S-8

As filed with the Securities and Exchange Commission on March 7, 2003

Registration No. 333-

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-8

REGISTRATION STATEMENT

Under
The Securities Act of 1933

CADENCE DESIGN SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or Other Jurisdiction of Incorporation or Organization) 77-0148231
(I.R.S. Employer Identification No.)

2655 Seely Avenue, Building 5
San Jose, California 95134
(Address of Principal Executive Offices) (Zip Code)

1995 Directors Stock Option Plan
(Full title of the Plan)

R.L. Smith McKeithen, Esq.
Senior Vice President, General Counsel and Secretary
Cadence Design Systems, Inc.
2655 Seely Avenue, Building 5, San Jose, California 95134
(Name and Address of Agent for Service)
(408) 943-1234
(Telephone number, including area code, of agent for service)

Copies to:

Gregory J. Conklin, Esq.
Gibson, Dunn & Crutcher LLP
One Montgomery Street, 31st Floor
San Francisco, California 94104
(415) 393-8200

CALCULATION OF REGISTRATION FEE

		Proposed Maximum		Proposed Maximum
Title of Securities		Offering Price per		Aggregate Offering		Amount of
to be Registered(1)	Amount to be Registered (2)	Share (3)		Price (3)		Registration Fee(3)
Common Stock, par value $0.01 per share	1,950,000 shares	$	10.19	$	19,870,500	$	1,607.52

(1)	Includes, with respect to each share of Common Stock, Rights granted pursuant to the Registrant’s Amended and Restated Rights Agreement, dated as of February 1, 2000, between the Registrant and Mellon Investor Services, LLC, as Rights Agent. Until a triggering event under the Rights Agreement, the Rights trade with, and cannot be separated from, the Common Stock.
(2)	This Registration Statement shall also cover any additional shares of Common Stock which become issuable under the 1995 Directors Stock Option Plan 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 Cadence Design Systems, Inc. Common Stock.
(3)	Calculated solely for purposes of calculating the amount of the registration fee under Rule 457(c). The price per share and aggregate offering price are based upon the average of the high and low sales price of Registrant’s Common Stock on March 6, 2003 as reported on the New York Stock Exchange.

TABLE OF CONTENTS

PART I
PART II
	Item 3. Incorporation of Documents by Reference
	Item 4. Description of Securities
	Item 5. Interest of Named Experts and Counsel
	Item 6. Indemnification of Directors and Officers
	Item 7. Exemption from Registration Claimed
	Item 8. Exhibits
	Item 9. Undertakings
EXPLANATORY NOTE REGARDING FINANCIAL STATEMENTS
SIGNATURES
POWER OF ATTORNEY
EXHIBIT INDEX
EXHIBIT 5.1
EXHIBIT 23.1
EXHIBIT 99.1

PART I

Information Required in the Section 10(a) Prospectus

     Pursuant to the instructions to Form S-8, Part I (Information Required in the Section 10(a) Prospectus) is not filed as part of this Registration Statement.

PART II

Information Required in the Registration Statement and Explanatory Note

Item 3. Incorporation of Documents by Reference

     The Registrant hereby incorporates by reference into this Registration Statement the following documents previously filed with the Securities and Exchange Commission (the “Commission”):

(a)	The Registrant’s Annual Report on Form 10-K for the fiscal year ended December 29, 2001, including all material incorporated by reference therein;
(b)	The Registrant’s Quarterly Report on Form 10-Q for the quarters ended March 30, 2002, June 29, 2002 and September 28, 2002, including all material incorporated by reference therein;
(c)	The Registrant’s Current Reports on Form 8-K filed with the Commission on March 27, 2002, June 28, 2002, July 18, 2002, August 13, 2002 and November 12, 2002;
(d)	The description of the Registrant’s Common Stock to be offered hereby contained in the Registrant’s Registration Statement on Form 8-A filed with the Commission on August 29, 1990; and
(e)	The description of the Registrant’s Preferred Share Purchase Rights set forth in Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on February 16, 1996.

     All documents filed pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), after the date of this Registration Statement and prior to the filing of a post-effective amendment which indicates that all securities offered hereby have been sold or which deregisters all securities then remaining unsold shall be deemed to be incorporated by reference into this Registration Statement and to be a part hereof from the date of filing of such documents.

     Any document, and any statement contained in a document, incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Registration Statement to the extent that a statement contained herein, or in any other subsequently filed document that also is incorporated or deemed to be incorporated by reference herein, modifies or supersedes such document or statement. Any such document or statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Registration Statement. Subject to the foregoing, all information appearing in this Registration Statement is qualified in its entirety by the information appearing in the documents incorporated by reference.

Item 4. Description of Securities

            Not Applicable

II-1

Item 5. Interest of Named Experts and Counsel

     Not Applicable

Item 6. Indemnification of Directors and Officers

     Section 145 of the Delaware General Corporation Law permits a corporation to indemnify any of its directors or officers who was or is a party or is threatened to be made a party to any third party proceeding by reason of the fact that such person is or was a director or officer of the corporation against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that such person’s conduct was unlawful. In a derivative action, i.e., one by or in the right of a corporation, the corporation is permitted to indemnify any of its directors or officers against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made if such person shall have been adjudged liable to the corporation, unless and only to the extent that the court in which such action or suit was brought shall determine upon application that such person is fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.

     Article VII of the Registrant’s currently effective Certificate of Incorporation eliminates the personal liability of its directors for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. In addition, as permitted by Section 145 of the Delaware General Corporation Law, the Bylaws of the Registrant provide that: (a) the Registrant is required to indemnify its directors and officers and persons serving in such capacities in other business entities (including, for example, subsidiaries of the Registrant) at the Registrant’s request (such directors, officers and other persons are hereinafter referred to collectively as, “Covered Persons”), to the fullest extent permitted by Delaware law, including those circumstances in which indemnification would otherwise be discretionary; (b) the Registrant is required to advance expenses, as incurred to such Covered Persons in connection with defending a proceeding; (c) the indemnitee(s) of the Registrant have the right to bring suit, and to be paid the expenses of prosecuting such suit if successful, to enforce the rights to indemnification under the Bylaws or to advancement of expenses under the Bylaws; (d) the rights conferred in the Bylaws are not exclusive and the Registrant is authorized to enter into indemnification agreements with such directors, officers and employees; (e) the Registrant is required to maintain director and officer liability insurance to the extent reasonably available; and (f) the Registrant may not retroactively amend the Bylaws indemnification provision in a way that is adverse to such Covered Persons.

     The Registrant has entered into indemnity agreements with each of its executive officers and directors that provide the maximum indemnity allowed to officers and directors by Section 145 of the Delaware General Corporation Law and the Bylaws, as well as certain additional procedural protections. The Registrant also maintains a limited amount of director and officer insurance. The indemnification provision in the Bylaws, and the indemnity agreements entered into between the Registrant and its officers or directors, may be sufficiently broad to permit indemnification of the Registrant’s officers and directors for liability arising under the Securities Act of 1933, as amended.

Item 7. Exemption from Registration Claimed

     Not Applicable

II-2

Item 8. Exhibits

Exhibit Number	Exhibit
4.1	Instruments Defining Rights of Stockholders. Reference is made to the Registrant’s Registration Statement on Form 8-A filed with the Commission on August 29, 1990 incorporated by reference pursuant to Items 3(d) and (e).
5.1	Opinion of Gibson, Dunn & Crutcher LLP.
23.1	Consent of Arthur Andersen LLP, Independent Public Accountants.
23.2	Consent of Gibson, Dunn & Crutcher LLP (contained in Exhibit 5.1).
24.1	Power of Attorney (included on the signature pages to this Registration Statement on Form S-8).
99.1	1995 Directors 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 of 1933, as amended (the “1933 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 this Registration Statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement; provided however, that clauses (1)(i) and (1)(ii) shall not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended, that are incorporated by reference into this Registration Statement; (2) that for the purpose of determining any liability under the 1933 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; and (3) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold upon the termination of the offering under the Plan.

     B.     Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the indemnity provisions incorporated by reference in Item 6, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the 1933 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 1933 Act and will be governed by the final adjudication of such issue.

II-3

EXPLANATORY NOTE REGARDING FINANCIAL STATEMENTS

INCORPORATED BY REFERENCE INTO THIS

REGISTRATION STATEMENT

     On March 22, 2002, the Registrant announced that it had appointed KPMG LLP to replace Arthur Andersen LLP (“Andersen”) as the Registrant’s independent auditors. The Registrant’s consolidated balance sheets as of December 29, 2001 and December 30, 2000, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three fiscal years in the period ended December 29, 2001, incorporated by reference in this registration statement have been audited by Andersen, as stated in its report dated March 11, 2002, which is incorporated by reference herein. After reasonable efforts, the Registrant has been unable to obtain Andersen’s consent to the incorporation by reference into this registration statement of its report with respect to these financial statements. Under these circumstances, Rule 437a under the Securities Act of 1933 permits us to file this registration statement without a written consent from Andersen. The absence of such consent may limit recovery by investors on certain claims. In particular, and without limitation, investors will not be able to assert claims against Andersen under Section 11 of the Securities Act. In addition, the ability of Andersen to satisfy any claims (including claims arising from Andersen’s provision of auditing and other services to us) may be limited as a practical matter due to recent events regarding Andersen.

II-4

SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, as amended, 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 San Jose, State of California, on this 7th day of March, 2003.

CADENCE DESIGN SYSTEMS, INC.

By: /s/ H. Raymond Bingham

H. Raymond Bingham
President, Chief Executive Officer and Director

II-5

POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints H. Raymond Bingham, William Porter and R.L. Smith McKeithen, and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ H. Raymond Bingham H. Raymond Bingham	President, Chief Executive Officer and Director (Principal Executive Officer)	March 7, 2003
/s/ William Porter William Porter	Senior Vice President, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	March 7, 2003
/s/ Donald L. Lucas Donald L. Lucas	Chairman of the Board of Directors	March 7, 2003
/s/ Susan L. Bostrom Susan L. Bostrom	Director	March 7, 2003
/s/ Dr. Leonard Y.W. Liu Dr. Leonard Y.W. Liu	Director	March 7, 2003
/s/ Sean M. Maloney Sean M. Maloney	Director	March 7, 2003
/s/ Dr. Alberto Sangiovanni-Vincentelli Dr. Alberto Sangiovanni-Vincentelli	Director	March 7, 2003
/s/ George M. Scalise George M. Scalise	Director	March 7, 2003
/s/ Dr. John B. Shoven Dr. John B. Shoven	Director	March 7, 2003
/s/ Roger S. Siboni Roger S. Siboni	Director	March 7, 2003

II-6

EXHIBIT INDEX

Exhibit Number	Exhibit
4.1	Instruments Defining Rights of Stockholders. Reference is made to the Registrant’s Registration Statement on Form 8-A filed with the Commission on August 29, 1990 incorporated by reference pursuant to Items 3(d) and (e).
5.1	Opinion of Gibson, Dunn & Crutcher LLP.
23.1	Consent of Arthur Andersen LLP, Independent Public Accountants.
23.2	Consent of Gibson, Dunn & Crutcher LLP (contained in Exhibit 5.1).
24.1	Power of Attorney (included on the signature pages to this Registration Statement on Form S-8).
99.1	1995 Directors Stock Option Plan

EX-5.1 3 f88295exv5w1.txt EXHIBIT 5.1 EXHIBIT 5.1 [Letterhead of Gibson, Dunn & Crutcher LLP] March 7, 2003 Cadence Design Systems, Inc. 2655 Seely Avenue, Building 5 San Jose, CA 95134 Re: Registration Statement on Form S-8 of Cadence Design Systems, Inc. Ladies and Gentlemen: We refer to the registration statement on Form S-8 (the "Registration Statement"), under the Securities Act of 1933, as amended (the "Securities Act"), filed by Cadence Design Systems, Inc., a Delaware corporation (the "Registrant"), with respect to the proposed offering by the Registrant of up to 1,950,000 shares (the "Shares") of its common stock, $0.01 par value per share (the "Common Stock"), subject to issuance by the Registrant under its 1995 Directors Stock Option Plan (the "Plan"). We have examined the originals or certified copies of such corporate records, certificates of officers of the Registrant and/or public officials and such other documents, and have made such other factual and legal investigations as we deemed relevant and necessary as the basis for the opinions set forth below. In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as conformed or photostatic copies and the authenticity of the originals of such copies. Based on our examination mentioned above, subject to the assumptions stated above and relying on the statements of fact contained in the documents that we have examined, we are of the opinion that (i) the issuance by the Registrant of the Shares has been duly authorized and (ii) when issued in accordance with the terms of the Plan, the Shares are and will be duly and validly issued, fully paid and non-assessable shares of Common Stock. We are admitted to practice in the State of California, and are not admitted to practice in the State of Delaware. However, for the limited purposes of our opinions set forth above, we are generally familiar with the General Corporation Law of the State of Delaware (the "DGCL") as presently in effect and have made such inquiries as we consider necessary to render this opinion with respect to a Delaware corporation. This opinion letter is limited to the DGCL, as it presently exists and to the facts as they presently exist. We express no opinion with respect to the effect or applicability of the laws of any other jurisdiction. We assume no obligation to revise or supplement this opinion letter should the laws of such jurisdictions be changed after the date hereof by legislative action, judicial decision or otherwise. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the General Rules and Regulations of the Securities and Exchange Commission. Very truly yours, /s/ GIBSON, DUNN & CRUTCHER LLP EX-23.1 4 f88295exv23w1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF ARTHUR ANDERSEN LLP, INDEPENDENT PUBLIC ACCOUNTANTS The registrant was unable to obtain the written consent of Arthur Andersen LLP, to incorporate by reference its report dated March 11, 2002. See Explanatory Note. EX-99.1 5 f88295exv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 CADENCE DESIGN SYSTEMS, INC. 1995 DIRECTORS STOCK OPTION PLAN 1. PURPOSE. (a) The purpose of the 1995 Directors Stock Option Plan (the "Plan") is to provide a means by which each director of Cadence Design Systems, Inc., a Delaware corporation (the "Company"), who is not otherwise at the time of grant an employee of the Company or of any Affiliate of the Company (each such person being hereafter referred to as a "Non-Employee Director") will be given an opportunity to purchase stock of the Company through the grant of options. (b) The word "Affiliate" as used in the Plan means any corporation or other entity which is controlled by the Company, which controls the Company, or which is under common control with the Company. (c) The Company, by means of the Plan, seeks to retain the services of persons now serving as Non-Employee Directors of the Company, to secure and retain the services of persons capable of serving in such capacity, and to provide incentives for such persons to exert maximum efforts for the success of the Company. (d) No option granted under the Plan is intended to be an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 2. ADMINISTRATION. (a) The Plan shall be administered by the Board of Directors of the Company (the "Board") unless and until the Board delegates administration to a committee, as provided in section 2(c). (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan, to construe, interpret and administer the Plan and options granted under the Plan, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any option, in a manner and to the extent it shall deem necessary or desirable to make the Plan fully effective. All decisions of the Board on such matters shall be final, binding and conclusive on all persons having an interest in such decision. (c) The Board may delegate administration of the Plan to a committee composed of not fewer than two (2) members of the Board (the "Committee"). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 3. SHARES SUBJECT TO THE PLAN. (a) The number of shares of the Company's $.01 par value common stock (the "Common Stock") that may be sold pursuant to options granted under the Plan shall not exceed in the aggregate two million five hundred fifty thousand (2,550,000) shares of Common Stock. If any option granted under the Plan shall for any reason expire or otherwise terminate without having been exercised in full, the stock not purchased under such option shall again become available for issuance under the Plan. The number of shares of Common Stock authorized for issuance under the Plan shall be subject to and adjusted by the provisions of Section 10 relating to adjustments in the capital structure of the Company. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 4. ELIGIBILITY. Options shall be granted only to Non-Employee Directors of the Company. 5. NON-DISCRETIONARY GRANTS. (a) Each person who first becomes a Non-Employee Director after October 3, 1995 shall automatically be granted an option to purchase shares of the Common Stock on the terms and conditions set forth herein. Prior to May 15, 1997 the number of shares of the Common Stock which shall be subject to an option granted pursuant to this section 5(a) shall be equal to seven thousand five hundred (7,500) multiplied by the number of calendar quarters occurring between the date on which such person begins serving as a director of the Company and the first July 1 occurring after the date such person becomes a director of the Company. On and after May 15, 1997 and prior to October 19, 1997 the number of shares of the Common Stock which shall be subject to an option granted pursuant to this section 5(a) shall be equal to seven thousand five hundred (7,500) multiplied by the number of calendar quarters occurring between the date on which such person begins serving as a director of the Company and the first April 1 occurring after the date such person becomes a director of the Company. On and after October 19, 1997 the number of shares of the Common Stock which shall be subject to an option granted pursuant to this section 5(a) shall be equal to six thousand two hundred fifty (6,250) multiplied by the number of calendar quarters occurring between the date on which such person begins serving as a director of the Company and the first April 1 occurring after the date such person becomes a director of the Company. If a person becomes a Non-Employee Director during a calendar quarter, he or she shall be treated as serving as a director of the Company for the entire such calendar quarter only if he or she becomes a Non-Employee Director during the first half of such calendar quarter. (b) On July 1, 1996 each person who on that date is then a Non-Employee Director shall automatically be granted an annual option to purchase thirty thousand (30,000) shares of Common Stock on the terms and conditions set forth herein. On July 1, 1997 each person who on that date is then a Non-Employee Director shall automatically be granted an annual option to purchase twenty-two thousand five hundred (22,500) shares of Common Stock on the terms and conditions set forth herein. On April 1 of each year, commencing with April 1, 1998, each person who on that date is then a Non-Employee Director shall automatically be granted an annual option to purchase twenty five thousand (25,000) shares of Common Stock on the terms and conditions set forth herein. If the Non-Employee Director is an "Active Board Member" on the date the annual option is granted but is not then serving as the Chairman of the Board, then such director shall automatically be granted an option to purchase (i) an additional eleven thousand two hundred fifty (11,250) shares of Common Stock on the terms and conditions set forth herein if the annual option is granted on July 1, 1997, (ii) an additional fifteen thousand (15,000) shares of Common Stock on the terms and conditions set forth herein on each annual option grant date occurring before October 19, 1997, and (iii) an additional twelve thousand five hundred (12,500) shares of Common Stock on the terms and conditions set forth herein on each annual option grant date occurring on or after October 19, 1997. If the Non-Employee Director is serving as the Chairman of the Board on the date the annual option is granted, then such director shall automatically be granted an option to purchase (i) an additional twenty-two thousand five hundred (22,500) shares of Common Stock on the terms and conditions set forth herein if the annual option is granted on July 1, 1997, (ii) an additional thirty thousand (30,000) shares of Common Stock on the terms and conditions set forth herein on each annual option grant date occurring before October 19, 1997, and (iii) an additional twenty five thousand (25,000) shares of Common Stock on the terms and conditions set forth herein on each annual option grant date occurring on or after October 19, 1997. An "Active Board Member" shall be defined as a Non-Employee Director who is the chairman of one committee of the Board and is serving as a member of at least one additional committee of the Board. (c) In addition to the other options specified in section 5, each Non-Employee Director who serves on the Venture Committee of the Board on or after October 3, 1995 shall be granted one (but no more than one) Venture Committee membership option as follows, and each Non-Employee Director who serves as chairman of the Venture Committee of the Board on or after October 3, 1995 shall be granted, in addition to the one-time Venture Committee membership option, one (but no more than one) Venture Committee chairman's option as follows: (i) Each Non-Employee Director who on October 3, 1995 is serving as a member of the Venture Committee of the Board shall automatically receive on October 3, 1995 a Venture Committee membership option to purchase forty-five thousand (45,000) shares of Common Stock on the terms and conditions set forth herein. (ii) The Non-Employee Director who on October 3, 1995 is serving as the chairman of the Venture Committee of the Board shall automatically receive on October 3, 1995 a Venture Committee chairman's option to purchase an additional forty-five thousand (45,000) shares of Common Stock on the terms and conditions set forth herein. (iii) Each Non-Employee Director who is selected for the first time to serve on the Venture Committee after October 3, 1995 but before October 19, 1997 automatically shall, upon the date of his or her initial selection to serve on the Venture Committee, be granted a Venture Committee membership option to purchase forty-five thousand (45,000) shares of Common Stock on the terms and conditions set forth herein. (iv) Each Non-Employee Director who is selected for the first time to serve on the Venture Committee on or after October 19, 1997 automatically shall, upon the date of his or her initial selection to serve on the Venture Committee, be granted a Venture Committee membership option to purchase thirty-three thousand seven hundred fifty (33,750) shares of Common Stock on the terms and conditions set forth herein. (v) Each Non-Employee Director who is selected for the first time to serve as the chairman of the Venture Committee after October 3, 1995 but before October 19, 1997 automatically shall, upon the date of his or her initial selection to serve as the chairman of the Venture Committee, be granted a Venture Committee chairman's option to purchase an additional forty-five thousand (45,000) shares of Common Stock on the terms and conditions set forth herein. (vi) Each Non-Employee Director who is selected for the first time to serve as the chairman of the Venture Committee after October 19, 1997 automatically shall, upon the date of his or her initial selection to serve as the chairman of the Venture Committee, be granted a Venture Committee chairman's option to purchase an additional thirty-three thousand seven hundred fifty (33,750) shares of Common Stock on the terms and conditions set forth herein. The Venture Committee options provided under this section 5(c) are not subject to adjustment as provided in section 5(a). (d) (i) Subject to section 5(d)(iii), on January 30, 1996 and January 30, 1997 each Non-Employee Director who on that date is then serving as the Chairman of the Board and has completed five (5) years of service as the Chairman of the Board shall automatically receive an option to purchase one hundred thirty-five thousand (135,000) shares of Common Stock on the terms and conditions set forth herein. (ii) Subject to section 5(d)(iii), on January 30 of each year, commencing with January 30, 1998, each Non-Employee Director who on that date is then serving as the Chairman of the Board and has completed five (5) years of service as the Chairman of the Board shall automatically receive an option to purchase one hundred one thousand two hundred fifty (101,250) shares of Common Stock on the terms and conditions set forth herein. (iii) No Non-Employee Director shall receive more than one grant under section 5(d). (e) If an option would otherwise automatically be granted on or after October 3, 1995 to a Non-Employee Director under the terms of the Company's 1993 Directors Option Plan (the "1993 Directors Plan"), but cannot be granted in full because there are insufficient shares of Common Stock remaining in the share reserve for the 1993 Directors Plan which neither have been issued nor are then subject to the term of an outstanding option previously granted under the 1993 Directors Plan, then an option shall automatically be granted on the same date to such Non-Employee Director on the terms and conditions set forth herein. The number of shares of Common Stock which shall be subject to such an option shall be that number of shares which would otherwise have been subject to the option granted under the 1993 Directors Plan on the same date, but as to which such an option may not be granted under the 1993 Directors Plan to such Non-Employee Director solely because of the lack of sufficient uncommitted shares in the share reserve of the 1993 Directors Plan as described above. 6. OPTION PROVISIONS. Each option shall be subject to the following terms and conditions: (a) The term of each option commences on the date it is granted and, unless sooner terminated as set forth herein, expires on the date ten (10) years from the date of grant (the "Expiration Date"). In any and all circumstances, an option may be exercised only as to no more than that number of shares as to which it is exercisable at the time in question under the provisions of section 6(e). (b) The exercise price of each option shall be one hundred percent (100%) of the fair market value of the stock subject to such option on the date such option is granted. The "fair market value" of the Common Stock shall be the mean average of the closing price of the Company's common stock for each of the last twenty trading days prior to the date of the grant of the option on the national securities exchange, national market system or other trading market on which the Company's common stock has the highest average trading volume. (c) The optionholder may elect to make payment of the exercise price under one of the following alternatives: (i) Payment of the exercise price per share in cash (by check) at the time of exercise; or (ii) Provided that at the time of the exercise the Common Stock is publicly traded and quoted regularly in the Wall Street Journal, payment by delivery of shares of Common Stock already owned by the optionholder for the period required to avoid a charge to the Company's reported earnings, and owned free and clear of any liens, claims, encumbrances or security interest, which common stock shall be valued at its fair market value on the last day on which the Common Stock was actively traded preceding the date of exercise; (iii) Payment by the delivery of the optionholder's full recourse promissory note on such terms as may be determined by the Board which are not inconsistent with the terms of the Plan; or (iv) Payment by a combination of the methods of payment specified in sections 6(c)(i) through 6(c)(iii) above. For purposes of section 6(c)(ii), the "fair market value" of Common Stock shall be the closing price of such stock on the last trading day preceding the date of delivery of such Common Stock to the Company on the national securities exchange, national market system or other trading market on which the Common Stock has the highest average trading volume. If the optionholder uses a promissory note as partial payment of the exercise price pursuant to section 6(c)(iii), then such principal amount of such note may not exceed the maximum amount permitted by law (including but not limited to the limitation under the Delaware General Corporation Law that the par value of shares of stock may not be paid with a promissory note) and interest shall be compounded at least annually and shall be charged at no less than the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the terms of such promissory note. Notwithstanding the foregoing, this option may be exercised pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board which results in the receipt of cash (or check) by the Company either prior to the issuance of shares of the Company's common stock or pursuant to the terms of irrevocable instructions issued by the optionholder prior to the issuance of shares of the Company's common stock. (d) Except as otherwise expressly provided in an optionholder's option agreement, an option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the person to whom the option is granted only by such person or by his guardian or legal representative. The person to whom the Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the optionholder, shall thereafter be entitled to exercise the option. (e) (i) An option granted pursuant to section 5(a) or 5(b) prior to July 1, 1997 shall vest and become exercisable in full on the first June 30 following the grant of such option; provided, however, the optionholder has continuously served in the same capacity which entitled him or her to the grant of such option from the date of grant until and including the next following June 30. (ii) An option granted pursuant to section 5(a) or 5(b) on or after July 1, 1997 shall vest and become exercisable in full on the first March 31 following the grant of such option; provided, however, the optionholder has continuously served in the same capacity which entitled him or her to the grant of such option from the date of grant until and including the next following March 31. (iii) An option granted pursuant to section 5(c), 5(d) or 5(e) shall become exercisable in installments over a period of three years from the date of grant at the rate of one-third (1/3rd) of the total number of shares subject to such option upon the first anniversary of the date of grant and subsequently at the rate of one thirty-sixth (1/36th) of the total number of shares subject to the option a month, in twenty-four (24) equal monthly installments; provided, however, that the optionholder has, during the entire period from the grant date to such vesting date, continuously served in the same capacity which entitled him or her to the grant of such option, whereupon such option shall become fully exercisable in accordance with its terms with respect to that portion of the shares represented by that installment. (f) The Company may require any optionholder, or any person to whom an option is transferred under section 6(d), as a condition of exercising any such option: (i) to give written assurances satisfactory to the Company as to the optionholder's knowledge and experience in financial and business matters; and (ii) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the option for such person's own account and not with any present intention of selling or otherwise distributing the stock. These requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise of the option has been registered under a then-currently effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), or (ii), as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may require any optionholder to provide such other representations, written assurances or information which the Company shall determine is necessary, desirable or appropriate to comply with applicable securities laws as a condition of granting an option to the optionholder or permitting the optionholder to exercise the option. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock. (g) Notwithstanding anything to the contrary contained herein, an option may not be exercised unless the shares issuable upon exercise of such option are then registered under the Securities Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. 7. COVENANTS OF THE COMPANY. (a) During the terms of the options granted under the Plan, the Company shall keep available at all times the number of shares of the Common Stock required to satisfy such options. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of Common Stock upon exercise of the options granted under the Plan; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any option granted under the Plan, or any stock issued or issuable pursuant to any such option. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such options. 8. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of Common Stock pursuant to options granted under the Plan shall constitute general funds of the Company. 9. MISCELLANEOUS. (a) Neither an optionholder nor any person to whom an option is transferred under section 6(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such option unless and until such person has satisfied all requirements for exercise of the option pursuant to its terms. (b) Throughout the term of any option granted pursuant to the Plan, the Company shall make available to the holder of such option, not later than one hundred twenty (120) days after the close of each of the Company's fiscal years during the option term, upon request, such financial and other information regarding the Company as comprises the annual report to the stockholders of the Company provided for in the Bylaws of the Company and such other information regarding the Company as the holder of such option may request under applicable law. (c) Nothing in the Plan or in any instrument executed pursuant thereto shall confer upon any Non-Employee Director any right to continue in the service of the Company or any Affiliate in any capacity or shall affect any right of the Company, its Board or stockholders or any Affiliate to remove any Non-Employee Director pursuant to the Company's Bylaws and the provisions of the Delaware General Corporation Law (or the laws of the Company's state of incorporation should that change in the future). (d) No Non-Employee Director, individually or as a member of a group, and no beneficiary or other person claiming under or through him, shall have any right, title or interest in or to any option reserved for the purposes of the Plan except as to such shares of common stock, if any, as shall have been reserved for him pursuant to an option granted to him. (e) In connection with each option made pursuant to the Plan, it shall be a condition precedent to the Company's obligation to issue or transfer shares to a Non-Employee Director, or to evidence the removal of any restrictions on transfer, that such Non-Employee Director make arrangements satisfactory to the Company to insure that the amount of any federal or other withholding tax required to be withheld with respect to such sale or transfer, or such removal or lapse, is made available to the Company for timely payment of such tax. (f) The size of the Plan's share reserve set forth in section 3, the size of individual option grants described in section 5, and all other references in the Plan to specific numbers of shares of the Common Stock reflect and have taken into account (i) the Company's three-for-two (3:2) stock dividends effective as of October 31, 1995 and May 31, 1996, including all options granted under the Plan prior to May 31, 1996 and (ii) the Company's two-for-one (2:1) stock dividend effective as of November 14, 1997, including all options granted under the Plan prior to November 14, 1997. 10. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the Common Stock subject to the Plan, or subject to any option granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan and outstanding options will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan and the class(es) and number of shares and exercise price per share of stock subject to outstanding options. Such adjustments shall be made by the Board, the determination of which shall be final, binding, and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a "transaction not involving the receipt of consideration by the Company.") No adjustment shall result in the creation of a fractional share of stock or in an exercise price per share of stock expressed in units of less than one cent ($.01). (b) In the event of the occurrence of a Change in Control, to the extent not prohibited by applicable law, the time during which options outstanding under the Plan may be exercised shall be accelerated by the Board to a time prior to or as of the occurrence of such event and the options terminated if not exercised by the time specified by the Board, which in any event shall be after the effective time of such acceleration. If the Board fails to specify a time for acceleration of outstanding options and/or termination of outstanding options, then the time during which options outstanding under the Plan may be exercised shall be accelerated to a time immediately preceding the occurrence of the Change in Control, and the options terminated if not exercised prior to or upon the occurrence of a Change in Control defined in section 10(b)(i) or section 10(b)(iii) or within three (3) months following the occurrence of a Change in Control defined in section 10(b)(ii), section 10(b)(iv), or section 10(b)(v). For purposes of the Plan, a "Change in Control" means the happening of any of the following events: (i) A dissolution or liquidation of the Company. (ii) A sale of all or substantially all of the assets of the Company. (iii) Either a merger or consolidation in which the Company is not the surviving corporation and the stockholders of the Company immediately prior to the merger or consolidation fail to possess direct or indirect beneficial ownership of more than eighty percent (80%) of the voting power of the securities of the surviving corporation (or if the surviving corporation is a controlled affiliate of another entity, then the required beneficial ownership shall be determined with respect to the securities of that entity which controls the surviving corporation and is not itself a controlled affiliate of any other entity) immediately following such transaction, or a reverse merger in which the Company is the surviving corporation and the stockholders of the Company immediately prior to the reverse merger fail to possess direct or indirect beneficial ownership of more than eighty percent (80%) of the securities of the Company (or if the Company is a controlled affiliate of another entity, then the required beneficial ownership shall be determined with respect to the securities of that entity which controls the Company and is not itself a controlled affiliate of any other entity) immediately following the reverse merger. For purposes of this section 10(b)(iii), any person who acquired securities of the Company prior to the occurrence of a merger, reverse merger, or consolidation in contemplation of such transaction and who after such transaction possesses direct or indirect beneficial ownership of at least ten percent (10%) of the securities of the Company or the surviving corporation (or if the Company or the surviving corporation is a controlled affiliate, then of the appropriate entity as determined above) immediately following such transaction shall not be included in the group of stockholders of the Company immediately prior to such transaction. (iv) An acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or a subsidiary or other controlled affiliate of the Company) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least twenty percent (20%) of the combined voting power entitled to vote in the election of directors. (v) The individuals who, as of the date immediately following the Company's 1999 Annual Meeting of Stockholders, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least fifty percent (50%) of the Board. If the election, or nomination for election by the Company's stockholders, of any new director was approved by a vote of at least fifty percent (50%) of the Incumbent Board, such new director shall be considered as a member of the Incumbent Board; provided, however, that no individual shall be considered a member of the Incumbent Board if the individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest. 11. AMENDMENT OF THE PLAN. (a) The Board at any time, and from time to time, may amend the Plan and/or some or all outstanding options granted under the Plan. Except as provided in section 10 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company where the amendment would: (i) Increase the number of shares which may be issued under the Plan; (ii) Modify the requirements as to eligibility for participation in the Plan (to the extent such modification requires stockholder approval in order for the Plan to comply with the requirements of Rule 16b-3); or (iii) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to comply with the requirements of Rule 16b-3 or any securities exchange or other trading market on which the Common Stock is actively traded. (b) Rights and obligations under any option granted before any amendment of the Plan or of the terms of such option shall not be impaired by such amendment unless (i) the Company requests the consent of the person holding the option, and (ii) such person consents in writing. 12. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the date that all of the shares of the Company's Common Stock have been issued. No options may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any option granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except with the consent of the holder of the option. 13. EFFECTIVE DATE OF AMENDED AND RESTATED PLAN. The Plan, in the form as amended and restated herein, shall become effective upon approval by the stockholders of the Company. -----END PRIVACY-ENHANCED MESSAGE-----

EX-5.1

                                                                     EXHIBIT 5.1

                   [Letterhead of Gibson, Dunn & Crutcher LLP]

                                  March 7, 2003

Cadence Design Systems, Inc.
2655 Seely Avenue, Building 5
San Jose, CA 95134

         Re: Registration Statement on Form S-8 of Cadence Design Systems, Inc.

Ladies and Gentlemen:

         We refer to the registration statement on Form S-8 (the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Securities
Act"), filed by Cadence Design Systems, Inc., a Delaware corporation (the
"Registrant"), with respect to the proposed offering by the Registrant of up to
1,950,000 shares (the "Shares") of its common stock, $0.01 par value per share
(the "Common Stock"), subject to issuance by the Registrant under its 1995
Directors Stock Option Plan (the "Plan").

         We have examined the originals or certified copies of such corporate
records, certificates of officers of the Registrant and/or public officials and
such other documents, and have made such other factual and legal investigations
as we deemed relevant and necessary as the basis for the opinions set forth
below. In such examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as conformed or
photostatic copies and the authenticity of the originals of such copies.

         Based on our examination mentioned above, subject to the assumptions
stated above and relying on the statements of fact contained in the documents
that we have examined, we are of the opinion that (i) the issuance by the
Registrant of the Shares has been duly authorized and (ii) when issued in
accordance with the terms of the Plan, the Shares are and will be duly and
validly issued, fully paid and non-assessable shares of Common Stock.

         We are admitted to practice in the State of California, and are not
admitted to practice in the State of Delaware. However, for the limited purposes
of our opinions set forth above, we are generally familiar with the General
Corporation Law of the State of Delaware (the "DGCL") as presently in effect and
have made such inquiries as we consider necessary to render this opinion with
respect to a Delaware corporation. This opinion letter is limited to the DGCL,
as it presently exists and to the facts as they presently exist. We express no
opinion with respect to the effect or applicability of the laws of any other
jurisdiction. We assume no obligation to revise or supplement this opinion
letter should the laws of such jurisdictions be changed after the date hereof by
legislative action, judicial decision or otherwise.

         We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act or the General Rules and Regulations of the Securities and
Exchange Commission.

                                             Very truly yours,

                                             /s/ GIBSON, DUNN & CRUTCHER LLP

EX-23.1

                                                                    EXHIBIT 23.1

         CONSENT OF ARTHUR ANDERSEN LLP, INDEPENDENT PUBLIC ACCOUNTANTS

The registrant was unable to obtain the written consent of Arthur Andersen LLP,
to incorporate by reference its report dated March 11, 2002. See Explanatory
Note.

EX-99.1

                                                                    EXHIBIT 99.1

                          CADENCE DESIGN SYSTEMS, INC.

                        1995 DIRECTORS STOCK OPTION PLAN

1.       PURPOSE.

         (a)      The purpose of the 1995 Directors Stock Option Plan (the
"Plan") is to provide a means by which each director of Cadence Design Systems,
Inc., a Delaware corporation (the "Company"), who is not otherwise at the time
of grant an employee of the Company or of any Affiliate of the Company (each
such person being hereafter referred to as a "Non-Employee Director") will be
given an opportunity to purchase stock of the Company through the grant of
options.

         (b)      The word "Affiliate" as used in the Plan means any corporation
or other entity which is controlled by the Company, which controls the Company,
or which is under common control with the Company.

         (c)      The Company, by means of the Plan, seeks to retain the
services of persons now serving as Non-Employee Directors of the Company, to
secure and retain the services of persons capable of serving in such capacity,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company.

         (d)      No option granted under the Plan is intended to be an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").

2.       ADMINISTRATION.

         (a)      The Plan shall be administered by the Board of Directors of
the Company (the "Board") unless and until the Board delegates administration to
a committee, as provided in section 2(c).

         (b)      The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan, to construe, interpret and
administer the Plan and options granted under the Plan, and to establish, amend
and revoke rules and regulations for its administration. The Board, in the
exercise of this power, may correct any defect, omission or inconsistency in the
Plan or in any option, in a manner and to the extent it shall deem necessary or
desirable to make the Plan fully effective. All decisions of the Board on such
matters shall be final, binding and conclusive on all persons having an interest
in such decision.

         (c)      The Board may delegate administration of the Plan to a
committee composed of not fewer than two (2) members of the Board (the
"Committee"). If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, subject, however, to such resolutions, not inconsistent
with the provisions of the Plan, as may be adopted from time to time by the
Board. The Board may abolish the Committee at any time and revest in the Board
the administration of the Plan.

3.       SHARES SUBJECT TO THE PLAN.

         (a)      The number of shares of the Company's $.01 par value common
stock (the "Common Stock") that may be sold pursuant to options granted under
the Plan shall not exceed in the aggregate two million five hundred fifty
thousand (2,550,000) shares of Common Stock. If any option granted under the
Plan shall for any reason expire or otherwise terminate without having been
exercised in full, the stock not purchased under such option shall again become
available for issuance under the Plan. The number of shares of Common Stock
authorized for issuance under the Plan shall be subject to and adjusted by the
provisions of Section 10 relating to adjustments in the capital structure of the
Company.

         (b)      The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.

4.       ELIGIBILITY.



         Options shall be granted only to Non-Employee Directors of the Company.

5.       NON-DISCRETIONARY GRANTS.

         (a)      Each person who first becomes a Non-Employee Director after
October 3, 1995 shall automatically be granted an option to purchase shares of
the Common Stock on the terms and conditions set forth herein. Prior to May 15,
1997 the number of shares of the Common Stock which shall be subject to an
option granted pursuant to this section 5(a) shall be equal to seven thousand
five hundred (7,500) multiplied by the number of calendar quarters occurring
between the date on which such person begins serving as a director of the
Company and the first July 1 occurring after the date such person becomes a
director of the Company. On and after May 15, 1997 and prior to October 19, 1997
the number of shares of the Common Stock which shall be subject to an option
granted pursuant to this section 5(a) shall be equal to seven thousand five
hundred (7,500) multiplied by the number of calendar quarters occurring between
the date on which such person begins serving as a director of the Company and
the first April 1 occurring after the date such person becomes a director of the
Company. On and after October 19, 1997 the number of shares of the Common Stock
which shall be subject to an option granted pursuant to this section 5(a) shall
be equal to six thousand two hundred fifty (6,250) multiplied by the number of
calendar quarters occurring between the date on which such person begins serving
as a director of the Company and the first April 1 occurring after the date such
person becomes a director of the Company. If a person becomes a Non-Employee
Director during a calendar quarter, he or she shall be treated as serving as a
director of the Company for the entire such calendar quarter only if he or she
becomes a Non-Employee Director during the first half of such calendar quarter.

         (b)      On July 1, 1996 each person who on that date is then a
Non-Employee Director shall automatically be granted an annual option to
purchase thirty thousand (30,000) shares of Common Stock on the terms and
conditions set forth herein. On July 1, 1997 each person who on that date is
then a Non-Employee Director shall automatically be granted an annual option to
purchase twenty-two thousand five hundred (22,500) shares of Common Stock on the
terms and conditions set forth herein. On April 1 of each year, commencing with
April 1, 1998, each person who on that date is then a Non-Employee Director
shall automatically be granted an annual option to purchase twenty five thousand
(25,000) shares of Common Stock on the terms and conditions set forth herein. If
the Non-Employee Director is an "Active Board Member" on the date the annual
option is granted but is not then serving as the Chairman of the Board, then
such director shall automatically be granted an option to purchase (i) an
additional eleven thousand two hundred fifty (11,250) shares of Common Stock on
the terms and conditions set forth herein if the annual option is granted on
July 1, 1997, (ii) an additional fifteen thousand (15,000) shares of Common
Stock on the terms and conditions set forth herein on each annual option grant
date occurring before October 19, 1997, and (iii) an additional twelve thousand
five hundred (12,500) shares of Common Stock on the terms and conditions set
forth herein on each annual option grant date occurring on or after October 19,
1997. If the Non-Employee Director is serving as the Chairman of the Board on
the date the annual option is granted, then such director shall automatically be
granted an option to purchase (i) an additional twenty-two thousand five hundred
(22,500) shares of Common Stock on the terms and conditions set forth herein if
the annual option is granted on July 1, 1997, (ii) an additional thirty thousand
(30,000) shares of Common Stock on the terms and conditions set forth herein on
each annual option grant date occurring before October 19, 1997, and (iii) an
additional twenty five thousand (25,000) shares of Common Stock on the terms and
conditions set forth herein on each annual option grant date occurring on or
after October 19, 1997. An "Active Board Member" shall be defined as a
Non-Employee Director who is the chairman of one committee of the Board and is
serving as a member of at least one additional committee of the Board.

         (c)      In addition to the other options specified in section 5, each
Non-Employee Director who serves on the Venture Committee of the Board on or
after October 3, 1995 shall be granted one (but no more than one) Venture
Committee membership option as follows, and each Non-Employee Director who
serves as chairman of the Venture Committee of the Board on or after October 3,
1995 shall be granted, in addition to the one-time Venture Committee membership
option, one (but no more than one) Venture Committee chairman's option as
follows:

                  (i)      Each Non-Employee Director who on October 3, 1995 is
serving as a member of the Venture Committee of the Board shall automatically
receive on October 3, 1995 a Venture Committee membership option to purchase
forty-five thousand (45,000) shares of Common Stock on the terms and conditions
set forth herein.

                  (ii)     The Non-Employee Director who on October 3, 1995 is
serving as the chairman of the Venture Committee of the Board shall
automatically receive on October 3, 1995 a Venture Committee



chairman's option to purchase an additional forty-five thousand (45,000) shares
of Common Stock on the terms and conditions set forth herein.

                  (iii)    Each Non-Employee Director who is selected for the
first time to serve on the Venture Committee after October 3, 1995 but before
October 19, 1997 automatically shall, upon the date of his or her initial
selection to serve on the Venture Committee, be granted a Venture Committee
membership option to purchase forty-five thousand (45,000) shares of Common
Stock on the terms and conditions set forth herein.

                  (iv)     Each Non-Employee Director who is selected for the
first time to serve on the Venture Committee on or after October 19, 1997
automatically shall, upon the date of his or her initial selection to serve on
the Venture Committee, be granted a Venture Committee membership option to
purchase thirty-three thousand seven hundred fifty (33,750) shares of Common
Stock on the terms and conditions set forth herein.

                  (v)      Each Non-Employee Director who is selected for the
first time to serve as the chairman of the Venture Committee after October 3,
1995 but before October 19, 1997 automatically shall, upon the date of his or
her initial selection to serve as the chairman of the Venture Committee, be
granted a Venture Committee chairman's option to purchase an additional
forty-five thousand (45,000) shares of Common Stock on the terms and conditions
set forth herein.

                  (vi)     Each Non-Employee Director who is selected for the
first time to serve as the chairman of the Venture Committee after October 19,
1997 automatically shall, upon the date of his or her initial selection to serve
as the chairman of the Venture Committee, be granted a Venture Committee
chairman's option to purchase an additional thirty-three thousand seven hundred
fifty (33,750) shares of Common Stock on the terms and conditions set forth
herein.

         The Venture Committee options provided under this section 5(c) are not
subject to adjustment as provided in section 5(a).

         (d)      (i)      Subject to section 5(d)(iii), on January 30, 1996 and
January 30, 1997 each Non-Employee Director who on that date is then serving as
the Chairman of the Board and has completed five (5) years of service as the
Chairman of the Board shall automatically receive an option to purchase one
hundred thirty-five thousand (135,000) shares of Common Stock on the terms and
conditions set forth herein.

                  (ii)     Subject to section 5(d)(iii), on January 30 of each
year, commencing with January 30, 1998, each Non-Employee Director who on that
date is then serving as the Chairman of the Board and has completed five (5)
years of service as the Chairman of the Board shall automatically receive an
option to purchase one hundred one thousand two hundred fifty (101,250) shares
of Common Stock on the terms and conditions set forth herein.

                  (iii)    No Non-Employee Director shall receive more than one
grant under section 5(d).

         (e)      If an option would otherwise automatically be granted on or
after October 3, 1995 to a Non-Employee Director under the terms of the
Company's 1993 Directors Option Plan (the "1993 Directors Plan"), but cannot be
granted in full because there are insufficient shares of Common Stock remaining
in the share reserve for the 1993 Directors Plan which neither have been issued
nor are then subject to the term of an outstanding option previously granted
under the 1993 Directors Plan, then an option shall automatically be granted on
the same date to such Non-Employee Director on the terms and conditions set
forth herein. The number of shares of Common Stock which shall be subject to
such an option shall be that number of shares which would otherwise have been
subject to the option granted under the 1993 Directors Plan on the same date,
but as to which such an option may not be granted under the 1993 Directors Plan
to such Non-Employee Director solely because of the lack of sufficient
uncommitted shares in the share reserve of the 1993 Directors Plan as described
above.

6.       OPTION PROVISIONS.

         Each option shall be subject to the following terms and conditions:

         (a)      The term of each option commences on the date it is granted
and, unless sooner terminated as set forth herein, expires on the date ten (10)
years from the date of grant (the "Expiration Date"). In any and all



circumstances, an option may be exercised only as to no more than that number of
shares as to which it is exercisable at the time in question under the
provisions of section 6(e).

         (b)      The exercise price of each option shall be one hundred percent
(100%) of the fair market value of the stock subject to such option on the date
such option is granted. The "fair market value" of the Common Stock shall be the
mean average of the closing price of the Company's common stock for each of the
last twenty trading days prior to the date of the grant of the option on the
national securities exchange, national market system or other trading market on
which the Company's common stock has the highest average trading volume.

         (c)      The optionholder may elect to make payment of the exercise
price under one of the following alternatives:

                           (i)      Payment of the exercise price per share in
cash (by check) at the time of exercise; or

                           (ii)     Provided that at the time of the exercise
the Common Stock is publicly traded and quoted regularly in the Wall Street
Journal, payment by delivery of shares of Common Stock already owned by the
optionholder for the period required to avoid a charge to the Company's reported
earnings, and owned free and clear of any liens, claims, encumbrances or
security interest, which common stock shall be valued at its fair market value
on the last day on which the Common Stock was actively traded preceding the date
of exercise;

                           (iii)    Payment by the delivery of the
optionholder's full recourse promissory note on such terms as may be determined
by the Board which are not inconsistent with the terms of the Plan; or

                           (iv)     Payment by a combination of the methods of
payment specified in sections 6(c)(i) through 6(c)(iii) above.

         For purposes of section 6(c)(ii), the "fair market value" of Common
Stock shall be the closing price of such stock on the last trading day preceding
the date of delivery of such Common Stock to the Company on the national
securities exchange, national market system or other trading market on which the
Common Stock has the highest average trading volume. If the optionholder uses a
promissory note as partial payment of the exercise price pursuant to section
6(c)(iii), then such principal amount of such note may not exceed the maximum
amount permitted by law (including but not limited to the limitation under the
Delaware General Corporation Law that the par value of shares of stock may not
be paid with a promissory note) and interest shall be compounded at least
annually and shall be charged at no less than the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
terms of such promissory note.

         Notwithstanding the foregoing, this option may be exercised pursuant to
a program developed under Regulation T as promulgated by the Federal Reserve
Board which results in the receipt of cash (or check) by the Company either
prior to the issuance of shares of the Company's common stock or pursuant to the
terms of irrevocable instructions issued by the optionholder prior to the
issuance of shares of the Company's common stock.

         (d)      Except as otherwise expressly provided in an optionholder's
option agreement, an option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the person to whom the option is granted only by such person or by his guardian
or legal representative. The person to whom the Option is granted may, by
delivering written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the optionholder,
shall thereafter be entitled to exercise the option.

         (e)      (i)      An option granted pursuant to section 5(a) or 5(b)
prior to July 1, 1997 shall vest and become exercisable in full on the first
June 30 following the grant of such option; provided, however, the optionholder
has continuously served in the same capacity which entitled him or her to the
grant of such option from the date of grant until and including the next
following June 30.

                  (ii)     An option granted pursuant to section 5(a) or 5(b) on
or after July 1, 1997 shall vest and become exercisable in full on the first
March 31 following the grant of such option; provided, however, the optionholder
has continuously served in the same capacity which entitled him or her to the
grant of such option from the date of grant until and including the next
following March 31.



                  (iii)    An option granted pursuant to section 5(c), 5(d) or
5(e) shall become exercisable in installments over a period of three years from
the date of grant at the rate of one-third (1/3rd) of the total number of shares
subject to such option upon the first anniversary of the date of grant and
subsequently at the rate of one thirty-sixth (1/36th) of the total number of
shares subject to the option a month, in twenty-four (24) equal monthly
installments; provided, however, that the optionholder has, during the entire
period from the grant date to such vesting date, continuously served in the same
capacity which entitled him or her to the grant of such option, whereupon such
option shall become fully exercisable in accordance with its terms with respect
to that portion of the shares represented by that installment.

         (f)      The Company may require any optionholder, or any person to
whom an option is transferred under section 6(d), as a condition of exercising
any such option: (i) to give written assurances satisfactory to the Company as
to the optionholder's knowledge and experience in financial and business
matters; and (ii) to give written assurances satisfactory to the Company stating
that such person is acquiring the stock subject to the option for such person's
own account and not with any present intention of selling or otherwise
distributing the stock. These requirements, and any assurances given pursuant to
such requirements, shall be inoperative if (i) the issuance of the shares upon
the exercise of the option has been registered under a then-currently effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii), as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may require
any optionholder to provide such other representations, written assurances or
information which the Company shall determine is necessary, desirable or
appropriate to comply with applicable securities laws as a condition of granting
an option to the optionholder or permitting the optionholder to exercise the
option. The Company may, upon advice of counsel to the Company, place legends on
stock certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.

         (g)      Notwithstanding anything to the contrary contained herein, an
option may not be exercised unless the shares issuable upon exercise of such
option are then registered under the Securities Act or, if such shares are not
then so registered, the Company has determined that such exercise and issuance
would be exempt from the registration requirements of the Securities Act.

7.       COVENANTS OF THE COMPANY.

         (a)      During the terms of the options granted under the Plan, the
Company shall keep available at all times the number of shares of the Common
Stock required to satisfy such options.

         (b)      The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of Common Stock upon exercise of the options
granted under the Plan; provided, however, that this undertaking shall not
require the Company to register under the Securities Act either the Plan, any
option granted under the Plan, or any stock issued or issuable pursuant to any
such option. If, after reasonable efforts, the Company is unable to obtain from
any such regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such options.

8.       USE OF PROCEEDS FROM STOCK.

         Proceeds from the sale of Common Stock pursuant to options granted
under the Plan shall constitute general funds of the Company.

9.       MISCELLANEOUS.

         (a)      Neither an optionholder nor any person to whom an option is
transferred under section 6(d) shall be deemed to be the holder of, or to have
any of the rights of a holder with respect to, any shares subject to such option
unless and until such person has satisfied all requirements for exercise of the
option pursuant to its terms.

         (b)      Throughout the term of any option granted pursuant to the
Plan, the Company shall make available to the holder of such option, not later
than one hundred twenty (120) days after the close of each of the Company's
fiscal years during the option term, upon request, such financial and other
information regarding the Company as comprises the annual report to the
stockholders of the Company provided for in the Bylaws of the



Company and such other information regarding the Company as the holder of such
option may request under applicable law.

         (c)      Nothing in the Plan or in any instrument executed pursuant
thereto shall confer upon any Non-Employee Director any right to continue in the
service of the Company or any Affiliate in any capacity or shall affect any
right of the Company, its Board or stockholders or any Affiliate to remove any
Non-Employee Director pursuant to the Company's Bylaws and the provisions of the
Delaware General Corporation Law (or the laws of the Company's state of
incorporation should that change in the future).

         (d)      No Non-Employee Director, individually or as a member of a
group, and no beneficiary or other person claiming under or through him, shall
have any right, title or interest in or to any option reserved for the purposes
of the Plan except as to such shares of common stock, if any, as shall have been
reserved for him pursuant to an option granted to him.

         (e)      In connection with each option made pursuant to the Plan, it
shall be a condition precedent to the Company's obligation to issue or transfer
shares to a Non-Employee Director, or to evidence the removal of any
restrictions on transfer, that such Non-Employee Director make arrangements
satisfactory to the Company to insure that the amount of any federal or other
withholding tax required to be withheld with respect to such sale or transfer,
or such removal or lapse, is made available to the Company for timely payment of
such tax.

         (f)      The size of the Plan's share reserve set forth in section 3,
the size of individual option grants described in section 5, and all other
references in the Plan to specific numbers of shares of the Common Stock reflect
and have taken into account (i) the Company's three-for-two (3:2) stock
dividends effective as of October 31, 1995 and May 31, 1996, including all
options granted under the Plan prior to May 31, 1996 and (ii) the Company's
two-for-one (2:1) stock dividend effective as of November 14, 1997, including
all options granted under the Plan prior to November 14, 1997.

10.      ADJUSTMENTS UPON CHANGES IN STOCK.

         (a)      If any change is made in the Common Stock subject to the Plan,
or subject to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding options will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and exercise price per share
of stock subject to outstanding options. Such adjustments shall be made by the
Board, the determination of which shall be final, binding, and conclusive. (The
conversion of any convertible securities of the Company shall not be treated as
a "transaction not involving the receipt of consideration by the Company.") No
adjustment shall result in the creation of a fractional share of stock or in an
exercise price per share of stock expressed in units of less than one cent
($.01).

         (b)      In the event of the occurrence of a Change in Control, to the
extent not prohibited by applicable law, the time during which options
outstanding under the Plan may be exercised shall be accelerated by the Board to
a time prior to or as of the occurrence of such event and the options terminated
if not exercised by the time specified by the Board, which in any event shall be
after the effective time of such acceleration. If the Board fails to specify a
time for acceleration of outstanding options and/or termination of outstanding
options, then the time during which options outstanding under the Plan may be
exercised shall be accelerated to a time immediately preceding the occurrence of
the Change in Control, and the options terminated if not exercised prior to or
upon the occurrence of a Change in Control defined in section 10(b)(i) or
section 10(b)(iii) or within three (3) months following the occurrence of a
Change in Control defined in section 10(b)(ii), section 10(b)(iv), or section
10(b)(v).

         For purposes of the Plan, a "Change in Control" means the happening of
any of the following events:

                  (i)      A dissolution or liquidation of the Company.

                  (ii)     A sale of all or substantially all of the assets of
the Company.

                  (iii)    Either a merger or consolidation in which the Company
is not the surviving corporation and the stockholders of the Company immediately
prior to the merger or consolidation fail to possess direct or indirect
beneficial ownership of more than eighty percent (80%) of the voting power of
the securities of the



surviving corporation (or if the surviving corporation is a controlled affiliate
of another entity, then the required beneficial ownership shall be determined
with respect to the securities of that entity which controls the surviving
corporation and is not itself a controlled affiliate of any other entity)
immediately following such transaction, or a reverse merger in which the Company
is the surviving corporation and the stockholders of the Company immediately
prior to the reverse merger fail to possess direct or indirect beneficial
ownership of more than eighty percent (80%) of the securities of the Company (or
if the Company is a controlled affiliate of another entity, then the required
beneficial ownership shall be determined with respect to the securities of that
entity which controls the Company and is not itself a controlled affiliate of
any other entity) immediately following the reverse merger. For purposes of this
section 10(b)(iii), any person who acquired securities of the Company prior to
the occurrence of a merger, reverse merger, or consolidation in contemplation of
such transaction and who after such transaction possesses direct or indirect
beneficial ownership of at least ten percent (10%) of the securities of the
Company or the surviving corporation (or if the Company or the surviving
corporation is a controlled affiliate, then of the appropriate entity as
determined above) immediately following such transaction shall not be included
in the group of stockholders of the Company immediately prior to such
transaction.

                  (iv)     An acquisition by any person, entity or group within
the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any comparable successor provisions (excluding
any employee benefit plan, or related trust, sponsored or maintained by the
Company or a subsidiary or other controlled affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least twenty percent (20%) of the combined voting power entitled
to vote in the election of directors.

                  (v)      The individuals who, as of the date immediately
following the Company's 1999 Annual Meeting of Stockholders, are members of the
Board (the "Incumbent Board"), cease for any reason to constitute at least fifty
percent (50%) of the Board. If the election, or nomination for election by the
Company's stockholders, of any new director was approved by a vote of at least
fifty percent (50%) of the Incumbent Board, such new director shall be
considered as a member of the Incumbent Board; provided, however, that no
individual shall be considered a member of the Incumbent Board if the individual
initially assumed office as a result of either an actual or threatened "Election
Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest or Proxy Contest.

11.      AMENDMENT OF THE PLAN.

         (a)      The Board at any time, and from time to time, may amend the
Plan and/or some or all outstanding options granted under the Plan. Except as
provided in section 10 relating to adjustments upon changes in stock, no
amendment shall be effective unless approved by the stockholders of the Company
where the amendment would:

                           (i)      Increase the number of shares which may be
issued under the Plan;

                           (ii)     Modify the requirements as to eligibility
for participation in the Plan (to the extent such modification requires
stockholder approval in order for the Plan to comply with the requirements of
Rule 16b-3); or

                           (iii)    Modify the Plan in any other way if such
modification requires stockholder approval in order for the Plan to comply with
the requirements of Rule 16b-3 or any securities exchange or other trading
market on which the Common Stock is actively traded.

         (b)      Rights and obligations under any option granted before any
amendment of the Plan or of the terms of such option shall not be impaired by
such amendment unless (i) the Company requests the consent of the person holding
the option, and (ii) such person consents in writing.

12.      TERMINATION OR SUSPENSION OF THE PLAN.

         (a)      The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the date that all of the
shares of the Company's Common Stock have been issued. No options may be granted
under the Plan while the Plan is suspended or after it is terminated.



         (b)      Rights and obligations under any option granted while the Plan
is in effect shall not be altered or impaired by suspension or termination of
the Plan, except with the consent of the holder of the option.

13.      EFFECTIVE DATE OF AMENDED AND RESTATED PLAN.

         The Plan, in the form as amended and restated herein, shall become
effective upon approval by the stockholders of the Company.