to the date of the Transfer of Control. The exercise or vesting of any Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Transfer of Control. Any Options which are neither assumed or substituted for by the Acquiring Corporation in connection with the Transfer of Control nor exercised as of the date of the Transfer of Control shall terminate and cease to be outstanding effective as of the date of the Transfer of Control. Notwithstanding the foregoing, shares acquired upon exercise of an Option prior to the Transfer of Control and any consideration received pursuant to the Transfer of Control with respect to such shares shall continue to be subject to all applicable provisions of the Option Agreement evidencing such Option except as otherwise provided in such Option Agreement. Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the outstanding Options immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Transfer of Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the outstanding Options shall not terminate unless the Board otherwise provides in its sole discretion. 9. PROVISION OF INFORMATION. Each Optionee shall be given access to information concerning the Company equivalent to that information generally made available to the Company's common stockholders. 10. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee or the Optionee's guardian or legal representative. No Option shall be assignable or transferable by the Optionee, except by will or by the laws of descent and distribution. Notwithstanding the foregoing, a Nonstatutory Stock Option shall be assignable or transferable to the extent permitted by the Board and set forth in the Option Agreement evidencing such Option. 11. INDEMNIFICATION. In addition to such other rights of indemnification as they may have as members of the Board or officers or employees of the Participating Company Group, members of the Board and any officers or employees of the Participating Company Group to 11 whom authority to act for the Board is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same. 12. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend the Plan at any time. However, subject to changes in the law or other legal requirements that would permit otherwise, without the approval of the Company's stockholders, there shall be (a) no increase in the maximum aggregate number of shares of Stock that may be issued under the Plan (except by operation of the provisions of Section 4.2), (b) no change in the class of persons eligible to receive Incentive Stock Options, and (c) no expansion in the class of persons eligible to receive Nonstatutory Stock Options. In any event, no termination or amendment of the Plan may adversely affect any then outstanding Option or any unexercised portion thereof, without the consent of the Optionee, unless such termination or amendment is required to enable an Option designated as an Incentive Stock Option to qualify as an Incentive Stock Option or is necessary to comply with any applicable law or government regulation. 13. CONTINUATION OF INITIAL PLAN AS TO OUTSTANDING OPTIONS. Any other provision of the Plan to the contrary notwithstanding, the terms of the Initial Plan shall remain in effect and apply to all Options granted pursuant to the Initial Plan. IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing is the IKOS Systems, Inc. 1995 Stock Option Plan as duly adopted by the Board on October 26, 1995 and amended by the Board through April __, 2001. ------------------------------ Secretary 12 PLAN HISTORY January 19, 1988 1988 Stock Option Plan ("Initial Plan") adopted by Board of Directors of IKOS Systems, Inc., a California corporation ("IKOS California"), with a share reserve of 2,500,000. February 24, 1988 Shareholders of IKOS California approve Initial Plan. August 17, 1989 Board of Directors of IKOS California amends Initial Plan to increase share reserve to 6,000,000. March 30, 1990 Shareholders of IKOS California approve amendment of Initial Plan share reserve to 6,000,000. May 17, 1990 Board of Directors of IKOS California amends Initial Plan to increase share reserve to 8,000,000. June 19, 1990 Shareholders of IKOS California approve amendment of Initial Plan share reserve to 8,000,000. June 29, 1990 IKOS California reincorporates in Delaware as IKOS Systems, Inc. The Company assumes all employee benefit plans of IKOS California (including the Initial Plan). As part of the reincorporation merger, each 3.5 shares of IKOS California become one share of Company stock. The Initial Plan share reserve was adjusted proportionately to 2,285,714. November 7, 1991 Board of Directors of the Company amends Initial Plan to increase share reserve to 2,785,714. January 23, 1992 Stockholders of the Company approve amendment of Initial Plan share reserve to 2,785,714. November 19, 1992 Board of Directors amends Initial Plan to increase share reserve to 4,285,714. January 14, 1993 Stockholders approve amendment of Initial Plan share reserve to 4,285,714. April 24, 1995 Effective date of one-for-two reverse stock split. The Initial Plan share reserve was adjusted proportionately to 2,142,857.
1 October 26, 1995 Board of Directors amends Initial Plan to increase share reserve by 750,000 to 2,892,857 and amends and restates the Initial Plan as the 1995 Stock Option Plan ("Plan"). February 8, 1996 Stockholders approve share reserve increase to 2,892,857 and amendment and restatement of Initial Plan as the Plan. October 25, 1996 Board of Directors amends Plan to increase share reserve by 450,000 shares to 3,342,857 shares. January 27, 1997 Stockholders approve share reserve increase to 3,342,857. November 12, 1997 Board of Directors amends Plan to increase share reserve by 430,000 shares to 3,772,857 shares and to provide for annual evergreen share reserve increases beginning on the first day of the fiscal year commencing in 1998 (subject to a maximum ISO reserve of 3,772,857 shares). January 27, 1998 Stockholders approve share reserve increase to 3,772,857 shares and annual evergreen share reserve increase of 4.9% beginning October 4, 1998. October 4, 1998 Automatic evergreen share reserve increase became effective, increasing the share reserve by 409,702 shares (from 3,772,857 to 4,182,559 shares). October 4, 1999 Share reserve increased by 411,684 to a total of 4,594,243 pursuant to evergreen provision. October 4, 2000 Share reserve increased by 430,114 to a total of 5,024,357 pursuant to evergreen provision. April __, 2001 Board amends Section 6.3(a)(iv) to preclude payment by means of promissory note after April __, 2001.
2 EX-99.3 9 f80175ex99-3.txt EXHIBIT 99.3 EXHIBIT 99.3 IKOS SYSTEMS, INC. 1995 OUTSIDE DIRECTORS STOCK OPTION PLAN (AS AMENDED EFFECTIVE JANUARY 22, 1999) 1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN. 1.1 ESTABLISHMENT. The IKOS Systems, Inc. 1995 Outside Directors Stock Option Plan (the "PLAN") is hereby established effective as of June 20, 1995 (the "EFFECTIVE DATE"). 1.2 PURPOSE. The purpose of the Plan is to advance the interests of the Participating Company Group and its stockholders by providing an incentive to attract and retain highly qualified persons to serve as Outside Directors of the Company and by creating additional incentive for Outside Directors to promote the growth and profitability of the Participating Company Group. 1.3 TERM OF PLAN. The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of Stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Options granted under the Plan have lapsed. 2. DEFINITIONS AND CONSTRUCTION. 2.1 DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" also means such Committee(s). (b) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (c) "COMMITTEE" means a committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted herein, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (d) "COMPANY" means IKOS Systems, Inc., a Delaware corporation, or any successor corporation thereto. (e) "CONSULTANT" means any person, including an advisor, engaged by a Participating Company to render services other than as an Employee or a Director. (f) "DIRECTOR" means a member of the Board or the board of directors of any other Participating Company. (g) "EMPLOYEE" means any person treated as an employee (including an officer or a Director who is also treated as an employee) in the records of a Participating Company; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for purposes of the Plan. (h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (i) "FAIR MARKET VALUE" means, as of any date, if there is then a public market for the Stock, the closing price of the Stock (or the mean of the closing bid and asked prices of the Stock if the Stock is so reported instead) as reported on the National Association of Securities Dealers Automated Quotation ("NASDAQ") System, the NASDAQ National Market System or such other national or regional securities exchange or market system constituting the primary market for the Stock. If the relevant date does not fall on a day on which the Stock is trading on NASDAQ, the NASDAQ National Market System or other national or regional securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date. If there is then no public market for the Stock, the Fair Market Value on any relevant date shall be as determined by the Board without regard to any restriction other than a restriction which, by its terms, will never lapse. (j) "OPTION" means a right to purchase Stock (subject to adjustment as provided in Section 4.2) pursuant to the terms and conditions of the Plan. (k) "OPTIONEE" means a person who has been granted one or more Options. (l) "OPTION AGREEMENT" means a written agreement between the Company and an Optionee setting forth the terms, conditions and restrictions of the Option granted to the Optionee. (m) "OUTSIDE DIRECTOR" means a Director of the Company who is not an Employee. (n) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (o) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (p) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. (q) "RULE 16b-3" means Rule 16b-3 as promulgated under the Exchange Act, as amended from time to time, or any successor rule or regulation. (r) "SERVICE" means the Optionee's service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant. The Optionee's Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Participating Company Group or a change in the Participating Company for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee's Service. The Optionee's Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Optionee performs Service ceasing to be a Participating Company. (s) "STOCK" means the common stock, par value $0.01, of the Company, as adjusted from time to time in accordance with Section 4.2. (t) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code. 2.2 CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural, the plural shall include the singular, and use of the term "or" shall include the conjunctive as well as the disjunctive. 3. ADMINISTRATION. 3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the Board, including any duly appointed Committee of the Board. All questions of interpretation of the Plan or of any Option shall be determined by the Board, and such determinations shall be final and binding upon all persons having an interest in the Plan or such Option. Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, determination or election. 3.2 LIMITATIONS ON AUTHORITY OF THE BOARD. Notwithstanding any other provision herein to the contrary, the Board shall have no authority, discretion, or power to select the Outside Directors who will receive Options, to set the exercise price of the Options, to determine the number of shares of Stock to be subject to an Option or the time at which an Option shall be granted, to establish the duration of an Option, or to alter any other terms or conditions specified in the Plan, except in the sense of administering the Plan subject to the provisions of the Plan. 4. SHARES SUBJECT TO PLAN. 4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as provided in Section 4.2, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be two hundred thousand (200,000) and shall consist of authorized but unissued shares or reacquired shares of Stock or any combination thereof. If an outstanding Option for any reason expires or is terminated or canceled or shares of Stock acquired, subject to repurchase, upon the exercise of an Option are repurchased by the Company, the shares of Stock allocable to the unexercised portion of such Option, or such repurchased shares of Stock, shall again be available for issuance under the Plan. 4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number and class of shares subject to the Plan, to the "Initial Option" and "Annual Option" (as defined in Section 6.1), and to any outstanding Options, and in the exercise price of any outstanding Options. If a majority of the shares which are of the same class as the shares that are subject to outstanding Options are exchanged for, converted into, or otherwise become (whether or not pursuant to a Transfer of Control as defined in Section 8.1) shares of another corporation (the "NEW SHARES"), the Board may unilaterally amend the outstanding Options to provide that such Options are exercisable for New Shares. In the event of any such amendment, the number of shares subject to, and the exercise price of, the outstanding Options shall be adjusted in a fair and equitable manner as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 4.2 shall be rounded down to the nearest whole number, and in no event may the exercise price of any Option be decreased to an amount less than the par value, if any, of the stock subject to the Option. 5. ELIGIBILITY AND TYPE OF OPTIONS. 5.1 PERSONS ELIGIBLE FOR OPTIONS. An Option shall be granted only to a person who, at the time of grant, is an Outside Director. 5.2 OPTIONS AUTHORIZED. Options shall be nonstatutory stock options; that is, options which are not treated as incentive stock options within the meaning of Section 422(b) of the Code. 6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option Agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish. Option Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions: 6.1 AUTOMATIC GRANT OF OPTIONS. Subject to execution by an Outside Director of the appropriate Option Agreement, Options shall be granted automatically and without further action of the Board, as set forth below. (a) PRIOR TO 1999 ANNUAL STOCKHOLDERS MEETING. Prior to the annual meeting of stockholders of the Company scheduled to held in January 1999, or if the amendment to the Plan set forth in Section 6.1(b) is not approved by the stockholders at such annual meeting, Options shall be granted as follows: (i) INITIAL OPTION. Each Outside Director shall be granted an initial Option as follows (an "INITIAL OPTION"): (1) Each Outside Director holding office on the Effective Date shall be granted on the Effective Date an Option to purchase ten thousand (10,000) shares of Stock. (2) Each Outside Director first elected or appointed to the Board after the Effective Date shall be granted, on the date of such initial election or appointment, an Option to purchase ten thousand (10,000) shares of Stock. Notwithstanding anything herein to the contrary, a Director of the Company who previously did not qualify as an Outside Director shall not receive an Initial Option in the event that such Director subsequently becomes an Outside Director. (ii) ANNUAL OPTION. Each Outside Director shall be granted an annual Option as follows (an "ANNUAL OPTION"): (1) Each Outside Director (including any Director of the Company who previously did not qualify as an Outside Director but who subsequently becomes an Outside Director) shall be granted, on the date of each annual meeting of the stockholders of the Company (an "ANNUAL MEETING") following which such person remains an Outside Director, an Option to purchase two thousand five hundred (2,500) shares of Stock, subject to adjustment as provided in Section 6.1(a)(ii)(2). Notwithstanding the foregoing, an Outside Director who receives an Initial Option on the date of an Annual Meeting shall not also receive an Annual Option on such date. (2) The number of shares of Stock subject to the first Annual Option granted to any Outside Director whose initial election to the Board was not at an Annual Meeting shall be determined by multiplying 2,500 by a ratio, the numerator of which is the number of days from the date of such Outside Director's initial election or appointment to the date of the first Annual Meeting occurring thereafter and the denominator of which is three hundred sixty-five (365). (b) FOLLOWING 1999 ANNUAL STOCKHOLDERS MEETING. Subject to the approval by the stockholders of the Company at the annual meeting of stockholders scheduled to held in January 1999 or any adjournment thereof (the "1999 ANNUAL MEETING") of the amendment to the Plan set forth in this Section 6.1(b), Options shall be granted as follows: (i) SPECIAL OPTION. On the date of the 1999 Annual Meeting, each Outside Director remaining in office as an Outside Director immediately following such meeting who has, prior to such date, received an Option under the Plan shall be granted an Option to purchase ten thousand five hundred (10,500) shares of Stock (a "SPECIAL OPTION"). (ii) INITIAL OPTION. Each Outside Director first elected or appointed to the Board on or after the date of the 1999 Annual Meeting shall be granted, on the date of such initial election or appointment, an Option to purchase twenty-four thousand (24,000) shares of Stock (an "INITIAL OPTION"). Notwithstanding anything herein to the contrary, a Director of the Company who previously did not qualify as an Outside Director shall not receive an Initial Option in the event that such Director subsequently becomes an Outside Director. (iii) ANNUAL OPTION. Commencing on the date of the 1999 Annual Meeting, each Outside Director shall be granted an annual Option as follows (an "ANNUAL OPTION"): (1) Each Outside Director (including any Director of the Company who previously did not qualify as an Outside Director but who subsequently becomes an Outside Director) shall be granted, on the date of each annual meeting of the stockholders of the Company (an "ANNUAL MEETING") following which such person remains an Outside Director, an Option to purchase six thousand (6,000) shares of Stock, subject to adjustment as provided in Section 6.1(b)(iii)(2). Notwithstanding the foregoing, an Outside Director who receives an Initial Option on the date of an Annual Meeting shall not also receive an Annual Option on such date. (2) The number of shares of Stock subject to the first Annual Option granted to any Outside Director whose initial election to the Board was not at an Annual Meeting shall be determined by multiplying 6,000 by a ratio, the numerator of which is the number of days from the date of such Outside Director's initial election or appointment to the date of the first Annual Meeting occurring thereafter and the denominator of which is three hundred sixty-five (365). (c) RIGHT TO DECLINE OPTION. Notwithstanding the foregoing, any person may elect not to receive an Option by delivering written notice of such election to the Board no later than the day prior to the date such Option would otherwise be granted. A person so declining an Option shall receive no payment or other consideration in lieu of such declined Option. A person who has declined an Option may revoke such election by delivering written notice of such revocation to the Board no later than the day prior to the date such Option would be granted pursuant to Section 6.1(a) or (b), as the case may be. 6.2 EXERCISE PRICE. The exercise price per share of Stock subject to an Option shall be the Fair Market Value of a share of Stock on the date the Option is granted. 6.3 EXERCISE PERIOD. Each Option shall terminate and cease to be exercisable on the date ten (10) years after the date of grant of the Option unless earlier terminated pursuant to the terms of the Plan or the Option Agreement. 6.4 RIGHT TO EXERCISE OPTIONS. (a) INITIAL OPTION. Except as otherwise provided in the Plan or in the Option Agreement and provided that the Optionee's Service is continuous from the date of grant of the Initial Option (the "INITIAL OPTION GRANT DATE") to the respective vesting date, each Initial Option shall become vested and exercisable prior to the termination thereof cumulatively as to twenty-five percent (25%) of the shares subject to the Initial Option on and after the day immediately preceding the date of each of the first four (4) Annual Meetings occurring after the Initial Option Grant Date. (b) ANNUAL OPTION. Except as otherwise provided in the Plan or in the Option Agreement and provided that the Optionee's Service is continuous from the date of grant of the Annual Option (the "ANNUAL OPTION GRANT DATE") to the vesting date, each Annual Option shall become vested and exercisable in full on and after the day immediately preceding the date of the fourth (4th) Annual Meeting occurring after the Annual Option Grant Date and prior to the termination of such Annual Option. (c) SPECIAL OPTION. Except as otherwise provided in the Plan or in the Option Agreement and provided that the Optionee's Service is continuous from the date of grant of the Special Option (the "SPECIAL OPTION GRANT DATE") to the respective vesting date, each Special Option shall become vested and exercisable prior to the termination thereof cumulatively as to thirty-three and one-third percent (33-1/3%) of the shares subject to the Special Option on and after the day immediately preceding the date of each of the first three (3) Annual Meetings occurring after the Special Option Grant Date. 6.5 PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of shares of Stock owned by the Optionee having a Fair Market Value not less than the exercise price, (iii) by the assignment of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a "CASHLESS EXERCISE"), or (iv) by any combination thereof. (b) TENDER OF STOCK. Notwithstanding the foregoing, an Option may not be exercised by tender to the Company of shares of Stock to the extent such tender of Stock would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's stock. Unless otherwise provided by the Board, an Option may not be exercised by tender to the Company of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. (c) CASHLESS EXERCISE. The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise. 6.6 TAX WITHHOLDING. The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable upon the exercise of an Option, or to accept from the Optionee the tender of, a number of whole shares of Stock having a Fair Market Value equal to all or any part of the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to such Option or the shares acquired upon exercise thereof. Alternatively or in addition, in its sole discretion, the Company shall have the right to require the Optionee to make adequate provision for any such tax withholding obligations of the Participating Company Group arising in connection with the Option or the shares acquired upon exercise thereof. The Company shall have no obligation to deliver shares of Stock until the Participating Company Group's tax withholding obligations have been satisfied. 7. STANDARD FORM OF OPTION AGREEMENT. 7.1 INITIAL OPTION. Unless otherwise provided for by the Board at the time an Initial Option is granted, each Initial Option shall comply with and be subject to the terms and conditions set forth in the form of Nonstatutory Stock Option Agreement for Outside Directors (Initial Option) adopted by the Board concurrently with its adoption of the Plan and as amended from time to time. 7.2 ANNUAL OPTION. Unless otherwise provided for by the Board at the time an Annual Option is granted, each Annual Option shall comply with and be subject to the terms and conditions set forth in the form of Nonstatutory Stock Option Agreement for Outside Directors (Annual Option) adopted by the Board concurrently with its adoption of the Plan and as amended from time to time. 7.3 SPECIAL OPTION. Unless otherwise provided for by the Board at the time a Special Option is granted, each Special Option shall comply with and be subject to the terms and conditions set forth in the form of Nonstatutory Stock Option Agreement for Outside Directors (Special Option) adopted by the Board concurrently with its amendment of the Plan. 7.4 AUTHORITY TO VARY TERMS. Subject to the limitations set forth in Section 3.2, the Board shall have the authority from time to time to vary the terms of any of the standard forms of Option Agreement described in this Section 7 either in connection with the grant or amendment of an individual Option or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of Option Agreement shall be in accordance with the terms of the Plan. Such authority shall include, but not by way of limitation, the authority to grant Options which are immediately exercisable subject to the Company's right to repurchase any unvested shares of Stock acquired by the Optionee upon the exercise of an Option in the event such Optionee's Service is terminated for any reason. In no event, however, shall the Board be permitted to vary the terms of any standard form of Option Agreement if such change would cause the Plan to cease to qualify as a formula plan pursuant to Rule 16b-3 at any such time as any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act. 8. TRANSFER OF CONTROL. 8.1 DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "TRANSFER OF CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "TRANSFEREE CORPORATION(s)"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 8.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of a Transfer of Control, any unexercisable or unvested portion of the outstanding Options shall be immediately exercisable and vested in full as of the date ten (10) days prior to the date of the Transfer of Control. The exercise or vesting of any Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Transfer of Control. In addition, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may either assume the Company's rights and obligations under outstanding Options or substitute for outstanding Options substantially equivalent options for the Acquiring Corporation's stock. Any Options which are neither assumed or substituted for by the Acquiring Corporation in connection with the Transfer of Control nor exercised as of the date of the Transfer of Control shall terminate and cease to be outstanding effective as of the date of the Transfer of Control. Notwithstanding the foregoing, shares acquired upon exercise of an Option prior to the Transfer of Control and any consideration received pursuant to the Transfer of Control with respect to such shares shall continue to be subject to all applicable provisions of the Option Agreement evidencing such Option except as otherwise provided in such Option Agreement. Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the outstanding Options immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Transfer of Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the outstanding Options shall not terminate. 9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee or the Optionee's guardian or legal representative. No Option shall be assignable or transferable by the Optionee, except by will or by the laws of descent and distribution. 10. INDEMNIFICATION. In addition to such other rights of indemnification as they may have as members of the Board or officers or employees of the Participating Company Group, members of the Board and any officers or employees of the Participating Company Group to whom authority to act for the Board is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same. 11. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend the Plan at any time. However, subject to changes in the law or other legal requirements that would permit otherwise, without the approval of the Company's stockholders, there shall be (a) no increase in the total number of shares of Stock that may be issued under the Plan (except by operation of the provisions of Section 4.2), and (b) no expansion in the class of persons eligible to receive Options. Furthermore, to the extent required by Rule 16b-3, provisions of the Plan addressing eligibility to participate in the Plan and the amount, price and timing of Options shall not be amended more than once every six (6) months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. In any event, no termination or amendment of the Plan may adversely affect any then outstanding Option, or any unexercised portion thereof, without the consent of the Optionee, unless such termination or amendment is necessary to comply with any applicable law or government regulation. IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing sets forth the IKOS Systems, Inc. 1995 Outside Directors Stock Option Plan as amended by the Board on October 29, 1998 to be effective January 22, 1999. ------------------------------------ Secretary PLAN HISTORY June 20, 1995 Board adopts Plan, with an initial reserve of 100,000 shares. February 8, 1996 Stockholders approve Plan, with an initial reserve of 100,000 shares. October 29, 1998 Board amends Plan, subject to stockholder approval, to (a) increase the share reserve by 100,000 to a new total of 200,000 shares, (b) to change the automatic option grant formula to provide for (i) a Special Option for 10,500 shares, (ii) an Initial Option for 24,000 shares and (iii) an Annual Option for 6,000 shares. January 22, 1999 Stockholders approve the foregoing amendments.
EX-99.4 10 f80175ex99-4.txt EXHIBIT 99.4 EXHIBIT 99.4 IKOS SYSTEMS, INC. 2000 NONSTATUTORY STOCK OPTION PLAN 1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN. 1.1 ESTABLISHMENt. The IKOS Systems, Inc. 2000 Nonstatutory Stock Option Plan (the "PLAN") is hereby established effective as of October 6, 2000, the date of its adoption by the Board. 1.2 PURPOSE. The purpose of the Plan is to advance the interests of the Participating Company Group and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Participating Company Group and by motivating such persons to contribute to the growth and profitability of the Participating Company Group. 1.3 TERM OF PLAN. The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of Stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Options granted under the Plan have lapsed. 2. DEFINITIONS AND CONSTRUCTION. 2.1 DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "BOARD" also means such Committee(s). (b) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (c) "COMMITTEE" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted herein, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (d) "COMPANY" means IKOS Systems, Inc., a Delaware corporation, or any successor corporation thereto. (e) "CONSULTANT" means a person engaged to provide consulting or advisory services (other than as an Employee or a Director) to a Participating Company, provided that the identity of such person, the nature of such services or the entity to which such services are provided would not preclude the Company from offering or selling securities to such person 1 pursuant to the Plan in reliance on registration on a Form S-8 Registration Statement under the Securities Act. (f) "DISABILITY" means the inability of the Optionee, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of the Optionee's position with the Participating Company Group because of the sickness or injury of the Optionee. (g) "EMPLOYEE" means any person treated as an employee (including an Officer or a Director who is also treated as an employee) in the records of a Participating Company; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for purposes of the Plan. The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the effective date of such individual's employment or termination of employment, as the case may be. For purposes of an individual's rights, if any, under the Plan as of the time of the Company's determination, all such determinations by the Company shall be final, binding and conclusive, notwithstanding that the Company or any court of law or governmental agency subsequently makes a contrary determination. (h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (i) "FAIR MARKET VALUE" means, as of any date, the value of a share of Stock or other property as determined by the Board, in its discretion, or by the Company, in its discretion, if such determination is expressly allocated to the Company herein, subject to the following: (i) If, on such date, the Stock is listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National Market, The Nasdaq SmallCap Market or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported in The Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Board, in its discretion. (ii) If, on such date, the Stock is not listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be as determined by the Board in good faith without regard to any restriction other than a restriction which, by its terms, will never lapse. (j) "NONSTATUTORY STOCK OPTION" means an Option not intended to be an incentive stock option within the meaning of Section 422(b) of the Code. 2 (k) "OFFICER" means any person designated by the Board as an officer of the Company. (l) "OPTION" means a right to purchase Stock pursuant to the terms and conditions of the Plan. All Options are Nonstatutory Stock Options. (m) "OPTION AGREEMENT" means a written agreement between the Company and an Optionee setting forth the terms, conditions and restrictions of the Option granted to the Optionee and any shares acquired upon the exercise thereof. An Option Agreement may consist of a form of "Notice of Grant of Stock Option" and a form of "Stock Option Agreement" incorporated therein by reference, or such other form or forms as the Board may approve from time to time. (n) "OPTIONEE" means a person who has been granted one or more Options. (o) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (p) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (q) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. (r) "SECURITIES ACT" means the Securities Act of 1933, as amended. (s) "SERVICE" means an Optionee's employment or service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant. An Optionee's Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Participating Company Group or a change in the Participating Company for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee's Service. Furthermore, an Optionee's Service with the Participating Company Group shall not be deemed to have terminated if the Optionee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining vesting under the Optionee's Option Agreement. The Optionee's Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Optionee performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its discretion, shall determine whether the Optionee's Service has terminated and the effective date of such termination. 3 (t) "STOCK" means the common stock of the Company, as adjusted from time to time in accordance with Section 4.2. (u) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code. 2.2 CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise. 3. ADMINISTRATION. 3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the Board. All questions of interpretation of the Plan or of any Option shall be determined by the Board, and such determinations shall be final and binding upon all persons having an interest in the Plan or such Option. 3.2 AUTHORITY OF OFFICERS. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, determination or election. 3.3 POWERS OF THE BOARD. In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Board shall have the full and final power and authority, in its discretion: (a) to determine the persons to whom, and the time or times at which, Options shall be granted and the number of shares of Stock to be subject to each Option; (b) to determine the Fair Market Value of shares of Stock or other property; (c) to determine the terms, conditions and restrictions applicable to each Option (which need not be identical) and any shares acquired upon the exercise thereof, including, without limitation, (i) the exercise price of the Option, (ii) the method of payment for shares purchased upon the exercise of the Option, (iii) the method for satisfaction of any tax withholding obligation arising in connection with the Option or such shares, including by the withholding or delivery of shares of stock, (iv) the timing, terms and conditions of the exercisability of the Option or the vesting of any shares acquired upon the exercise thereof, (v) the time of the expiration of the Option, (vi) the effect of the Optionee's termination of Service with the Participating Company Group on any of the foregoing, and (vii) all other terms, conditions and restrictions applicable to the Option or such shares not inconsistent with the terms of the Plan; 4 (d) to approve one or more forms of Option Agreement; (e) to amend, modify, extend, cancel or renew any Option or to waive any restrictions or conditions applicable to any Option or any shares acquired upon the exercise thereof; (f) to accelerate, continue, extend or defer the exercisability of any Option or the vesting of any shares acquired upon the exercise thereof, including with respect to the period following an Optionee's termination of Service with the Participating Company Group; (g) to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt supplements to, or alternative versions of, the Plan, including, without limitation, as the Board deems necessary or desirable to comply with the laws of, or to accommodate the tax policy or custom of, foreign jurisdictions whose citizens may be granted Options; and (h) to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Option Agreement and to make all other determinations and take such other actions with respect to the Plan or any Option as the Board may deem advisable to the extent not inconsistent with the provisions of the Plan or applicable law. 3.4 INDEMNIFICATION. In addition to such other rights of indemnification as they may have as members of the Board or officers or employees of the Participating Company Group, members of the Board and any officers or employees of the Participating Company Group to whom authority to act for the Board or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same. 4. SHARES SUBJECT TO PLAN. 4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as provided in Section 4.2, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be four hundred thousand (400,000) and shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof. If an outstanding Option for 5 any reason expires or is terminated or canceled or if shares of Stock are acquired upon the exercise of an Option subject to a Company repurchase option and are repurchased by the Company at the Optionee's exercise price, the shares of Stock allocable to the unexercised portion of such Option or such repurchased shares of Stock shall again be available for issuance under the Plan. 4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number and class of shares subject to the Plan and to any outstanding Options and in the exercise price per share of any outstanding Options. If a majority of the shares which are of the same class as the shares that are subject to outstanding Options are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event, as defined in Section 8.1) shares of another corporation (the "NEW SHARES"), the Board may unilaterally amend the outstanding Options to provide that such Options are exercisable for New Shares. In the event of any such amendment, the number of shares subject to, and the exercise price per share of, the outstanding Options shall be adjusted in a fair and equitable manner as determined by the Board, in its discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 4.2 shall be rounded down to the nearest whole number, and in no event may the exercise price of any Option be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Board pursuant to this Section 4.2 shall be final, binding and conclusive. 5. ELIGIBILITY AND OPTION LIMITATIONS. 5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to Employees and Consultants. For purposes of the foregoing sentence, "Employees" and "Consultants" shall include prospective Employees and prospective Consultants to whom Options are granted in connection with written offers of an employment or other service relationship with the Participating Company Group. However, notwithstanding any other provision herein to the contrary, no person shall be eligible to be granted an Option under the Plan whose eligibility would require approval of the Plan by the Stockholders of the Company under any law or regulation or the rules of any stock exchange or market system upon which the Stock may then be listed. If not inconsistent with any such law, regulation or rule, an Option may be granted to a person, not previously employed by the Company, as an inducement essential to entering into an employment contract with the Company. Eligible persons may be granted more than one (1) Option. However, eligibility in accordance with this Section shall not entitle any person to be granted an Option, or, having been granted an Option, to be granted an additional Option. 5.2 OPTIONS AUTHORIZED. Options granted under the Plan may only be Nonstatutory Stock Options. 6 6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option Agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish. No Option or purported Option shall be a valid and binding obligation of the Company unless evidenced by a fully executed Option Agreement. Option Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions: 6.1 EXERCISE PRICE. The exercise price for each Option shall be established in the discretion of the Board; provided, however, that the exercise price per share shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the Option. Notwithstanding the foregoing, an Option may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner that would qualify under the provisions of Section 424(a) of the Code were such section applicable. 6.2 EXERCISABILITY AND TERM OF OPTIONS. Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the Board and set forth in the Option Agreement evidencing such Option; provided, however, that (a) no Option shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Option, and (b) no Option granted to a prospective Employee or prospective Consultant may become exercisable prior to the date on which such person commences Service with a Participating Company. Subject to the foregoing, unless otherwise specified by the Board in the grant of an Option, any Option granted hereunder shall terminate ten (10) years after the effective date of grant of the Option, unless earlier terminated in accordance with its provisions. 6.3 PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check or cash equivalent, (ii) by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Optionee having a Fair Market Value not less than the exercise price, (iii) by delivery of a properly executed notice together with irrevocable instructions to a broker providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a "CASHLESS EXERCISE"), (iv) by such other consideration as may be approved by the Board from time to time to the extent permitted by applicable law, or (v) by any combination thereof. The Board may at any time or from time to time, by approval of or by amendment to the standard forms of Option Agreement described in Section 7, or by other means, grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration. 7 (b) LIMITATIONS ON FORMS OF CONSIDERATION. (i) TENDER OF STOCK. Notwithstanding the foregoing, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock to the extent such tender or attestation would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's stock. Unless otherwise provided by the Board, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months (and not used for another Option exercise by attestation during such period) or were not acquired, directly or indirectly, from the Company. (ii) CASHLESS EXERCISE. The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise. 6.4 TAX WITHHOLDING. The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable upon the exercise of an Option, or to accept from the Optionee the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to such Option or the shares acquired upon the exercise thereof. Alternatively or in addition, in its discretion, the Company shall have the right to require the Optionee, through payroll withholding, cash payment or otherwise, including by means of a Cashless Exercise, to make adequate provision for any such tax withholding obligations of the Participating Company Group arising in connection with the Option or the shares acquired upon the exercise thereof. The Fair Market Value of any shares of Stock withheld or tendered to satisfy any such tax withholding obligations shall not exceed the amount determined by the applicable minimum statutory withholding rates. The Company shall have no obligation to deliver shares of Stock until the Participating Company Group's tax withholding obligations have been satisfied by the Optionee. 6.5 EFFECT OF TERMINATION OF SERVICE. (a) OPTION EXERCISABILITY. Subject to earlier termination of the Option as otherwise provided herein and unless otherwise provided by the Board in the grant of an Option and set forth in the Option Agreement, an Option shall be exercisable after an Optionee's termination of Service only during the applicable time period determined in accordance with this Section 6.5 and thereafter shall terminate: (i) DISABILITY. If the Optionee's Service terminates because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee (or the Optionee's guardian or legal representative) at any time prior to the expiration of twelve (12) 8 months (or such longer period of time as determined by the Board, in its discretion) after the date on which the Optionee's Service terminated, but in any event no later than the date of expiration of the Option's term as set forth in the Option Agreement evidencing such Option (the "OPTION EXPIRATION DATE"). (ii) DEATH. If the Optionee's Service terminates because of the death of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee's legal representative or other person who acquired the right to exercise the Option by reason of the Optionee's death at any time prior to the expiration of twelve (12) months (or such longer period of time as determined by the Board, in its discretion) after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. The Optionee's Service shall be deemed to have terminated on account of death if the Optionee dies within one (1) month (or such longer period of time as determined by the Board, in its discretion) after the Optionee's termination of Service. (iii) OTHER TERMINATION OF SERVICE. If the Optionee's Service terminates for any reason, except Disability, death or Termination After Change in Control, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee's Service terminated, may be exercised by the Optionee at any time prior to the expiration of one (1) month (or such longer period of time as determined by the Board, in its discretion) after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. (b) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of an Option within the applicable time periods set forth in Section 6.6(a) is prevented by the provisions of Section 10 below, the Option shall remain exercisable until one (1) month (or such longer period of time as determined by the Board, in its discretion) after the date the Optionee is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date. 6.6 TRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee or the Optionee's guardian or legal representative. No Option shall be assignable or transferable by the Optionee, except by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent permitted by the Board, in its discretion, and set forth in the Option Agreement evidencing such Option, an Option shall be assignable or transferable subject to the applicable limitations, if any, described in the General Instructions to the Form S-8 Registration Statement under the Securities Act. 7. STANDARD FORMS OF OPTION AGREEMENT. 7.1 OPTION AGREEMENT. Unless otherwise provided by the Board at the time the Option is granted, an Option shall comply with and be subject to the terms and conditions set forth in the appropriate form of Option Agreement approved by the Board concurrently with its adoption of the Plan and as amended from time to time. 9 7.2 AUTHORITY TO VARY TERMS. The Board shall have the authority from time to time to vary the terms of any standard form of Option Agreement described in this Section 7 either in connection with the grant or amendment of an individual Option or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of Option Agreement are not inconsistent with the terms of the Plan. 8. CHANGE IN CONTROL. 8.1 DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, a "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting securities of the Company or, in the case of a Transaction described in Section 8.1(a)(iii), the corporation or other business entity to which the assets of the Company were transferred (the "TRANSFEREE"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which, as a result of the Transaction, own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities. The Board shall have the right to determine whether multiple sales or exchanges of the voting securities of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 8.2 EFFECT OF CHANGE IN CONTROL ON OPTIONS. In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the "ACQUIRING CORPORATION"), may, without the consent of any Optionee, either assume the Company's rights and obligations under outstanding Options or substitute for outstanding Options substantially equivalent options for the Acquiring Corporation's stock. In the event the Acquiring Corporation elects not to assume or substitute for outstanding Options in connection with a Change in Control, the exercisability and vesting of each such outstanding Option and any shares acquired upon the exercise thereof held by Optionees whose Service has not terminated prior to such date shall be accelerated in full, 10 effective as of the date ten (10) days prior to the date of the Change in Control. The exercise or vesting of any Option and any shares acquired upon the exercise thereof that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Change in Control. Any Options which are neither assumed or substituted for by the Acquiring Corporation in connection with the Change in Control nor exercised as of the date of the Change in Control shall terminate and cease to be outstanding effective as of the date of the Change in Control. Notwithstanding the foregoing, shares acquired upon exercise of an Option prior to the Change in Control and any consideration received pursuant to the Change in Control with respect to such shares shall continue to be subject to all applicable provisions of the Option Agreement evidencing such Option except as otherwise provided in such Option Agreement. Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the outstanding Options immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Change in Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the outstanding Options shall not terminate unless the Board otherwise provides in its discretion. 9. PROVISION OF INFORMATION. Each Optionee shall be given access to information concerning the Company equivalent to that information generally made available to the Company's common stockholders. 10. COMPLIANCE WITH SECURITIES LAW. The grant of Options and the issuance of shares of Stock upon exercise of Options shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to such securities. Options may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, no Option may be exercised unless (a) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (b) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares hereunder shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of any Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company. 11 11. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend the Plan at any time. No termination or amendment of the Plan shall affect any then outstanding Option unless expressly provided by the Board. In any event, no termination or amendment of the Plan may adversely affect any then outstanding Option without the consent of the Optionee, unless such termination or amendment is necessary to comply with any applicable law, regulation or rule. IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing sets forth the IKOS Systems, Inc. 2000 Nonstatutory Stock Option Plan as duly adopted by the Board on October 6, 2000. ------------------------------------ Secretary 12 PLAN HISTORY October 6, 2000 Board of IKOS Systems, Inc., a Delaware corporation, adopts Plan, with an initial reserve of 400,000 shares. No stockholder approval is required.
-----END PRIVACY-ENHANCED MESSAGE-----