-----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, TuUi2XTLJ2XQWURtVxnN0fkVFMsizxoZmKNqNyus7dWtRetQBICvBTsptXptvt2h Lp3XnJ/F3k9siaju9CXj7A== 0000891618-98-005329.txt : 19981215 0000891618-98-005329.hdr.sgml : 19981215 ACCESSION NUMBER: 0000891618-98-005329 CONFORMED SUBMISSION TYPE: S-8 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19981214 EFFECTIVENESS DATE: 19981214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNOPSYS INC CENTRAL INDEX KEY: 0000883241 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 561546236 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-8 SEC ACT: SEC FILE NUMBER: 333-68883 FILM NUMBER: 98769175 BUSINESS ADDRESS: STREET 1: 700 E MIDDLEFIELD RD CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043-4033 BUSINESS PHONE: 4159625000 MAIL ADDRESS: STREET 1: 700 E MIDDLEFIELD RD CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043-4033 S-8 1 FORM S-8 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 14, 1998 REGISTRATION NO. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-8/S-3 REGISTRATION STATEMENT (INCLUDING REGISTRATION OF SHARES FOR RESALE BY MEANS OF A FORM S-3 PROSPECTUS) UNDER THE SECURITIES ACT OF 1933 SYNOPSYS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) DELAWARE 56-1546236 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
700 E. MIDDLEFIELD ROAD MOUNTAIN VIEW, CA 94043 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) EVEREST DESIGN AUTOMATION INC. 1997 STOCK OPTION/STOCK ISSUANCE PLAN FOUNDER'S RESTRICTED STOCK PURCHASE AGREEMENTS EVEREST DESIGN AUTOMATION INC. NON-STATUTORY STOCK OPTIONS (FULL TITLE OF THE PLAN) AART J. DE GEUS PRESIDENT AND CHIEF EXECUTIVE OFFICER SYNOPSYS, INC. 700 E. MIDDLEFIELD ROAD MOUNTAIN VIEW, CA 94043 (650) 962-5000 (NAME, ADDRESS, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPY TO: THOMAS C. DEFILIPPS, ESQ. WILSON SONSINI GOODRICH & ROSATI PROFESSIONAL CORPORATION 650 PAGE MILL ROAD PALO ALTO, CA 94304-1050 (415) 493-9300 CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- MAXIMUM PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF TO BE REGISTERED REGISTERED(1) PER SHARE PRICE REGISTRATION FEE - -------------------------------------------------------------------------------------------------------------------------------- Common Stock, $0.01 par value Issued under Restricted Stock Purchase Agree- ments of Everest Design Automation Inc. .................................. 441,180 shares(3) $52.6875(2) $23,244,671.25 $6,462.02 Issued under the Everest Design Automation Inc. 1997 Stock Option/Stock Issuance Plan.......................... 152,654 shares(3) $52.6875(2) $ 8,042,957.63 $2,235.94 Issued under Everest Design Automation Inc. Non-Statutory Stock Options....... 22,059 shares $52.6875(2) $ 1,162,233.56 $ 323.10 To be issued under the Everest Design Automation Inc. 1997 Stock Option/Stock Issuance Plan.......................... 111,357 shares(3) $ 4.3200(4) $ 481,062.24 $ 133.74 - -------------------------------------------------------------------------------------------------------------------------------- Total............................. 727,250 shares $32,930,924.68 $9,154.80 - -------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------
(1) For the sole purpose of calculating the registration fee, the number of shares to be registered under this Registration Statement has been broken down into four subtotals. (2) Computed in accordance with Rule 457(h) under the Securities Act. Such computation is based on the average of the high and low prices reported on the Nasdaq National Market on December 10, 1998. (3) Certain of such shares are subject to vesting. (4) Computed in accordance with Rules 457(h) and 457(i) under the Securities Act. Such computation is based on the weighted average exercise price of $0.29 per share covering authorized but unissued shares under Everest Design Automation Inc.'s 1997 Stock Option/Stock Issuance Plan. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PROSPECTUS Synopsys, Inc. 700 East Middlefield Road Mountain View, CA 94043 Telephone Number: (650) 962-5000 727,250 SHARES LOGO COMMON STOCK ------------------------ These shares may be offered and sold from time to time by certain stockholders of the Company identified in this prospectus. See "Selling Stockholders." The selling stockholders acquired the shares on November 20, 1998 in connection with the acquisition by Synopsys, Inc. ("Synopsys") of Everest Design Automation Inc. ("Everest") pursuant to an Agreement of Merger and Plan of Reorganization by and among Synopsys, Tenzing Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Synopsys, and Everest, dated as of October 26, 1998 (the "Merger Agreement"). The selling stockholders will receive all of the net proceeds from the sale of the shares. These stockholders will pay all underwriting discounts and selling commissions, if any, applicable to the sale of the shares. Synopsys will not receive any proceeds from the sale of the shares. YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 3 OF THIS PROSPECTUS BEFORE PURCHASING ANY OF THE COMMON STOCK. Synopsys' common stock is quoted on the Nasdaq National Market under the symbol "SNPS." On December 10, 1998, the last reported sale of the common stock was $51.625 per share. ------------------------ The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ------------------------ December 14, 1998 3 TABLE OF CONTENTS PROSPECTUS
PAGE ---- Synopsys, Inc............................................... 3 Risk Factors................................................ 3 Where to Find More Information About Synopsys............... 7 Information Incorporated by Reference....................... 7 Selling Stockholders........................................ 9 Plan of Distribution........................................ 10 Indemnification of Directors and Officers................... 12
You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. The selling stockholders are offering to sell, and seeking offers to buy, shares of Synopsys common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the shares. In this prospectus, unless indicated otherwise, "Synopsys," the "Company," "we," "us" and "our" refer to Synopsys, Inc. and its subsidiaries. FORWARD LOOKING INFORMATION This prospectus, including the information incorporated by reference herein, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Exchange Act of 1934 (the "Exchange Act"). Our actual results could differ materially from those projected in the forward-looking statements as a result of the risk factors set forth below. In addition, please review the sections captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K for the fiscal year ended September 30, 1997, and our quarterly reports on form 10-Q for the quarters ended July 4, 1998, April 4, 1998 and January 3, 1998, which reports are incorporated herein by reference and such section of any subsequently filed Exchange Act reports. In connection with forward-looking statements which appear in these disclosures, prospective purchasers of the shares offered hereby should carefully consider the factors set forth in this prospectus under "Risk Factors." 2 4 SYNOPSYS, INC. Synopsys develops, markets, and supports electronic design automation ("EDA") products for designers of integrated circuits ("ICs") and electronic systems. Synopsys offers a range of design tools, verification tools and systems, design reuse products and physical design tools intended to improve designers' productivity by offering improved time to market, reduced development and manufacturing costs, and enhanced design quality of results when compared to earlier generations of EDA products. Synopsys also provides training, support and consulting services for its customers. RISK FACTORS You should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are not the only ones facing our company. The risk factors set forth herein reflect those risks known to management as of the date of this prospectus and which management believes could be material to our business, operating results and financial condition. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. Such risk factors may change over time and may differ materially from those set forth herein. Prospective investors are cautioned to review, in addition to these risk factors, the risk factors contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q as well as the additional information contained in such reports and our other reports and filings with the Securities and Exchange Commission. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. In such case, the trading price of our common stock could decline and you may lose all or part of your investment. This prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statement as a result of a variety of factors, including those set forth in the following risk factors or elsewhere in, or incorporated by reference into, this prospectus. POTENTIAL EARNINGS FLUCTUATIONS We attempt to plan our business to achieve quarter-to-quarter revenue and earnings growth. Achieving predictable revenue and earnings growth is difficult. Quarterly revenue and earnings are affected by many factors, including customer product demand, product license terms, the size of our backlog, and the timing of revenue recognition on products and services sold. The following factors could affect our revenues and earnings per share in a particular quarter or over several quarterly or annual periods: - Our orders are seasonal. Historically, our first fiscal quarter ending December 31 is our weakest, and may have a book-to-bill ratio below one. - Our products are complex, and before buying them potential customers spend a great deal of time reviewing and testing them. This is particularly true if they are new customers or current customers purchasing a new product or switching from a competitor's product. The sales cycle does not necessarily match quarterly periods, and if by the end of any quarter our sales force has not sold enough new licenses, our orders and revenues could be substantially reduced. - Like many companies in the software industry, we receive a disproportionate volume of orders in the last week of a quarter, and recognize a disproportionate amount of revenue in the last week of a quarter. In addition, the proportion of our business attributable to our largest customers is increasing. As a result, if any order, and especially a large order, is delayed beyond the end of a fiscal period, our orders and revenue for that period could be substantially reduced. 3 5 - The accounting rules we are required to follow only permit us to recognize revenue when certain criteria are met. Orders for certain of the Company's products and services, including certain time-based product licenses, consulting services, and software support, yield revenue (or a significant portion thereof) over multiple quarters (often extending beyond the current fiscal year) or upon completion of performance rather than at the time of sale. In addition, in negotiating a purchase order with a customer, we may agree to terms that have the effect of requiring deferral of revenue in whole or in part. As a result, it may be difficult for us to convert orders, particularly those received late in a quarter, or backlog, to revenue in any given quarter. It is therefore possible for the Company to fall short in its revenue and/or earnings plan for a given quarter even while orders and backlog remain on plan. COMPETITION The EDA industry is highly competitive. We compete against other EDA vendors, and with customers' internally developed design tools and internal design capabilities, for a share of the overall EDA budgets of our customers. Our competitors include companies that offer a broad range of products and services, such as Cadence Design Systems, Inc. ("Cadence"), Mentor Graphics, Inc. ("Mentor") and Avant! Corporation ("Avant!"), as well as companies, including numerous start-up companies, that offer products focused on a discrete phase of the IC design process. In order to remain successful against such competition, we must continue to enhance our current products and bring to market new products that address the increasingly sophisticated needs of our customers on a timely and cost-effective basis. We also will have to expand our ability to offer consulting services. The failure to enhance existing products, develop and/or acquire new products or to expand our ability to offer such services would have a material adverse effect on our business, financial condition and results of operations. Technology advances and customer requirements are fueling a change in the nature of competition among EDA vendors. Increasingly, EDA companies compete on the basis of "design flows" involving a broad range of products (including both logic and physical design tools) and services rather than on the basis of individual "point" tools performing a discrete phase of the design process. No single EDA company currently offers its customers industry-leading products in a complete design flow. We offer a wide range of logic design tools but currently offer a relatively limited range of physical design tools. In November 1998 we acquired Everest, a private company developing physical design software. We will need to develop or acquire additional physical design tools in order to offer a complete design flow. We are also attempting to expand our capacity to offer professional services, but for the foreseeable future will continue to have less capacity than Cadence to provide such services. The market for physical design tools is dominated by Cadence and Avant!, both of which are attempting to complete their design flows. Cadence recently acquired Ambit Design Systems, a private company offering synthesis and other logic design products, as well as certain physical design verification products from Lucent Technologies, both of which will increase the direct competition between Synopsys and Cadence. In addition, Cadence's acquisition of logic design products may lead to reductions in purchases of our logic design software by Cadence, which was one of Synopsys' ten largest customers in fiscal 1998. Avant! also recently acquired a private company offering logic synthesis software, which will increase the direct competition between Synopsys and Avant!. SUCCESS OF NON-SYNTHESIS PRODUCTS Historically, much of the Company's growth has been attributable to the strength of its logic synthesis products. Opportunities for growth in market share in this area are limited, and synthesis revenues are expected to grow more slowly than our target for overall revenue growth. Synthesis and related "design creation" products account for approximately 45-50% of our revenue. As a result, in order to meet our revenue plan, non-synthesis design creation products, high level verification products and deep submicron products and our services business will have to grow faster than our overall revenue growth target. Our PrimeTime timing analysis, Formality formal verification, Module Compiler datapath synthesis and VCS Verilog simulation products are expected to be among the most important contributors to product revenue growth. These products have achieved initial customer acceptance, but we will only derive significant revenue from these products if they are accepted by a broad range of customers. Product success is difficult to 4 6 predict. The introduction of new products and growth of a market for such products cannot be assured in a highly competitive environment like EDA. In the past we, like all companies, have had products that despite initial successes, have failed to meet our revenue expectations. Expanding our capacity to offer consulting services and our revenues derived therefrom will require us to recruit, hire and train a large number of talented people, and to implement management controls on bidding and executing on services engagements. The consulting business is significantly different than the software business, however, and as indicated by recent layoffs announced by Cadence in its service business, increasing consulting orders and revenue while maintaining an adequate level of profit can be difficult. There can be no assurance that the Company will be successful in expanding revenues from existing or new products at the desired rate or expanding its services business, and the failure to do so would have a material adverse effect on the Company's business, financial condition and results of operations. INTEGRATION OF ACQUIRED BUSINESSES We have acquired or merged with a number of companies in recent years, including EPIC Design Technology, Inc., Viewlogic Systems, Inc., Systems Science Inc. and Everest, and as part of our efforts to expand our product and services offerings we may acquire additional companies in the future. In addition to direct costs, acquisitions pose a number of risks, including potential dilution of earnings per share, problems of integrating the acquired products and employees into our business, the failure to realize expected synergies or cost savings, the drain on management time for acquisition-related activities, possible adverse effects on customer buying patterns due to uncertainties resulting from an acquisition, and assumption of unknown liabilities. While we attempt to review proposed acquisitions carefully and negotiate terms that are favorable to the Company, there is no assurance that any individual acquisition will have the projected effect on the Company's performance. DEPENDENCE ON SEMICONDUCTOR AND ELECTRONICS BUSINESSES Our business has benefited from the rapid worldwide growth of the semiconductor industry. Purchases of our products are largely dependent upon the commencement of new design projects by semiconductor manufacturers and their customers. The outlook for the semiconductor industry for the remainder of calendar year 1998 and 1999 is uncertain, owing in part to adverse economic conditions in Asia and to potential slowing of growth in the United States. A number of the Company's customers have announced layoffs of their employees or the suspension of investment plans, and although the Company has not seen a significant drop-off in demand from these customers, their EDA budgets could be reduced, alone or as part of overall expense control efforts. In addition, there have been a number of mergers in the semiconductor and systems industries, which may reduce the aggregate level of purchases of our products and services by the merged companies. Slower growth in the semiconductor and systems industries, a reduced number of design starts, tightening of customers' operating budgets or continued consolidation among the Company's customers may have a material adverse effect on our business, financial condition and results of operations. INTERNATIONAL EXPOSURE In fiscal 1998, international revenue accounted for 39% of our revenue, after accounting for 41% and 42% of our revenue in fiscal 1997 and 1996, respectively. We expect that international revenue will continue to account for a significant portion of our revenue in the future. As a result, the Company's performance may be negatively affected by changes in foreign currency exchange rates and changes in regional or worldwide economic or political conditions. In particular: - Revenue from sales in Japan during fiscal 1998 was adversely affected by the weakness of the yen against the dollar, overall weakness in the Japanese economy and the deferral of investments in semiconductor facilities and technology by Japanese companies. Continued weakness of the Japanese economy during fiscal 1999 is likely to adversely affect revenue from Japan during the year. The yen has recently strengthened, but the exchange rate for fiscal 1999 remains subject to unpredictable fluctuations. Renewed weakness of the yen could adversely affect revenue from Japan during fiscal 1999. 5 7 - Significant declines in the value of the Korean won during fiscal 1998, and the subsequent economic crisis had a significant adverse affect on our business in Korea during the year, and is likely to continue to affect our orders and revenue from Korea in fiscal 1999. Declines in the currencies of other countries in the Asia Pacific region, particularly Taiwan, have also negatively affected the Company's sales in the region. Continued instability in Asian currency markets and weaknesses in Asian economies would continue to have an adverse effect on our orders and revenues from the Asia Pacific region. RISKS OF JOINT DEVELOPMENT In February 1996, we entered into a six-year joint development and license agreement with IBM, pursuant to which the two companies agreed to develop certain new products. Joint development of products is subject to risks and uncertainties over and above those affecting internal development. During fiscal year 1997, the first joint product resulting from the alliance, PrimeTime, was introduced, and the parties agreed to terminate efforts to develop a product in one of the product areas covered by the Agreement. A second joint product is expected to be introduced in January 1999, and development of the fourth product to be developed under the agreement has been suspended. Synopsys and IBM are currently discussing the future of the alliance. There can be no assurance that joint development will continue, or that the products developed by the alliance will be successful. NEED TO RECRUIT AND RETAIN KEY PERSONNEL Our success is dependent on technical and other contributions of key employees. We participate in a dynamic industry, with significant start-up activity, and our headquarters is in Silicon Valley, where skilled technical, sales and management employees are in high demand. There is a limited number of qualified EDA engineers, and the competition for such individuals is intense. Experience at Synopsys is highly valued in the EDA industry, and our employees are recruited aggressively by our competitors and by start-up companies. Our salaries are competitive in the market, but under certain circumstances, start-up companies can offer more attractive stock option packages. As a result, we have experienced, and may continue to experience, significant employee turnover. In addition, there can be no assurance that we can continue to recruit and retain key personnel. Failure to successfully recruit and retain such personnel could have a material adverse effect on our business, financial condition and results of operations. POISON PILL PROVISIONS The Company has adopted a number of provisions that could have anti-takeover effects. The Board of Directors has adopted a Preferred Shares Rights Plan, commonly referred to as a "poison pill." In addition, the Board of Directors has the authority, without further action by its stockholders, to fix the rights and preferences of, and issue shares of, authorized but undesignated shares of Preferred Stock. This provision and other provisions of the Company's Restated Certificate of Incorporation and Bylaws and the Delaware General Corporation Law may have the effect of deterring hostile takeovers or delaying or preventing changes in control or management of the Company, including transactions in which the stockholders of the Company might otherwise receive a premium for their shares over then current market prices. YEAR 2000 Synopsys presently believes that we will not experience significant operational problems arising from the Year 2000 problem (i.e., the inability of certain computer programs to correctly process date information on or after January 1, 2000). However, if unforeseen Year 2000 issues arise with respect to Synopsys products, one or more important customers experiences Year 2000-related problems that interferes with their purchases of Synopsys products, or we are not able to identify and fix Year 2000 problems relating to the computer systems and software we rely on to run our business, we may experience a disruption in our business, which could have a material adverse impact on our business, financial condition and results of operations. 6 8 CHANGES IN FINANCIAL ACCOUNTING STANDARDS We prepare our financial statements in conformity with generally accepted accounting principles ("GAAP"). GAAP are subject to interpretation by the American Institute of Certified Public Accountants ("AICPA"), the Securities and Exchange Commission (the "SEC") and various bodies formed to interpret and create appropriate accounting policies. A change in these policies can have a significant effect on our reported results, and may even affect our reporting of transactions completed before a change is announced. Accounting policies affecting many other aspects of our business, including rules relating to software revenue recognition, purchase and pooling-of-interests accounting for business combinations, employee stock purchase plans and stock option grants have recently been revised or are under review by one or more groups. Changes to these rules, or the questioning of current practices, may have a significant adverse affect on our reported financial results or in the way we conduct our business. In addition, the preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the recorded amounts of assets and liabilities, disclosure of those assets and liabilities at the date of the financial statements and the recorded amounts of expenses during the reporting period. A change in the facts and circumstances surrounding these estimates could result in a change to the estimates and impact future operating results. WHERE TO FIND MORE INFORMATION ABOUT SYNOPSYS We file special reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC's public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public from the SEC's Web site at http://www.sec.gov. This prospectus contains information concerning the Company and the sale of its Common Stock by the Selling Stockholders, but does not contain all the information set forth in the Registration Statement on Form S-8/S-3 (the "Registration Statement") which the Company has filed with the SEC under the Securities Act of 1933, as amended (the "Securities Act"). Statements made in this Prospectus as to the contents of any referenced contract, agreement or other document are not necessarily complete, and such statement shall be deemed qualified in its entirety by reference thereto. The Registration Statement, including various exhibits, may be obtained upon payment of the fee prescribed by the SEC, or may be examined without charge at the SEC's office in Washington, D.C. INFORMATION INCORPORATED BY REFERENCE The SEC allows us to "incorporate by reference" the information we file with them, which means that we can disclose important information to you by referring you to those documents that we have previously filed with the SEC or documents that we will file with the SEC in the future. The information incorporated by reference is considered to be part of this prospectus, and later information that we file with the SEC will automatically update and supercede this information. We incorporate by reference the documents listed below, and any future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, until the selling stockholders sell all the shares. This prospectus is part of a Registration Statement we filed with the SEC. The documents we incorporate by reference are: (1) Synopsys's Annual Report on Form 10-K for the fiscal year ended September 30, 1997; (2) Synopsys's Quarterly Report on Form 10-Q for the quarter ended July 4, 1998; (3) Synopsys's Quarterly Report on Form 10-Q for the quarter ended April 4, 1998; (4) Synopsys's Quarterly Report on Form 10-Q for the quarter ended January 3, 1998; (5) Synopsys's Current Report on Form 8-K dated November 16, 1998 relating to fourth quarter results; 7 9 (6) Synopsys's Current Report on Form 8-K dated December 19, 1997 for the acquisition of Viewlogic Systems, Inc.; and (7) The description of the Synopsys's Common Stock contained in the Company's Registration Statement on Form 8-A, No. 000-19807, filed on January 24, 1992. We also incorporate by reference all documents subsequently filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a post-effective amendment which indicates that all securities registered have been sold or which deregisters all securities then remaining unsold. 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 the Registration Statement or this Prospectus to the extent that a statement contained herein, in a Prospectus Supplement or in any other document subsequently filed with the Commission which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of the Registration Statement or this Prospectus. You may request a copy of these filings, at no cost, by writing or telephoning us at the following address: Synopsys, Inc., 700 East Middlefield Road, Mountain View, California 94043; the telephone number is (650) 962-5000. 8 10 SELLING STOCKHOLDERS None of the Selling Stockholders is an executive officer or director of Synopsys, and none of the Selling Stockholders beneficially owns, individually or in the aggregate, more than 1% of the outstanding Common Stock of Synopsys prior to this offering. In addition, except as set forth below, all of the shares of Common Stock beneficially owned by the Selling Stockholders were issued upon exercise of stock options or direct stock issuances granted under the Everest Design Automation Inc. 1997 Stock Option/Stock Issuance Plan (the "Plan"). Beneficial ownership calculations are determined in accordance with the Rules of the SEC and are based on 68,193,820 shares outstanding as of August 8, 1998 as adjusted to reflect the issuance of 1,392,399 shares of Common Stock in connection with the acquisition of Everest pursuant to the Merger Agreement (the "Acquisition"); in computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of Common Stock that are presently exercisable or that will become exercisable within 60 days of November 20, 1998 are deemed outstanding for such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. The following table shows the names of the Selling Stockholders and the number of shares of Common Stock to be sold by them pursuant to this Prospectus.
NUMBER OF SHARES NAME(1) BEING OFFERED(2) ------- ---------------- Robi Dutta(3)............................................... 220,590 Pravin Madhani(4)........................................... 220,590 Other Former Shareholders of Everest*....................... 174,713 TOTAL....................................................... 615,893
- ------------ * Consists of 16 employees and consultants of Everest who own an aggregate of 684,320 shares, constituting less than 1% of the outstanding shares of Common Stock of Synopsys. (1) Synopsys issued such shares pursuant to the conversion of shares of the Common Stock of Everest ("Everest Common Stock") into shares of the Common Stock of Synopsys in connection with the Acquisition. Prior to the Acquisition, Everest had issued such stock under employee equity incentive restricted stock purchase agreements. Unless otherwise noted, each of these Selling Stockholders who were parties to the Everest restricted stock purchase agreements are currently employees of Synopsys. (2) The number of shares offered pursuant to this offering does not include certain shares held in escrow by Synopsys pursuant to the terms of the merger agreement in connection with the Acquisition. (3) Mr. Dutta was issued 245,100 shares of Common Stock pursuant to the conversion of his shares of Everest Common Stock into shares of Common Stock of Synopsys in connection with the Acquisition. Prior to the Acquisition, Mr. Dutta was issued shares of Everest Common Stock pursuant to a Founder's Restricted Stock Purchase Agreement. (4) Mr. Madhani was issued 245,100 shares of Common Stock pursuant to the conversion of his shares of Everest Common Stock into shares of Common Stock of Synopsys in connection with the Acquisition. Prior to the Acquisition, Mr. Madhani was issued shares of Everest Common Stock pursuant to a Founder's Restricted Stock Purchase Agreement. PLAN OF DISTRIBUTION Synopsys has been advised by the Selling Stockholders that they intend to sell all or a portion of the shares offered hereby from time to time in the Nasdaq National Market and that sales will be made at prices prevailing in the Nasdaq National Market at the times of such sales. As used herein, "Selling Stockholders" includes donees and pledgees selling shares received from a Selling Stockholder after the date of this Prospectus. The Selling Stockholders may also make private sales directly or through a broker or brokers, who may act as agent or as principal. Further, the Selling Stockholders may choose to dispose of the shares offered hereby by gift to a third party or as a donation to a charitable or other non-profit entity. In connection with any 9 11 sales, the Selling Stockholders and any brokers participating in such sales may be deemed to be underwriters within the meaning of the Securities Act. Any broker-dealer participating in such transactions as agent may receive commissions from the Selling Stockholders (and, if such broker acts as agent for the purchaser of such shares, from such purchaser). Usual and customary brokerage fees will be paid by the Selling Stockholders. Broker-dealers may agree with the Selling Stockholders to sell a specified number of shares at a stipulated price per share, and, to the extent such a broker-dealer is unable to do so acting as agent for the Selling Stockholders, to purchase as principal any unsold shares at the price required to fulfill the broker-dealer commitment to the Selling Stockholders. Broker-dealers who acquire shares as principal may thereafter resell such shares from time to time in transactions (which may involve crosses and block transactions and which may involve sales to and through other broker-dealers, including transactions of the nature described above) in the over-the-counter market, in negotiated transactions or otherwise at market prices prevailing at the time of sale or at negotiated prices, and in connection with such resales may pay to or receive from the purchasers of such shares commissions computed as described above. Synopsys has advised the Selling Stockholders that Regulation M promulgated under the Exchange Act may apply to sales in the market and has informed them of the possible need for delivery of copies of this Prospectus. The Selling Stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act. Any commissions paid or any discounts or concessions allowed to any such broker-dealers, and, if any such broker-dealers purchase shares as principal, any profits received on the resale of such shares, may be deemed to be underwriting discounts and commissions under the Securities Act. Upon Synopsys's being notified by the Selling Stockholders that any material arrangement has been entered into with a broker-dealer for the sale of shares through a cross or block trade, a supplemental prospectus will be filed under Rule 424(c) under the Securities Act, setting forth the name of the participating broker-dealer(s), the number of shares involved, the price at which such shares were sold by the Selling Stockholders, the commissions paid or discounts or concessions allowed by the Selling Stockholders to such broker-dealer(s), and where applicable, that such broker-dealer(s) did not conduct any investigation to verify the information set out in this Prospectus. Any securities covered by this Prospectus which qualify for sale pursuant to Rules 144 and 701 under the Securities Act may be sold under Rule 144 rather than pursuant to this Prospectus. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including any person who may be deemed to be an "affiliate" of Synopsys, is entitled to sell within any three month period "restricted shares" beneficially owned by him or her in an amount that does not exceed the greater of (i) 1% of the then outstanding shares of Common Stock or (ii) the average weekly trading volume in shares of Common Stock during the four calendar weeks preceding such sale, provided that at least one year has elapsed since such shares were acquired from Synopsys or an affiliate of Synopsys. Sales are also subject to certain requirements as to the manner of sale, notice and availability of current public information regarding Synopsys. However, a person who has not been an "affiliate" of Synopsys at any time within three months prior to the sale is entitled to sell his or her shares without regard to the volume limitations or other requirements of Rule 144, provided that at least one year has elapsed since such shares were acquired from Synopsys or an affiliate of Synopsys. In general, under Rule 701 as currently in effect, any employee, consultant or advisor of Synopsys who purchases shares from Synopsys in connection with a compensatory stock or option plan or other written agreement related to compensation is eligible to resell such shares in reliance on Rule 144, but without compliance with certain restrictions contained in Rule 144. There can be no assurance that the Selling Stockholders will sell any or all of the shares of Common Stock offered hereunder. 10 12 INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law permits a corporation to include in its charter documents, and in agreements between the corporation and its directors and officers, provisions expanding the scope of indemnification beyond that specifically provided by the current law. Article X of Synopsys's Restated Certificate of Incorporation provides for the indemnification of directors to the fullest extent permissible under Delaware Law. Article VII of Synopsys's Bylaws provides for the indemnification of officers, directors and third parties to the fullest extent permissible under Delaware Law, which provisions are deemed to be a contract between Synopsys and each director and officer who serves in such capacity while such bylaw is in effect. Synopsys has entered into indemnification agreements with its directors and executive officers, in addition to the indemnification provided for in the Registrant's Bylaws, and intends to enter into indemnification agreements with any new directors and executive officers in the future. Insofar as indemnification by Synopsys for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of Synopsys pursuant to the provisions referenced in Prospectus or otherwise, Synopsys 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 Synopsys of expenses incurred or paid by a director, officer, or controlling person of Synopsys 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 hereunder, Synopsys 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. 11 13 SYNOPSYS, INC. REGISTRATION STATEMENT ON FORM S-8 PART II INFORMATION REQUIRED IN REGISTRATION STATEMENT ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE. There are hereby incorporated by reference in this Registration Statement the following documents and information heretofore filed with the Commission: (1) Synopsys's Annual Report on Form 10-K for the fiscal year ended September 30, 1997; (2) Synopsys's Quarterly Report on Form 10-Q for the quarter ended July 4, 1998; (3) Synopsys's Quarterly Report on Form 10-Q for the quarter ended April 4, 1998; (4) Synopsys's Quarterly Report on Form 10-Q for the quarter ended January 3, 1998; (5) Synopsys's Current Report on Form 8-K dated November 16, 1998 relating to fourth quarter results; (6) Synopsys's Current Report on Form 8-K dated December 19, 1997 for the acquisition of Viewlogic Systems, Inc.; and (7) The description of the Synopsys's Common Stock contained in the Company's Registration Statement on Form 8-A, No. 000-19807, filed on January 24, 1992. All documents subsequently filed by Synopsys pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a post-effective amendment which indicates that all securities registered have been sold or which deregisters all securities then remaining unsold, shall be deemed to be incorporated by reference in this Registration Statement and to be part hereof from the date of filing of such documents. ITEM 4. DESCRIPTION OF SECURITIES. Not applicable. ITEM 5. INTERESTS 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 include in its charter documents, and in agreements between the corporation and its directors and officers, provisions expanding the scope of indemnification beyond that specifically provided by the current law. Article X of Synopsys's Restated Certificate of Incorporation provides for the indemnification of directors to the fullest extent permissible under Delaware Law. Article VII of Synopsys's Bylaws provides for the indemnification of officers, directors and third parties to the fullest extent permissible under Delaware Law, which provisions are deemed to be a contract between Synopsys and each director and officer who serves in such capacity while such bylaw is in effect. Synopsys has entered into indemnification agreements with its directors and executive officers, in addition to the indemnification provided for in the Registrant's Bylaws, and intends to enter into indemnification agreements with any new directors and executive officers in the future. II-1 14 ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED. The issuance of the shares being offered by the Form S-3 resale prospectus were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions by an issuer not involving a public offering or transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under such Rule 701. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and instruments issued in such transactions. All recipients had adequate access, through their relationship with Synopsys, to information about Synopsys. ITEM 8. EXHIBITS.
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 5.1 Opinion of counsel as to legality of securities being registered. 10.1 Everest Design Automation Inc. 1997 Stock Option/Stock Issuance Plan. 10.2 Form of Stock Option Agreement under Everest Design Automation 1997 Stock Option/Stock Issuance Plan. 10.3 Form of Everest Design Automation Inc. Founder's Restricted Stock Agreement. 10.4 Form of Everest Design Automation Inc. Non-Statutory Option Agreement. 23.1 Consent of counsel (contained in Exhibit 5.1). 23.2 Independent Auditors' Consent. 23.3 Independent Accountants' Consent. 24.1 Power of Attorney (see page II-4).
ITEM 9. UNDERTAKINGS. A. Synopsys hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement 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. (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. Synopsys hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of Synopsys'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. II-2 15 C. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of Synopsys pursuant to law, Synopsys's Certificate of Incorporation, Bylaws or indemnification agreements, Synopsys has been informed 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 Synopsys of expenses incurred or paid by a director, officer or controlling person of Synopsys in a successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, Synopsys will, unless in the opinion of its counsel the matter has already been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of 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. II-3 16 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/S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mountain View, State of California, on this 14th day of December, 1998. SYNOPSYS, INC. By: /s/ AART J. DE GEUS ------------------------------------ Aart J. de Geus Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Aart J. de Geus and David Sugishita, and each of them, as his or her attorney-in-fact, with full power of substitution in each, for him or her in any and all capacities to sign any amendments to this Registration Statement on Form S-8/S-3, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitutes, may 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 below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ AART J. DE GEUS Chief Executive Officer December 14 1998 - -------------------------------------------------------- (Principal Executive Aart J. de Geus Officer) and Chairman of the Board of Directors /s/ CHI-FOON CHAN President, Chief Operating December 14, 1998 - -------------------------------------------------------- Officer and Director Chi-Foon Chan /s/ WILLIAM W. LATTIN Executive Vice President December 14, 1998 - -------------------------------------------------------- and Director William W. Lattin /s/ DEBORAH COLEMAN Director December 14, 1998 - -------------------------------------------------------- Deborah Coleman /s/ HARVEY C. JONES, JR. Director December 14, 1998 - -------------------------------------------------------- Harvey C. Jones, Jr. /s/ A. RICHARD NEWTON Director December 14, 1998 - -------------------------------------------------------- A. Richard Newton /s/ STEVEN C. WALSKE Director December 14, 1998 - -------------------------------------------------------- Steven C. Walske /s/ DAVID SUGISHITA Chief Financial Officer December 14, 1998 - -------------------------------------------------------- (Principal Financial David Sugishita Officer)
II-4 17 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ EXHIBITS ------------------------ REGISTRATION STATEMENT ON FORM S-8/S-3 SYNOPSYS, INC. DECEMBER 14, 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 18 INDEX TO EXHIBITS
EXHIBIT SEQUENTIALLY NUMBER DESCRIPTION NUMBERED PAGE - ------- ----------- ------------- 5.1 Opinion of counsel as to legality of securities being registered. 10.1 Everest Design Automation Inc. 1997 Stock Option/Stock Issuance Plan. 10.2 Form of Stock Option Agreement under Everest Design Automation 1997 Stock Option/Stock Issuance Plan. 10.3 Form of Everest Design Automation Inc. Founder's Restricted Stock Agreement. 10.4 Form of Everest Design Automation Inc. Non-Statutory Stock Option Agreement. 23.1 Consent of counsel (contained in Exhibit 5.1). 23.2 Independent Auditors' Consent. 23.3 Independent Accountants' Consent. 24.1 Power of Attorney (see page II-4).
EX-5.1 2 OPINION OF COUNSEL 1 EXHIBIT 5.1 December 14, 1997 Synopsys, Inc. 700 East Middlefield Road Mountain View, California 94043 RE: REGISTRATION STATEMENT ON FORM S-8/S-3 Ladies and Gentlemen: We have examined the Registration Statement on Form S-8/S-3 to be filed by you with the Securities and Exchange Commission on December 14, 1998 (as such may thereafter be amended or supplemented, the "Registration Statement"), in connection with the registration under the Securities Act of 1933, as amended, of 727,250 shares of your Common Stock, $0.01 par value (the "Shares"), of which 152,654 have been issued under the Everest Design Automation Inc. 1997 Stock Option/Stock Issuance Plan (the "Plan"), 111,357 will be issued pursuant to options granted under the Plan, 22,059 have been issued under certain Everest Design Automation Inc. Non-Statutory Stock Option Agreements, and 441,180 have been issued under certain Everest Design Automation Inc. Founder's Restricted Stock Agreements. As your legal counsel, we have examined the proceedings taken, and are familiar with the proceedings proposed to be taken, by you in connection with the sale and issuance of the Shares. It is our opinion that, upon completion of the proceedings being taken or contemplated by us, as your counsel, to be taken prior to the issuance of the Shares, the Shares, when issued and sold in the manner described in the Registration Statement and in accordance with the resolutions adopted by the Board of Directors of Synopsys, will be legally and validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement and further consent to the use of our name wherever appearing in the Registration Statement, including the Prospectus constituting a part thereof, and any amendments thereto. Very truly yours, WILSON SONSINI GOODRICH & ROSATI Professional Corporation EX-10.1 3 EVEREST 1997 STOCK OPTION/STOCK ISSUANCE PLAN 1 EXHIBIT 10.1 EVEREST DESIGN AUTOMATION INC. 1997 STOCK OPTION/STOCK ISSUANCE PLAN ARTICLE ONE. GENERAL PROVISIONS I. PURPOSE OF THE PLAN This 1997 Stock Option/Stock Issuance Plan is intended to promote the interests of Everest Design Automation Inc., a California corporation, by providing eligible persons with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in the service of the Corporation. Capitalized terms herein shall have the meanings assigned to such terms in the attached Appendix. II. STRUCTURE OF THE PLAN A. The Plan shall be divided into two (2) separate equity programs: (i) the Option Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock, and (ii) the Stock Issuance Program under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of Common Stock directly, either through the immediate purchase of such shares or as a bonus for services rendered the Corporation (or any Parent or Subsidiary). B. The provisions of Articles One and Four shall apply to both equity programs under the Plan and shall accordingly govern the interests of all persons under the Plan. III. ADMINISTRATION OF THE PLAN A. The Plan shall be administered by the Board. However, any or all administrative functions otherwise exercisable by the Board may be delegated to the Committee. Members of the Committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time. The Board may also at any time terminate the functions of the Committee and reassume all powers and authority previously delegated to the Committee. B. The Plan Administrator shall have full power and authority (subject to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper administration of the Plan and to make such determinations under, and issue such interpretations of, 2 the Plan and any outstanding options or stock issuances thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator shall be final and binding on all parties who have an interest in the Plan or any option or stock issuance thereunder. IV. ELIGIBILITY A. The persons eligible to participate in the Plan are as follows: (i) Employees, (ii) non-employee members of the Board or the non-employee members of the board of directors of any Parent or Subsidiary, and (iii) consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary). B. The Plan Administrator shall have full authority to determine, (i) with respect to the grants under the Option Grant Program, which eligible persons are to receive the option grants, the time or times when those grants are to be made, the number of shares to be covered by each such grant, the status of the granted option as either an Incentive Option or a Non-Statutory Option, the time or times when each option is to become exercisable, the vesting schedule (if any) applicable to the option shares and the maximum term for which the option is to remain outstanding, and (ii) with respect to stock issuances under the Stock Issuance Program, which eligible persons are to receive such stock issuances, the time or times when those issuances are to be made, the number of shares to be issued to each Participant, the vesting schedule (if any) applicable to the issued shares and the consideration to be paid by the Participant for such shares. C. The Plan Administrator shall have the absolute discretion either to grant options in accordance with the Option Grant Program or to effect stock issuances in accordance with the Stock Issuance Program. V. STOCK SUBJECT TO THE PLAN A. The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock. The maximum number of shares of Common Stock which may be issued over the term of the Plan shall not exceed 3,000,000 shares. B. Shares of Common Stock subject to outstanding options shall be available for subsequent issuance under the Plan to the extent (i) the options expire or terminate for any reason prior to exercise in full or (ii) the options are cancelled in accordance with the cancellation-regrant provisions of Article Two. Unvested shares issued under the Plan and subsequently repurchased by the Corporation, at the option exercise or direct issue price paid per share, pursuant to the Corporation's repurchase rights under the Plan shall be added back to the number of shares of -2- 3 Common Stock reserved for issuance under the Plan and shall accordingly be available for reissuance through one or more subsequent option grants or direct stock issuances under the Plan. C. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan and (ii) the number and/or class of securities and the exercise price per share in effect under each outstanding option in order to prevent the dilution or enlargement of benefits thereunder. The adjustments determined by the Plan Administrator shall be final, binding and conclusive. In no event shall any such adjustments be made in connection with the conversion of one or more outstanding shares of the Corporation's preferred stock into shares of Common Stock. -3- 4 ARTICLE TWO. OPTION GRANT PROGRAM I. OPTION TERMS Each option shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions of the Plan applicable to such options. A. Exercise Price. 1. The exercise price per share shall be fixed by the Plan Administrator in accordance with the following provisions: (i) The exercise price per share shall not be less than eighty-five percent (85%) of the Fair Market Value per share of Common Stock on the option grant date. (ii) If the person to whom the option is granted is a 10% Shareholder, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date. 2. The exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of Section I of Article Four and the documents evidencing the option, be payable in cash or check made payable to the Corporation. Should the Common Stock be registered under Section 12(g) of the 1934 Act at the time the option is exercised, then the exercise price may also be paid as follows: (i) in shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, or (ii) to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable instructions (A) to a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such exercise and (B) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale. 5 Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. B. Exercise and Term of Options. Each option shall be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option grant. However, no option shall have a term in excess of ten (10) years measured from the option grant date. C. Effect of Termination of Service. 1. The following provisions shall govern the exercise of any options held by the Optionee at the time of cessation of Service or death: (i) Should the Optionee cease to remain in Service for any reason other than death, Disability or Misconduct, then the Optionee shall have a period of at least (30) days following the date of such cessation of Service during which to exercise each outstanding option held by such Optionee. (ii) Should Optionee's Service terminate by reason of Disability, then the Optionee shall have a period of at least six (6) months following the date of such cessation of Service during which to exercise each outstanding option held by such Optionee. (iii) If the Optionee dies while holding an outstanding option, then the personal representative of his or her estate or the person or persons to whom the option is transferred pursuant to the Optionee's will or the laws of inheritance shall have a period of at least six (6) months following the date of the Optionee's death to exercise such option. (iv) Under no circumstances, however, shall any such option be exercisable after the specified expiration of the option term. (v) During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number of vested shares for which the option is exercisable on the date of the Optionee's cessation of Service. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee's cessation of Service, terminate and cease to be outstanding with respect to any and all option shares for which the option is not otherwise at the time exercisable or in which the Optionee is not otherwise at that time vested. (vi) Should Optionee's Service be terminated for Misconduct, then all outstanding options held by the Optionee shall terminate immediately and cease to remain outstanding. -5- 6 2. The Plan Administrator shall have the discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to: (i) extend the period of time for which the option is to remain exercisable following Optionee's cessation of Service or death from the limited period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term, and/or (ii) permit the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares of Common Stock for which such option is exercisable at the time of the Optionee's cessation of Service but also with respect to one or more additional installments in which the Optionee would have vested under the option had the Optionee continued in Service. D. Shareholder Rights. The holder of an option shall have no shareholder rights with respect to the shares subject to the option until such person shall have exercised the option, paid the exercise price and become a holder of record of the purchased shares. E. Repurchase of Unvested Shares. The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of Common Stock. Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase, at the exercise price paid per share, any or all of those unvested shares. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right. The Plan Administrator may not impose a vesting schedule upon the option grant or any shares of Common Stock subject to that option which is more restrictive than twenty percent (20%) per year vesting, with the initial vesting to occur not later than one (1) year after the option grant date. However, such limitation shall not be applicable to any option grants made to individuals who are officers of the Corporation, non-employee Board members or independent consultants. F. First Refusal Rights. Until such time as the Common Stock is first registered under Section 12(g) of the 1934 Act, the Corporation shall have the right of first refusal with respect to any proposed disposition by the Optionee (or any successor in interest) of any shares of Common Stock issued under the Plan. Such right of first refusal shall be exercisable in accordance with the terms established by the Plan Administrator and set forth in the document evidencing such right. G. Limited Transferability of Options. During the lifetime of the Optionee, the option shall be exercisable only by the Optionee and shall not be assignable or transferable other than by will or by the laws of descent and distribution following the Optionee's death. -6- 7 H. Withholding. The Corporation's obligation to deliver shares of Common Stock upon the exercise of any options granted under the Plan shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements. II. INCENTIVE OPTIONS The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of the Plan shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options shall not be subject to the terms of this Section II. A. Eligibility. Incentive Options may only be granted to Employees. B. Exercise Price. The exercise price per share shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date. C. Dollar Limitation. The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one (1) calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted. D. 10% Shareholder. If any Employee to whom an Incentive Option is granted is a 10% Shareholder, then the option term shall not exceed five (5) years measured from the option grant date. III. CORPORATE TRANSACTION A. In the event of any Corporate Transaction, each outstanding option shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) in connection with such Corporate Transaction. B. All outstanding repurchase rights shall also terminate automatically, and the shares of Common Stock subject to those terminated rights shall immediately vest in full in the event of a Corporate Transaction, except to the extent: (i) those repurchase rights are assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued. C. Each option which is assumed in connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and -7- 8 class of securities which would have been issuable to the Optionee in the consummation of such Corporate Transaction, had the option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to (i) the number and class of securities available for issuance under the Plan following the consummation of such Corporate Transaction and (ii) the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same. D. The Plan Administrator shall also have full power and authority, exercisable either at the time the option is granted or at any time while the option remains outstanding, to structure such option so that all or a portion of the shares subject to that option will automatically vest on an accelerated basis should the Optionee's Service terminate by reason of an Involuntary Termination within a designated period (not to exceed eighteen (18) months) following the effective date of a Corporate Transaction in which the option is assumed and the repurchase rights applicable to those shares do not otherwise terminate. Any such option shall remain exercisable for the vested option shares until the earlier of (i) the expiration of the option term or (ii) the expiration of the one (1)-year period measured from the effective date of the Involuntary Termination. In addition, the Plan Administrator may provide that one or more of the outstanding repurchase rights with respect to any or all shares held by the Optionee at the time of such Involuntary Termination shall immediately terminate on an accelerated basis, and the shares subject to those terminated rights shall accordingly vest. E. The portion of any Incentive Option accelerated in connection with a Corporate Transaction shall remain exercisable as an Incentive Option only to the extent the applicable One Hundred Thousand Dollar limitation is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-Statutory Option under the Federal tax laws. F. The grant of options under the Plan shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. IV. CANCELLATION AND REGRANT OF OPTIONS The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under the Plan and to grant in substitution therefor new options covering the same or different number of shares of Common Stock but with an exercise price per share based on the Fair Market Value per share of Common Stock on the new option grant date. -8- 9 ARTICLE THREE. STOCK ISSUANCE PROGRAM I. STOCK ISSUANCE TERMS Shares of Common Stock may be issued under the Stock Issuance Program through direct and immediate issuances without any intervening option grants. Each such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below. A. Purchase Price. 1. The purchase price per share shall be fixed by the Plan Administrator but shall not be less than eighty-five percent (85%) of the Fair Market Value per share of Common Stock on the issue date. However, the purchase price per share of Common Stock issued to a 10% Shareholder shall not be less than one hundred and ten percent (110%) of such Fair Market Value. 2. Subject to the provisions of Section I of Article Four, shares of Common Stock may be issued under the Stock Issuance Program for any of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance: (i) cash or check made payable to the Corporation, or (ii) past services rendered to the Corporation (or any Parent or Subsidiary). B. Vesting Provisions. 1. Shares of Common Stock issued under the Stock Issuance Program may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance or may vest in one or more installments over the Participant's period of Service or upon attainment of specified performance objectives. However, the Plan Administrator may not impose a vesting schedule upon any stock issuance effected under the Stock Issuance Program which is more restrictive than twenty percent (20%) per year vesting, with initial vesting to occur not later than one (1) year after the issuance date. Such limitation shall not apply to any Common Stock issuances made to the officers of the Corporation, non-employee Board members or independent consultants. 2. Any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to the Participant's unvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration shall be 10 issued subject to (i) the same vesting requirements applicable to the Participant's unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate. 3. The Participant shall have full shareholder rights with respect to any shares of Common Stock issued to the Participant under the Stock Issuance Program, whether or not the Participant's interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares. 4. Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further shareholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent (including the Participant's purchase-money indebtedness), the Corporation shall repay to the Participant the cash consideration paid for the surrendered shares and shall cancel the unpaid principal balance of any outstanding purchase-money note of the Participant attributable to such surrendered shares. C. First Refusal Rights. Until such time as the Common Stock is first registered under Section 12(g) of the 1934 Act, the Corporation shall have the right of first refusal with respect to any proposed disposition by the Participant (or any successor in interest) of any shares of Common Stock issued under the Stock Issuance Program. Such right of first refusal shall be exercisable in accordance with the terms established by the Plan Administrator and set forth in the document evidencing such right. II. CORPORATE TRANSACTION A. Upon the occurrence of a Corporate Transaction, all outstanding repurchase rights under the Stock Issuance Program shall be assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction. However, to the extent the successor corporation (or parent thereof) does not accept such assignment, all outstanding repurchase rights under the Stock Issuance Program shall terminate automatically, and the shares of Common Stock subject to those terminated rights shall immediately vest in full. B. The Plan Administrator shall have the discretionary authority, exercisable either at the time the unvested shares are issued or any time while the Corporation's repurchase rights with respect to those shares remain outstanding, to provide that all or a portion of those rights shall automatically terminate on an accelerated basis, and the shares of Common Stock subject to those terminated rights shall immediately vest, in the event the Participant's Service should subsequently terminate by reason of an Involuntary Termination within a designated period (not to exceed eighteen (18) months) following the effective date of any Corporate Transaction in which those repurchase rights are assigned to the successor corporation (or parent thereof). -10- 11 III. SHARE ESCROW/LEGENDS Unvested shares may, in the Plan Administrator's discretion, be held in escrow by the Corporation until the Participant's interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares. -11- 12 ARTICLE FOUR. MISCELLANEOUS I. FINANCING The Plan Administrator may permit any Optionee or Participant to pay the option exercise price or the purchase price for shares issued to such person under the Plan by delivering a full-recourse, interest-bearing promissory note payable in one or more installments and secured by the purchased shares. However, any promissory note delivered by a consultant must be secured by collateral in addition to the purchased shares of Common Stock. In no event shall the maximum credit available to the Optionee or Participant exceed the sum of (i) the aggregate option exercise price or purchase price payable for the purchased shares plus (ii) any Federal, state and local income and employment tax liability incurred by the Optionee or the Participant in connection with the option exercise or share purchase. II. EFFECTIVE DATE AND TERM OF PLAN A. The Plan shall become effective when adopted by the Board, but no option granted under the Plan may be exercised, and no shares shall be issued under the Plan, until the Plan is approved by the Corporation's shareholders. If such shareholder approval is not obtained within twelve (12) months after the date of the Board's adoption of the Plan, then all options previously granted under the Plan shall terminate and cease to be outstanding, and no further options shall be granted and no shares shall be issued under the Plan. Subject to such limitation, the Plan Administrator may grant options and issue shares under the Plan at any time after the effective date of the Plan and before the date fixed herein for termination of the Plan. B. The Plan shall terminate upon the earliest of (i) the expiration of the ten (10)-year period measured from the date the Plan is adopted by the Board, (ii) the date on which all shares available for issuance under the Plan shall have been issued as vested shares or (iii) the termination of all outstanding options in connection with a Corporate Transaction. All options and unvested stock issuances outstanding at that time under the Plan shall continue to have full force and effect in accordance with the provisions of the documents evidencing such options or issuances. III. AMENDMENT OF THE PLAN A. The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects. However, no such amendment or modification shall adversely affect the rights and obligations with respect to options or unvested stock issuances at the time outstanding under the Plan unless the Optionee or the Participant consents to such amendment or 13 modification. In addition, certain amendments may require shareholder approval pursuant to applicable laws and regulations. B. Options may be granted under the Option Grant Program and shares may be issued under the Stock Issuance Program which are in each instance in excess of the number of shares of Common Stock then available for issuance under the Plan, provided any excess shares actually issued under those programs shall be held in escrow until there is obtained shareholder approval of an amendment sufficiently increasing the number of shares of Common Stock available for issuance under the Plan. If such shareholder approval is not obtained within twelve (12) months after the date the first such excess issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding and (ii) the Corporation shall promptly refund to the Optionees and the Participants the exercise or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow, and such shares shall thereupon be automatically cancelled and cease to be outstanding. IV. USE OF PROCEEDS Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes. V. WITHHOLDING The Corporation's obligation to deliver shares of Common Stock upon the exercise of any options or upon the issuance or vesting of any shares issued under the Plan shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements. VI. REGULATORY APPROVALS The implementation of the Plan, the granting of any options under the Plan and the issuance of any shares of Common Stock (i) upon the exercise of any option or (ii) under the Stock Issuance Program shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options granted under it and the shares of Common Stock issued pursuant to it. VII. NO EMPLOYMENT OR SERVICE RIGHTS Nothing in the Plan shall confer upon the Optionee or the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Optionee or the Participant, which rights are hereby expressly reserved by each, to terminate such person's Service at any time for any reason, with or without cause. VIII. FINANCIAL REPORTS -13- 14 The Corporation shall deliver a balance sheet and an income statement at least annually to each individual holding an outstanding option under the Plan, unless such individual is a key Employee whose duties in connection with the Corporation (or any Parent or Subsidiary) assure such individual access to equivalent information. -14- 15 APPENDIX The following definitions shall be in effect under the Plan: A. BOARD shall mean the Corporation's Board of Directors. B. CODE shall mean the Internal Revenue Code of 1986, as amended. C. COMMITTEE shall mean a committee of two (2) or more Board members appointed by the Board to exercise one or more administrative functions under the Plan. D. COMMON STOCK shall mean the Corporation's common stock. E. CORPORATE TRANSACTION shall mean either of the following shareholder-approved transactions to which the Corporation is a party: (i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or (ii) the sale, transfer or other disposition of all or substantially all of the Corporation's assets in complete liquidation or dissolution of the Corporation. F. CORPORATION shall mean Everest Design Automation Inc., a California corporation, and any successor corporation to all or substantially all of the assets or voting stock of Everest Design Automation Inc. which shall by appropriate action adopt the Plan. G. DISABILITY shall mean the inability of the Optionee or the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment and shall be determined by the Plan Administrator on the basis of such medical evidence as the Plan Administrator deems warranted under the circumstances. H. EMPLOYEE shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. I. EXERCISE DATE shall mean the date on which the Corporation shall have received written notice of the option exercise. J. FAIR MARKET VALUE per share of Common Stock on any relevant date shall be determined in accordance with the following provisions: A-1 16 (i) If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market or any successor system. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (iii) If the Common Stock is at the time neither listed on any Stock Exchange nor traded on the Nasdaq National Market, then the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate. K. INCENTIVE OPTION shall mean an option which satisfies the requirements of Code Section 422. L. INVOLUNTARY TERMINATION shall mean the termination of the Service of any individual which occurs by reason of: (1) such individual's involuntary dismissal or discharge by the Corporation for reasons other than Misconduct, or (2) such individual's voluntary resignation following (A) a change in Optionee's position with the Corporation (or Parent or Subsidiary employing Optionee) which materially reduces his or her level of responsibility, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and target bonus under in any corporate-performance based bonus or incentive programs) by more than fifteen percent (15%) or (C) a relocation of such individual's place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation without Optionee's consent. M. MISCONDUCT shall mean the commission of any act of fraud, embezzlement or dishonesty by the Optionee or Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the A-2 17 Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of any Optionee, Participant or other person in the Service of the Corporation (or any Parent or Subsidiary). N. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended. O. NON-STATUTORY OPTION shall mean an option not intended to satisfy the requirements of Code Section 422. P. OPTION GRANT PROGRAM shall mean the option grant program in effect under the Plan. Q. OPTIONEE shall mean any person to whom an option is granted under the Plan. R. PARENT shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. S. PARTICIPANT shall mean any person who is issued shares of Common Stock under the Stock Issuance Program. T. PLAN shall mean the Corporation's 1997 Stock Option/Stock Issuance Plan, as set forth in this document. U. PLAN ADMINISTRATOR shall mean either the Board or the Committee acting in its capacity as administrator of the Plan. V. SERVICE shall mean the provision of services to the Corporation (or any Parent or Subsidiary) by a person in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant. W. STOCK EXCHANGE shall mean either the American Stock Exchange or the New York Stock Exchange. X. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the Corporation and the Participant at the time of issuance of shares of Common Stock under the Stock Issuance Program. Y. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect under the Plan. A-3 18 Z. SUBSIDIARY shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. AA. 10% SHAREHOLDER shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary). A-4 EX-10.2 4 FORM OF STOCK OPTION AGREEMENT 1 EXHIBIT 10.2 EVEREST DESIGN AUTOMATION INC. STOCK OPTION AGREEMENT RECITALS I. The Board has adopted the Plan for the purpose of retaining the services of selected Employees, non-employee members of the Board or the board of directors of any Parent or Subsidiary and consultants and other independent advisors in the service of the Corporation (or any Parent or Subsidiary). A. Optionee is to render valuable services to the Corporation (or a Parent or Subsidiary), and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Corporation's grant of an option to Optionee. B. All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix. NOW, THEREFORE, it is hereby agreed as follows: 1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as of the Grant Date, an option to purchase up to the number of Option Shares specified in the Grant Notice. The Option Shares shall be purchasable from time to time during the option term specified in Paragraph 2 at the Exercise Price. 2. OPTION TERM. This option shall have a term of ten (10) years measured from the Grant Date and shall accordingly expire at the close of business on the Expiration Date, unless sooner terminated in accordance with Paragraph 5 or 6. 3. LIMITED TRANSFERABILITY. During Optionee's lifetime, this option shall be exercisable only by Optionee and shall not be assignable or transferable other than by will or by the laws of descent and distribution following Optionee's death. 4. DATES OF EXERCISE. This option shall become exercisable for the Option Shares in one or more installments as specified in the Grant Notice. As the option becomes exercisable for such installments, those installments shall accumulate and the option shall remain exercisable for the accumulated installments until the Expiration Date or sooner termination of the option term under Paragraph 5 or 6. 5. CESSATION OF SERVICE. The option term specified in Paragraph 2 shall terminate (and this option shall cease to be outstanding) prior to the Expiration Date should any of the following provisions become applicable: (a) Should Optionee cease to remain in Service for any reason (other than death, Disability or Misconduct) while this option is outstanding, then Optionee shall have a period 2 of forty-five (45) days (commencing with the date of such cessation of Service) during which to exercise this option, but in no event shall this option be exercisable at any time after the Expiration Date. (b) Should Optionee die while this option is outstanding, then the personal representative of Optionee's estate or the person or persons to whom the option is transferred pursuant to Optionee's will or in accordance with the laws of inheritance shall have the right to exercise this option. Such right shall lapse, and this option shall cease to be outstanding, upon the earlier of (i) the expiration of the twelve (12)-month period measured from the date of Optionee's death or (ii) the Expiration Date. (c) Should Optionee cease Service by reason of Disability while this option is outstanding, then Optionee shall have a period of six (6) months (commencing with the date of such cessation of Service) during which to exercise this option. In no event shall this option be exercisable at any time after the Expiration Date. Note: Exercise of this option on a date later than three (3) months following cessation of Service due to Disability will result in loss of favorable Incentive Option treatment, unless such Disability constitutes Permanent Disability. In the event that Incentive Option treatment is not available, this option will be taxed as a Non-Statutory Option upon exercise. (d) During the limited period of post-Service exercisability, this option may not be exercised in the aggregate for more than the number of Option Shares in which Optionee is, at the time of Optionee's cessation of Service, vested pursuant to the Vesting Schedule specified in the Grant Notice. Upon the expiration of such limited exercise period or (if earlier) upon the Expiration Date, this option shall terminate and cease to be outstanding for any vested Option Shares for which the option has not been exercised. To the extent Optionee is not vested in the Option Shares at the time of Optionee's cessation of Service, this option shall immediately terminate and cease to be outstanding with respect to those shares. (e) Should Optionee's Service be terminated for Misconduct, then this option shall terminate immediately and cease to remain outstanding. 6. SPECIAL TERMINATION OF OPTION. (a) In the event of a Corporate Transaction, this option shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation or parent thereof in connection with such Corporate Transaction. (b) If this option is assumed in connection with a Corporate Transaction, then this option shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to 2 3 such Corporate Transaction, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise Price shall remain the same. (c) This option may also become exercisable upon an accelerated basis in accordance with the terms and conditions of any special addendum attached to this Agreement. (d) This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, appropriate adjustments shall be made to (i) the total number and/or class of securities subject to this option and (ii) the Exercise Price in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder. 8. SHAREHOLDER RIGHTS. The holder of this option shall not have any shareholder rights with respect to the Option Shares until such person shall have exercised the option, paid the Exercise Price and become a holder of record of the purchased shares. 9. MANNER OF EXERCISING OPTION. (a) In order to exercise this option with respect to all or any part of the Option Shares for which this option is at the time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions: (i) Execute and deliver to the Corporation a Purchase Agreement for the Option Shares for which the option is exercised. (ii) Pay the aggregate Exercise Price for the purchased shares in one or more of the following forms: (A) cash or check made payable to the Corporation; or (B) a promissory note payable to the Corporation, but only to the extent authorized by the Plan Administrator in accordance with Paragraph 14. Should the Common Stock be registered under Section 12(g) of the 1934 Act at the time the option is exercised, then the Exercise Price may also be paid as follows: (C) in shares of Common Stock held by Optionee (or any other person or persons exercising the option) for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date; or 3 4 (D) to the extent the option is exercised for vested Option Shares, through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons exercising the option) shall concurrently provide irrevocable instructions (a) to a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate Exercise Price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such exercise and (b) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale. Except to the extent the sale and remittance procedure is utilized in connection with the option exercise, payment of the Exercise Price must accompany the Purchase Agreement delivered to the Corporation in connection with the option exercise. (iii) Furnish to the Corporation appropriate documentation that the person or persons exercising the option (if other than Optionee) have the right to exercise this option. (iv) Execute and deliver to the Corporation such written representations as may be requested by the Corporation in order for it to comply with the applicable requirements of Federal and state securities laws. (v) Make appropriate arrangements with the Corporation (or Parent or Subsidiary employing or retaining Optionee) for the satisfaction of all Federal, state and local income and employment tax withholding requirements applicable to the option exercise. (b) As soon as practical after the Exercise Date, the Corporation shall issue to or on behalf of Optionee (or any other person or persons exercising this option) a certificate for the purchased Option Shares, with the appropriate legends affixed thereto. (c) In no event may this option be exercised for any fractional shares. 10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION AND ITS ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS SPECIFIED IN THE PURCHASE AGREEMENT. 11. COMPLIANCE WITH LAWS AND REGULATIONS. (a) The exercise of this option and the issuance of the Option Shares upon such exercise shall be subject to compliance by the Corporation and Optionee with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange (or the 4 5 Nasdaq National Market, if applicable) on which the Common Stock may be listed for trading at the time of such exercise and issuance. (b) The inability of the Corporation to obtain approval from any regulatory body having authority deemed by the Corporation to be necessary to the lawful issuance and sale of any Common Stock pursuant to this option shall relieve the Corporation of any liability with respect to the non-issuance or sale of the Common Stock as to which such approval shall not have been obtained. The Corporation, however, shall use its best efforts to obtain all such approvals. 12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and Optionee, Optionee's assigns and the legal representatives, heirs and legatees of Optionee's estate. 13. NOTICES. Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal corporate offices. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated below Optionee's signature line on the Grant Notice. All notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified. 14. FINANCING. The Plan Administrator may, in its absolute discretion and without any obligation to do so, permit Optionee to pay the Exercise Price for the purchased Option Shares by delivering a full-recourse, interest-bearing promissory note secured by those Option Shares. The payment schedule in effect for any such promissory note shall be established by the Plan Administrator in its sole discretion. 15. CONSTRUCTION. This Agreement and the option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan. All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in this option. 16. GOVERNING LAW. The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of California without resort to that State's conflict-of-laws rules. 17. SHAREHOLDER APPROVAL. If the Option Shares covered by this Agreement exceed, as of the Grant Date, the number of shares of Common Stock which may be issued under the Plan as last approved by the shareholders, then this option shall be void with respect to such excess shares, unless shareholder approval of an amendment sufficiently increasing the number of shares of Common Stock issuable under the Plan is obtained in accordance with the provisions of the Plan. 5 6 18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the event this option is designated an Incentive Option in the Grant Notice, the following terms and conditions shall also apply to the grant: (a) This option shall cease to qualify for favorable tax treatment as an Incentive Option if (and to the extent) this option is exercised for one or more Option Shares: (i) more than three (3) months after the date Optionee ceases to be an Employee for any reason other than death or Permanent Disability or (ii) more than twelve (12) months after the date Optionee ceases to be an Employee by reason of Permanent Disability. (b) This option shall not become exercisable in the calendar year in which granted if (and to the extent) the aggregate Fair Market Value (determined at the Grant Date) of the Common Stock for which this option would otherwise first become exercisable in such calendar year would, when added to the aggregate value (determined as of the respective date or dates of grant) of the Common Stock and any other securities for which one or more other Incentive Options granted to Optionee prior to the Grant Date (whether under the Plan or any other option plan of the Corporation or any Parent or Subsidiary) first become exercisable during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the aggregate. To the extent the exercisability of this option is deferred by reason of the foregoing limitation, the deferred portion shall become exercisable in the first calendar year or years thereafter in which the One Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18(b) would not be contravened, but such deferral shall in all events end immediately prior to the effective date of a Corporate Transaction in which this option is not to be assumed, whereupon the option shall become immediately exercisable as a Non-Statutory Option for the deferred portion of the Option Shares. (c) Should Optionee hold, in addition to this option, one or more other options to purchase Common Stock which become exercisable for the first time in the same calendar year as this option, then the foregoing limitations on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted. 6 7 APPENDIX The following definitions shall be in effect under the Agreement: A. AGREEMENT shall mean this Stock Option Agreement. B. BOARD shall mean the Corporation's Board of Directors. C. CODE shall mean the Internal Revenue Code of 1986, as amended. D. COMMON STOCK shall mean the Corporation's common stock. E. CORPORATE TRANSACTION shall mean either of the following shareholder-approved transactions to which the Corporation is a party: (i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or (ii) the sale, transfer or other disposition of all or substantially all of the Corporation's assets in complete liquidation or dissolution of the Corporation. F. CORPORATION shall mean Everest Design Automation Inc., a California corporation, and any successor corporation to all or substantially all of the assets or voting stock of Everest Design Automation Inc. which shall by appropriate action adopt the Plan. G. DISABILITY shall mean the inability of Optionee to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment and shall be determined by the Plan Administrator on the basis of such medical evidence as the Plan Administrator deems warranted under the circumstances. Disability shall be deemed to constitute PERMANENT DISABILITY in the event that such Disability is expected to result in death or has lasted or can be expected to last for a continuous period of twelve (12) months or more. H. EMPLOYEE shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. I. EXERCISE DATE shall mean the date on which the option shall have been exercised in accordance with Paragraph 9 of the Agreement. J. EXERCISE PRICE shall mean the exercise price payable per Option Share as specified in the Grant Notice. A-1 8 K. EXPIRATION DATE shall mean the date on which the option expires as specified in the Grant Notice. L. FAIR MARKET VALUE per share of Common Stock on any relevant date shall be determined in accordance with the following provisions: (i) If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as the price is reported by the National Association of Securities Dealers on the Nasdaq National Market or any successor system. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (iii) If the Common Stock is at the time neither listed on any Stock Exchange nor traded on the Nasdaq National Market, then the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate. M. GRANT DATE shall mean the date of grant of the option as specified in the Grant Notice. N. GRANT NOTICE shall mean the Notice of Grant of Stock Option accompanying the Agreement, pursuant to which Optionee has been informed of the basic terms of the option evidenced hereby. O. INCENTIVE OPTION shall mean an option which satisfies the requirements of Code Section 422. P. MISCONDUCT shall mean the commission of any act of fraud, embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by Optionee adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of Optionee or any other individual in the Service of the Corporation (or any Parent or Subsidiary). A-2 9 Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended. R. NON-STATUTORY OPTION shall mean an option not intended to satisfy the requirements of Code Section 422. S. OPTION SHARES shall mean the number of shares of Common Stock subject to the option. T. OPTIONEE shall mean the person to whom the option is granted as specified in the Grant Notice. U. PARENT shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. V. PLAN shall mean the Corporation's 1997 Stock Option/Stock Issuance Plan. W. PLAN ADMINISTRATOR shall mean either the Board or a committee of the Board acting in its capacity as administrator of the Plan. X. PURCHASE AGREEMENT shall mean the stock purchase agreement in substantially the form of Exhibit B to the Grant Notice. Y. SERVICE shall mean the Optionee's performance of services for the Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-employee member of the board of directors or an independent consultant. Z. STOCK EXCHANGE shall mean the American Stock Exchange or the New York Stock Exchange. AA. SUBSIDIARY shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. BB. VESTING SCHEDULE shall mean the vesting schedule specified in the Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a series of installments over his or her period of Service. A-3 EX-10.3 5 FORM OF EVEREST FOUNDER'S RESTRICTED STOCK AGMT 1 EXHIBIT 10.3 EVEREST DESIGN AUTOMATION INC. FOUNDER'S RESTRICTED STOCK PURCHASE AGREEMENT 2
TABLE OF CONTENTS PAGE ---- I. PURCHASE OF SHARES.......................................................................1 1.1 Purchase and Payment..............................................................1 1.2 Delivery of Certificates..........................................................1 1.3 Shareholder Rights................................................................1 II. SECURITIES LAW COMPLIANCE................................................................1 2.1 Exemption from Registration.......................................................1 2.2 Purchaser's Representations and Warranties........................................1 2.3 Disposition of Shares.............................................................3 2.4 Restrictive Legends...............................................................4 2.5 CALIFORNIA SECURITIES LAWS........................................................4 III. SPECIAL TAX ELECTION.....................................................................4 3.1 Section 83(b) Election............................................................4 3.2 Section 83(b) Election Acknowledgement............................................5 3.3 Valuation of Common Stock.........................................................5 IV. TRANSFER RESTRICTIONS....................................................................5 4.1 Definition of Owner...............................................................5 4.2 Restriction on Transfer...........................................................6 4.3 Transferee Obligations............................................................6 4.4 Market Stand-Off Provisions.......................................................6 V. REPURCHASE RIGHT.........................................................................7 5.1 Grant.............................................................................7 5.2 Exercise of the Repurchase Right..................................................7 5.3 Termination of the Repurchase Right/Vesting.......................................7 5.4 Fractional Shares.................................................................7 5.5 Additional Shares or Substituted Securities.......................................8 5.6 Corporate Transaction.............................................................8 5.7 Death/Disability..................................................................9 5.8 Assignment........................................................................9 VI. RIGHT OF FIRST REFUSAL..................................................................10 6.1 Grant............................................................................10 6.2 Notice of Intended Disposition...................................................10 6.3 Exercise of Right................................................................10 6.4 Non-Exercise of Right............................................................10 6.5 Partial Exercise of Right........................................................11 6.6 Recapitalization/Corporate Transaction...........................................11 6.7 Lapse............................................................................11 i
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TABLE OF CONTENTS (CONTINUED) PAGE ---- VII. ESCROW FOR UNVESTED SHARES..............................................................12 7.1 Deposit..........................................................................12 7.2 Recapitalization.................................................................12 7.3 Release/Surrender................................................................12 VIII. MARITAL DISSOLUTION OR LEGAL SEPARATION.................................................13 8.1 Grant............................................................................13 8.2 Notice of Decree or Agreement....................................................13 8.3 Exercise of Special Purchase Right...............................................13 8.4 Lapse............................................................................14 IX. GENERAL PROVISIONS......................................................................14 9.1 Assignment.......................................................................14 9.2 Definitions......................................................................14 9.3 No Waiver........................................................................15 9.4 Notices..........................................................................15 9.5 Cancellation of Shares...........................................................15 X. MISCELLANEOUS PROVISIONS................................................................16 10.1 Purchaser Undertaking............................................................16 10.2 Agreement is Entire Contract.....................................................16 10.3 Governing Law....................................................................16 10.4 Counterparts.....................................................................16 10.5 Successors and Assigns...........................................................16 10.6 Power of Attorney................................................................16 10.7 Severability.....................................................................17 10.8 No Construction as Employment Agreement..........................................17 10.9 Conflict Waiver..................................................................17 ii
4 EVEREST DESIGN AUTOMATION INC. FOUNDER'S RESTRICTED STOCK PURCHASE AGREEMENT THIS FOUNDER'S RESTRICTED STOCK PURCHASE AGREEMENT is made as of this ____ day of _____, _____, by and between Everest Design Automation Inc., a California corporation (the "Company") and _____________ (the "Purchaser"). I. PURCHASE OF SHARES 1.1 PURCHASE AND PAYMENT. Subject to the terms hereof, Purchaser hereby purchases, and the Company hereby sells to Purchaser, _____________________ shares of the Company's Common Stock (the "Shares") at the purchase price of ___________ per share (the "Purchase Price"). Concurrently with the delivery of this Agreement to the Company, Purchaser shall pay the aggregate Purchase Price for the Shares and shall deliver a duly-executed blank Assignment Separate from Certificate (in the form attached hereto as Exhibit C) with respect to the Shares. 1.2 DELIVERY OF CERTIFICATES. A copy of a certificate representing the Shares purchased hereunder shall be delivered to Purchaser upon the execution of this Agreement, provided, however, that all Unvested Shares (as such term is defined herein) shall be represented by the original certificate held in escrow by the Secretary of the Company as provided in Article VII of this Agreement. 1.3 SHAREHOLDER RIGHTS. Until such time as the Company actually exercises its Repurchase Right, First Refusal Right or Special Purchase Right under this Agreement, Purchaser or any successor in interest shall have all the rights of a shareholder (including voting and dividend rights) with respect to the Shares including the Shares held in escrow under Article VII subject, however, to the transfer restrictions of Article ______. II. SECURITIES LAW COMPLIANCE 2.1 EXEMPTION FROM REGISTRATION. The Shares have not been registered under the Securities Act of 1933, as amended (the "1933 Act"), and are accordingly being issued to Purchaser in reliance upon the exemption from such registration provided by Rule 701 of the Securities and Exchange Commission ("SEC") for stock issuances under compensatory benefit plans such as the compensation agreement of even date herewith. 2.2 PURCHASER'S REPRESENTATIONS AND WARRANTIES. Purchaser hereby confirms: (a) Purchase for Own Account for Investment. Purchaser is purchasing the Shares for Purchaser's own account for investment purposes only and not with a view to, or for sale in connection with, a distribution of the Shares within the meaning of the 1933 Act. Purchaser has no present intention of selling or otherwise disposing of all or any portion of the Shares. -1- 5 (b) Access to Information. Purchaser has had access to all information regarding the Company and its present and prospective business, assets, liabilities and financial condition that Purchaser reasonably considers important in making the decision to purchase the Shares. (c) Understanding of Risks. Purchaser is fully aware of: (i) the highly speculative nature of the investment in the Shares; (ii) the financial hazards involved; (iii) the lack of liquidity of the Shares and the restrictions on transferability of the Shares (e.g., that Purchaser may not be able to sell or dispose of the Shares or use them as collateral for loans); (iv) the qualifications and backgrounds of the management of the Company; and (v) the tax consequences of investment in the Shares. (d) Purchaser's Qualifications. Purchaser has a preexisting personal or business relationship with the Company and/or certain of its officers and/or directors of a nature and duration sufficient to make Purchaser aware of the character, business acumen and general business and financial circumstances of the Company and/or such officers and directors. By reason of Purchaser's business or financial experience, Purchaser is capable of evaluating the merits and risks of this investment, has the ability to protect Purchaser's own interests in this transaction and is financially capable of bearing a total loss of this investment. (e) No General Solicitation. At no time was Purchaser presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Shares. (f) Compliance with Securities Laws. Purchaser understands and acknowledges that, in reliance upon the representations and warranties made by Purchaser herein, the Shares are not being registered with the SEC under the 1933 Act or being qualified under the California Corporate Securities Law of 1968, as amended (the "Law"), but instead are being issued under an exemption or exemptions from the registration and qualification requirements of the 1933 Act and the Law which impose certain restrictions on Purchaser's ability to transfer the Shares. (g) Restrictions on Transfer. Purchaser understands that Purchaser may not transfer any Shares unless such Shares are registered under the 1933 Act or qualified under the Law or unless, in the opinion of counsel to the Company, exemptions from such registration and qualification requirements are available. Purchaser understands that only the Company may file a registration or qualification statement with the SEC or the California Commissioner of Corporations and that the Company is under no obligation to do so with respect to the Shares. Purchaser has also been advised that exemptions from registration and qualification may not be available or may not permit Purchaser to transfer all or any of the Shares in the amounts or at the times proposed by Purchaser. -2- 6 (h) Rule 144. In addition, Purchaser has been advised that SEC Rule 144 promulgated under the 1933 Act, which permits certain limited sales of unregistered securities, is not presently available with respect to the Shares and, in any event, requires that the Shares be held for a minimum of one year, and in certain cases two years, after they have been purchased and paid for (within the meaning of Rule 144), before they may be resold under Rule 144. Purchaser understands that Rule 144 may indefinitely restrict transfer of the Shares so long as Purchaser remains an "affiliate" of the Company and "current public information" about the Company (as defined in Rule 144) is not publicly available. (i) Rule 701. The Shares will become freely tradeable by non-affiliates under SEC Rule 701 promulgated under the 1933 Act, subject to limited conditions regarding the method of sale, 90 days after the first sale of common stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC, subject to the lengthier market standoff agreement contained in this Agreement or any other agreement entered into by Purchaser, provided, however, that affiliates must comply with the provisions (other than the holding period requirements) of Rule 144. 2.3 DISPOSITION OF SHARES. Purchaser hereby agrees that Purchaser shall make no disposition of the Shares unless and until there is compliance with all of the following requirements: (a) Purchaser shall have notified the Company of the proposed disposition and provided a written summary of the terms and conditions of the proposed disposition. (b) Purchaser shall have complied with all requirements of this Agreement applicable to the disposition of the Shares. (c) Purchaser shall have provided the Company with written assurances, in form and substance satisfactory to the Company, that (i) the proposed disposition does not require registration of the Shares under the 1933 Act or (ii) all appropriate action necessary for compliance with the registration requirements of the 1933 Act or for compliance with an exemption from registration available under the 1933 Act (including Rule 144) has been taken. (d) Purchaser shall have provided the Company with written assurances, in form and substance satisfactory to the Company, that the proposed disposition will not result in the contravention of any transfer restrictions applicable to the Shares pursuant to the provisions of Article IV. The Company shall not be required (i) to transfer on its books any Shares which have been sold or transferred in violation of the provisions of this Article _____ or (ii) to treat as the owner of the Shares, or otherwise to accord voting or dividend rights to, any transferee to whom the Shares have been transferred in contravention of this Agreement. -3- 7 2.4 RESTRICTIVE LEGENDS. In order to reflect the restrictions on disposition of the Shares, the stock certificates for the Shares may be endorsed with restrictive legends, including one or more of the following legends: (a) "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended. The shares may not be sold or offered for sale in the absence of (1) an effective registration statement for the shares under such Act, (2) a `no action' letter of the Securities and Exchange Commission with respect to such sale or offer, or (3) satisfactory assurances to the Company that registration under such Act is not required with respect to such sale or offer." (b) "The shares represented by this certificate may not be sold, assigned, transferred, encumbered, or in any manner disposed of except in conformity with the terms of a written agreement between the Company and the registered holder of the shares and spouse, if applicable (or the predecessor in interest to the shares). Such agreement grants certain repurchase rights, rights of first refusal and/or special purchase rights to the Company (or its assignees) upon the sale, assignment, transfer, encumbrance or other disposition of the Company's shares or upon termination of service with the Company. The Company will upon written request furnish a copy of such agreement to the holder hereof without charge." (c) If required by the authorities of any state in connection with the issuance of the Shares, the legend or legends required by such state authorities shall also be endorsed on all such certificates. (d) Any other legend or legends required under any agreement entered into by the Company, the Purchaser and third parties relating to the issuance and sale of Preferred Stock of the Company. 2.5 CALIFORNIA SECURITIES LAWS. "THE SALE OF THE SHARES HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, AND THE ISSUANCE OF SUCH SHARES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SUCH SHARES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UNLESS THE SALE IS SO EXEMPT. III. SPECIAL TAX ELECTION 3.1 SECTION 83(b) ELECTION. Purchaser understands that under Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"), the excess of the fair market value of the Shares on the date any forfeiture restrictions applicable to the Shares lapse over the Purchase Price paid for the Shares will be reportable as ordinary income at that time. For this purpose, the term "forfeiture restrictions" includes the right of the Company to repurchase a portion of the Shares pursuant to the -4- 8 Repurchase Right provided under Article ______ of this Agreement. Purchaser understands, however, that Purchaser may elect to be taxed at the time such Shares are acquired hereunder, rather than when and as such Shares cease to be subject to such forfeiture restrictions, by filing an election under Section 83(b) of the Code with the Internal Revenue Service WITHIN THIRTY (30) DAYS AFTER THE DATE OF THIS AGREEMENT. Even if the fair market value of the Shares at the date of this Agreement equals the Purchase Price paid (and thus no tax is payable), the election must be made to avoid adverse tax consequences in the future. The form for making this election is attached as Exhibit A hereto. Purchaser understands that failure to make this filing within the thirty (30) day period will result in the recognition of ordinary income by Purchaser as the forfeiture restrictions lapse. 3.2 SECTION 83(b) ELECTION ACKNOWLEDGEMENT. PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY, AND NOT THE COMPANY'S, TO FILE A TIMELY ELECTION UNDER SECTION 83(B), EVEN IF PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS BEHALF. 3.3 VALUATION OF COMMON STOCK. Purchaser understands that the Shares have been valued by the Board of Directors and that the Company believes this valuation represents a fair attempt at reaching an accurate appraisal of their worth; Purchaser understands, however, that the Company can give no assurances that such price is in fact the fair market value of the Shares and that it is possible that, with the benefit of hindsight, the Internal Revenue Service would successfully assert that the value of the Shares on the date of purchase is substantially greater than so determined. If the Internal Revenue Service were to succeed in a tax determination that the Shares received had value greater than that upon which the transaction was based, the additional value would constitute ordinary income as of the date of its receipt. The additional taxes (and interest) due would be payable by Purchaser, and there is no provision for the Company to reimburse Purchaser for that tax liability, and Purchaser assumes all responsibility for such potential tax liability. In the event that such additional value would represent more than twenty-five (25) percent of Purchaser's gross income for the year in which the value of the Shares was taxable, the Internal Revenue Service would have six years from the due date for filing the return (or the actual filing date of the return if filed thereafter) within which to assess Purchaser the additional tax and interest which would then be due. The Company would have the benefit, in any such transaction, if a determination was made prior to the three year statute of limitations period affecting the Company, of an increase in its deduction for compensation paid, which would offset its operating profits, or, if not profitable, would create net operating loss carry forward arising from operations in that year. IV. TRANSFER RESTRICTIONS 4.1 DEFINITION OF OWNER. For purposes of Articles ______, VI, VIII, IX and X, the term "Owner" shall include Purchaser and all subsequent holders of the Shares. -5- 9 4.2 RESTRICTION ON TRANSFER. Owner shall not transfer, assign, encumber or otherwise dispose of any of the Shares which are subject to the Company's Repurchase Right under Article ______ below. In addition, shares which are released from the Repurchase Right shall not be transferred, assigned, encumbered or otherwise made the subject of disposition in contravention of the Company's First Refusal Right under Article VI. Such restrictions on transfer, however, shall not be applicable to: (i) any gratuitous transfer of the Shares to any spouse or member of Founder's immediate family (including adopted children), or to a custodian, trustee (including a trustee of a voting trust), executor or other fiduciary for the account of his spouse or members of his immediate family, or to a trust for himself, or a charitable remainder trust, provided and only if Owner obtains the Company's prior written consent to such transfer; (ii) a transfer of title to the Shares effected pursuant to Owner's will or the laws of intestate succession; (iii) a transfer to the Company in pledge as security for any purchase-money indebtedness incurred by Owner in connection with the acquisition of the Shares; or (iv) up to fifteen percent (15%) of the Shares, provided that, in each case, each such transferee or assignee, prior to the completion of the sale, transfer or assignment shall have executed documents assuming the obligations of the Founder under this Agreement with respect to the transferred securities. 4.3 TRANSFEREE OBLIGATIONS. Each person (other than the Company) to whom the Shares are transferred by means of one of the permitted transfers specified in paragraph 4.2 must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Company that such person is bound by the provisions of this Agreement and that the transferred shares are subject to (i) the Company's Repurchase Right, the Company's First Refusal Right and the Company's Special Purchase Right granted under this Agreement and (ii) the market stand-off provisions of paragraph ______, to the same extent such Shares would be so subject if retained by Owner. 4.4 MARKET STAND-OFF PROVISIONS. (a) In connection with the first underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the 1933 Act, Owner shall not sell, make any short sale of, loan, hypothecate, pledge, grant any option for the purchase of, or otherwise dispose or transfer for value or otherwise agree to engage in any of the foregoing transactions with respect to, any Shares without the prior written consent of the Company and its underwriters. Such limitations shall be in effect for such period of time from and after the effective date of such registration statement as may be requested by the Company or its underwriters; provided, however, that in no event shall such period exceed one hundred-eighty (180) days. (b) In the event of any stock dividend, stock split, recapitalization or other change affecting the Company's outstanding Common Stock effected without receipt of consideration, then any new, substituted or additional securities distributed with respect to the Shares shall be immediately subject to the provisions of this paragraph ______, to the same extent the Shares are at such time covered by such provisions. -6- 10 (c) In order to enforce the limitations of this paragraph ______, the Company may impose stop-transfer instructions with respect to the Shares until the end of the applicable stand-off period. V. REPURCHASE RIGHT 5.1 GRANT. The Company is hereby granted the right (the "Repurchase Right"), exercisable at any time during the sixty (60)-day period following the date Purchaser for any reason ceases to be a Service Provider (as such term is defined below) to the Company, to repurchase at the Purchase Price all or (at the discretion of the Company) any portion of the Shares in which Purchaser has not acquired a vested interest in accordance with the vesting provisions of paragraph ______ hereof and Exhibit B hereto (such shares to be hereinafter called the "Unvested Shares"). For purposes of this Agreement, Purchaser shall be deemed to be a "Service Provider" to the Company for so long as Purchaser performs services on at least a periodic basis for the Company in the capacity as an employee of, or an independent consultant or advisor to, the Company or any parent, subsidiary or affiliate of the Company pursuant to an agreement. 5.2 EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall be exercisable by written notice delivered to Purchaser prior to the expiration of the applicable sixty (60)-day period specified in paragraph ______ hereof. The notice shall indicate the number of Unvested Shares to be repurchased and the date on which the repurchase is to be effected, such date to be not more than thirty (30) days after the date of notice. The Company shall, concurrently with the receipt of the stock certificates from escrow in accordance with paragraph ______ hereof, pay to Purchaser in cash or cash equivalents an amount equal to the purchase price originally paid by Purchaser for the Unvested Shares which are to be repurchased by the Company. 5.3 TERMINATION OF THE REPURCHASE RIGHT/VESTING. The Repurchase Right shall terminate and Purchaser's interest shall vest with respect to any Unvested Shares for which the Company has not timely exercised its Repurchase Right pursuant to paragraph ______ of this Agreement. The Repurchase Right shall lapse and cease to be exercisable, and Purchaser's interest shall vest, with respect to any and all Shares in accordance with the schedule set forth on Exhibit B attached hereto, or as otherwise set forth in Sections 5.6 and 5.7 below. Accordingly, subject to the terms of this Agreement, as, and provided that the Purchaser continues as a Service Provider, the Purchaser shall acquire a vested interest in, and the Repurchase Right shall lapse with respect to, the Shares in accordance with the schedule as set forth in Exhibit B or as otherwise set forth in Sections 5.6 and 5.7 below. All Shares as to which the Repurchase Right lapses shall, however, continue to be subject to: (1) the First Refusal Right of Article VI, (2) the market stand-off provisions of paragraph 4.4. and (3) the Special Purchase Right of Article VIII. The vesting provisions of this paragraph 5.3 (together with Exhibit B) shall be subject to the provisions of paragraph 5.6 of this Agreement. 5.4 FRACTIONAL SHARES. No fractional shares shall be repurchased by the Company. Accordingly, should the Repurchase Right extend to a fractional share (in accordance with the vesting computation provisions of paragraph ______ hereof) at the time Purchaser ceases to be a -7- 11 Service Provider, then such fractional share shall be added to any fractional share in which Purchaser is at such time vested in order to make one whole vested share no longer subject to the Repurchase Right. 5.5 ADDITIONAL SHARES OR SUBSTITUTED SECURITIES. In the event of any stock dividend, stock split, recapitalization, or other change affecting the Company's outstanding Common Stock as a class effected without receipt of consideration, then any new, substituted, or additional securities or other property which is by reason of any such transaction distributed with respect to the Shares shall be immediately subject to the Repurchase Right, but only to the extent the Shares are at the time covered by such right. Appropriate adjustments to reflect the distribution of such securities or property shall be made to the number of Shares hereunder and to the price per share to be paid upon the exercise of the Repurchase Right in order to reflect the effect of any such transaction upon the Company's capital structure; provided, however, that the aggregate repurchase price shall remain the same. 5.6 CORPORATE TRANSACTION. In the event of any of the following transactions (a "Corporate Transaction"): (a) a merger or acquisition in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the State in which the Company is incorporated; or (b) the sale, transfer or other disposition of all or substantially all of the assets of the Company; or (c) any merger in which the Company is the surviving entity but in which fifty percent (50%) or more of the Company's outstanding voting stock is transferred in a single transaction or a series of related transactions to holders different from those who held the stock of the Company immediately prior to such merger, and Purchaser either (i) is not offered full-time employment with the Company or its successor immediately following the Corporate Transaction or (ii) is offered full-time employment with the Company or its successor at the Corporate Transaction date, but is subsequently Terminated Without Cause (as defined below) by the Company or its successor after the consummation date of the Corporate Transaction, then the Company's Repurchase Right shall automatically lapse as to the lesser of the remaining Unvested Shares as of Purchaser's termination date or 25% of the Shares (i.e., 375,000 additional Shares or such lesser number as remains Unvested, in either case together with the Shares that have already vested), and Purchaser shall also acquire a vested interest in such 375,000 additional Shares (or such lesser number as remains Unvested). Under no circumstances shall Purchaser acquire a vested interest in shares of the Company's Common Stock in excess of the Shares (as adjusted for stock splits, stock dividends and the like). "Termination Without Cause" shall mean, without Purchaser's express written consent: (i) the hiring or any executive officer in replacement of Purchaser; (ii) a reassignment that materially adversely affects Purchaser's position with the Company (or any successor), responsibilities, duties or status as in effect immediately prior -8- 12 to such reassignment; (iii) a reduction by the Company (or its successor) in the compensation and benefits of the Purchaser as in effect immediately prior to such reduction unless such reduction is authorized by the Board of Directors and is proportionate to the reduction made to the compensation and benefits of all employees of the Company (or its successor) with positions, responsibilities, duties and status comparable to Purchaser's; or (iv) the relocation of Purchaser to a facility or a location more than 40 miles from Purchaser's then principal place of employment. 5.7 DEATH/DISABILITY. (a) Should Purchaser die during the term that any of the Shares remain subject to the Company's Repurchase Right, then at the time of death, the Company's Repurchase Right shall lapse with respect to, and Purchaser shall acquire a vested interest in, the lesser of the remaining Unvested Shares as of the date of death or an additional 375,000 shares, over and above any portion of the Shares which have already vested. Under no circumstances shall Purchaser acquire a vested interest in shares of the Company's Common Stock in excess of the Shares (as adjusted for stock splits, stock dividends and the like). The personal representative of Purchaser's estate or the person or persons to whom such vested Shares shall be transferred pursuant to Purchaser's will or in accordance with the law of descent and distribution shall have the right to receive all such vested Shares, including those vested on the basis of Purchaser's service to the Company and those vested on the basis of acceleration. (b) Should Purchaser become permanently disabled and cease by reason thereof to be a Service Provider at any time during the term that any of the Shares remain subject to the Company's Repurchase Right, then at the time of disability, the Company's Repurchase Right shall lapse with respect to, and Purchaser shall acquire a vested interest in, the lesser or the remaining Unvested Shares as of the date of disability or an additional 375,000 Shares, over and above any portion of the Shares which have already vested. Under no circumstances shall Purchaser acquire a vested interest in shares of the Company's Common Stock in excess of the Shares (as adjusted for stock splits, stock dividends and the like). Purchaser shall be deemed to be permanently disabled if Purchaser is, by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of not fewer than twelve (12) consecutive months, unable to perform his usual duties for the Company or the parent or subsidiary corporation retaining his services. 5.8 ASSIGNMENT. The Company may assign its Repurchase Right under this Article ______ to any person or entity selected by the Company's Board of Directors, including (without limitation) one or more shareholders of the Company, provided that the Repurchase Right shall not extend beyond the sixty (60)-day period described in paragraph ______ hereof. In the event that the Company and such assignees do not elect to exercise the Repurchase Right as to all of the Unvested Shares subject thereto, the Repurchase Right shall expire as to all shares which the Company and such assignees have not elected to purchase. -9- 13 VI. RIGHT OF FIRST REFUSAL 6.1 GRANT. The Company is hereby granted the right of first refusal (the "First Refusal Right"), exercisable in connection with any proposed transfer of the Shares. For purposes of this Article VI, the term "transfer" shall include any sale, assignment, pledge, encumbrance or other disposition for value of the Shares intended to be made by the Owner, but shall not include any of the permitted transfers under paragraph 4.2. 6.2 NOTICE OF INTENDED DISPOSITION. In the event the Owner desires to accept a bona fide third-party offer for any or all of the Shares (the shares subject to such offer to be hereinafter called the "Target Shares"), Owner shall promptly (i) deliver to the Corporate Secretary of the Company written notice (the "Disposition Notice") of the terms and conditions of the offer, including the purchase price and the identity of the third-party offeror and (ii) provide satisfactory proof that the disposition of the Target Shares to such third-party offeror would not be in contravention of the provisions set forth in Articles II and IV of this Agreement. 6.3 EXERCISE OF RIGHT. The Company (or its assignees) shall, for a period of twenty-five (25) days following receipt of the Disposition Notice, have the right to repurchase any or all of the Target Shares specified in the Disposition Notice upon substantially the same terms and conditions specified therein. Such right shall be exercisable by delivery of written notice (the "Exercise Notice") to Owner prior to the expiration of the twenty-five (25) day exercise period. If such right is exercised with respect to all the Target Shares specified in the Disposition Notice, then the Company (or its assignees) shall effect the repurchase of the Target Shares, including payment of the purchase price, not more than five (5) business days after delivery of the Exercise Notice; and at such time Owner shall deliver to the Company the certificates representing the Target Shares to be repurchased, each certificate to be properly endorsed for transfer. To the extent any of the Target Shares are vested but are, at the time, still held in escrow under Article VII, the certificates for such shares shall automatically be released from escrow and delivered to the Company for purchase. 6.4 NON-EXERCISE OF RIGHT. In the event the Exercise Notice is not given to Owner within twenty-five (25) days following the date of the Company's receipt of the Disposition Notice, Owner shall have a period of thirty (30) days thereafter in which to sell or otherwise dispose of the Target Shares to the third-party offeror identified in the Disposition Notice upon terms and conditions (including the purchase price) no more favorable to such third-party offeror than those specified in the Disposition Notice; provided, however, that any such sale or disposition must not be effected in contravention of the provisions of Article II of this Agreement. To the extent any of the Target Shares are at the time held in escrow under Article VII, the certificates for such shares shall automatically be released from escrow and surrendered to the Owner. The acquired shares shall remain subject to (i) the securities law restrictions under Article II, (ii) the Company's First Refusal Right under this Article VI, (iii) the Transfer Restrictions of Article 4, including but not limited to the market stand-off provisions of paragraph 4.4 and (iv) the Company's Special Purchase Right under Article VIII. In the event Owner does not effect such sale or disposition of the Target Shares within the specified thirty (30) day period, the Company's First Refusal Right shall continue to be -10- 14 applicable to any subsequent disposition of the Target Shares by Owner until such right lapses in accordance with paragraph ______. 6.5 PARTIAL EXERCISE OF RIGHT. In the event the Company (or its assignees) makes a timely exercise of the First Refusal Right with respect to a portion, but not all, of the Target Shares specified in the Disposition Notice, Owner shall have the option, exercisable by written notice to the Company delivered within thirty (30) days after the date of the Disposition Notice, to effect the sale of the Target Shares pursuant to one of the following alternatives: (a) sale or other disposition of all the Target Shares to the third-party offeror identified in the Disposition Notice, but in full compliance with the requirements of paragraph 6.4, as if the Company did not exercise the First Refusal Right hereunder; or (b) sale to the Company (or its assignees) of the portion of the Target Shares which the Company (or its assignees) has elected to purchase, such sale to be effected in substantial conformity with the provisions of this Agreement. Failure of Owner to deliver timely notification to the Company under this paragraph 6.5 shall be deemed to be an election by Owner to sell the Target Shares pursuant to alternative (a) above. 6.6 RECAPITALIZATION/CORPORATE TRANSACTION. (a) In the event of any stock dividend, stock split, recapitalization or other transaction affecting the Company's outstanding Common Stock as a class effected without receipt of consideration, then any new, substituted or additional securities or other property which is by reason of such transaction distributed with respect to the Shares shall be immediately subject to the Company's First Refusal Right hereunder. (b) In the event of a Corporate Transaction, the Company's First Refusal Right shall remain in full force and effect and shall apply to the new capital stock or other property received in exchange for the Shares in consummation of the Corporate Transaction. 6.7 LAPSE. The First Refusal Right under this Article VI shall lapse and cease to have effect upon the earliest to occur of (i) the first date on which shares of the Company's Common Stock are held of record by more than five hundred (500) persons, (ii) a determination is made by the Company's Board of Directors that a public market exists for the outstanding shares of the Company's Common Stock, or (iii) a firm commitment underwritten public offering pursuant to an effective registration statement under the 1933 Act, covering the offer and sale of the Company's Common Stock sufficient to cause an automatic conversion of the preferred stock into Common Stock pursuant to the Company's then existing Articles of Incorporation. However, the market stand-off provisions of paragraph 4.4 shall continue to remain in full force and effect following the lapse of the First Refusal Right hereunder. -11- 15 VII. ESCROW FOR UNVESTED SHARES 7.1 DEPOSIT. Upon issuance, the certificate for the Unvested Shares shall be deposited in escrow with the Secretary of the Company to be held in accordance with the provisions of this Article VII. Such deposited certificate shall be accompanied by a duly executed Assignment Separate from Certificate in the form of Exhibit C attached hereto. The deposited certificate, together with any other assets or securities from time to time deposited with the Company pursuant to the requirements of this Agreement, shall remain in escrow until such time or times as the certificate (or other assets and securities) shall be released or otherwise surrendered for cancellation in accordance with paragraph 7.3 of this Agreement. 7.2 RECAPITALIZATION. Any cash dividends on the Shares (or other securities at the time held in escrow) shall be paid directly to Purchaser and shall not be held in escrow. However, in the event of any stock dividend, stock split, recapitalization, or other change affecting the Company's outstanding Common Stock as a class effected without receipt of consideration or in the event of a Corporate Transaction any new, substituted, or additional securities or other property which is by reason of such event distributed with respect to the Shares shall be immediately delivered to the Company to be held in escrow under this Article VII, but only to the extent the Shares are at the time subject to the escrow requirements of paragraph 7.1. 7.3 RELEASE/SURRENDER. The Unvested Shares, together with any other assets or securities held in escrow hereunder, shall be subject to the following terms and conditions relating to their release from escrow or their surrender to the Company for repurchase and cancellation: (a) Should the Company (or its assignees) elect to exercise the Repurchase Right under Article ______ with respect to any Unvested Shares, then the escrowed certificates for such Unvested Shares (together with any other assets or securities issued with respect thereto) shall be delivered to the Company for cancellation, concurrently with the payment to Purchaser, in cash or cash equivalent, of an amount equal to the aggregate Purchase Price for such Unvested Shares, and Purchaser shall cease to have any further rights or claims with respect to such Unvested Shares (or other assets or securities). (b) Should the Company (or its assignees) elect to exercise its First Refusal Right under Article VI with respect to any vested Target Shares held at the time in escrow hereunder, then the escrowed certificates for such Target Shares (together with any other assets or securities attributable thereto) shall, concurrently with the payment of the paragraph 6.3 purchase price for such Target Shares to the Purchaser, be surrendered to the Company, and the Purchaser shall cease to have any further rights or claims with respect to such Target Shares (or other assets or securities). (c) Should the Company (or its assignees) elect not to exercise its First Refusal Right under Article VI with respect to any vested Target Shares held at the time in escrow hereunder, then the escrowed certificates for such Target Shares (together with any other -12- 16 assets or securities attributable thereto) shall be surrendered to the Purchaser for disposition in accordance with the provisions of paragraph 6.4. (d) As the interest of Purchaser in the Shares (or any other assets or securities issued with respect thereto) vests in accordance with the provisions of Article ______, the certificates for such vested shares (as well as all other vested assets and securities) shall be released from escrow and delivered to Purchaser upon the request of Purchaser, but no more frequently than every six (6) months. (e) Upon any earlier termination of the Company's Repurchase Right in accordance with the applicable provisions of Article V, the Shares (or other assets or securities) at the time held in escrow hereunder shall promptly be released to the Purchaser as fully-vested shares or other property. (f) All Shares (or other assets or securities) released from escrow in accordance with the provisions of subparagraphs (c), (d) and (e) above shall nevertheless remain subject to all other restrictions applicable thereto, including without limitation (i) the securities law restrictions under Article II, (ii) the Company's First Refusal Right under Article VI, (iii) the Transfer Restrictions of Article IV, including but not limited to the market stand-off provisions of paragraph 4.4 and (iv) the Company's Special Purchase Right under Article VIII. VIII. MARITAL DISSOLUTION OR LEGAL SEPARATION 8.1 GRANT. In connection with the dissolution of the Owner's marriage or the legal separation of the Owner and the Owner's spouse, the Company shall have the right (the "Special Purchase Right"), exercisable at any time during the thirty (30)-day period following the Company's receipt of the required Dissolution Notice under paragraph 8.2, to purchase from the Owner's spouse, in accordance with the provisions of paragraph 8.3, all or any portion of the Shares which would otherwise be awarded to such spouse in settlement of any community property or other marital property rights such spouse may have in such shares. 8.2 NOTICE OF DECREE OR AGREEMENT. The Owner shall promptly provide the Secretary of the Company with written notice (the "Dissolution Notice") of (i) the entry of any judicial decree or order resolving the property rights of the Owner and the Owner's spouse in connection with their marital dissolution or legal separation or (ii) the execution of any contract or agreement relating to the distribution or division of such property rights. The Dissolution Notice shall be accompanied by a copy of the actual decree of dissolution or settlement agreement between the Owner and the Owner's spouse which provides for the award to the spouse of one or more of the Shares in settlement of any community property or other marital property rights such spouse may have in such shares. 8.3 EXERCISE OF SPECIAL PURCHASE RIGHT. The Special Purchase Right shall be exercisable by delivery of a Purchase Notice to the Owner and the Owner's spouse within thirty (30) -13- 17 days after the Company's receipt of the Dissolution Notice. The Purchase Notice shall indicate the number of shares to be purchased by the Company, the date such purchase is to be effected (such date to be not less than five (5) business days, nor more than fifteen (15) business days, after the date of the Purchase Notice), and the fair market value to be paid for such Shares. The Owner (or the Owner's spouse, to the extent such spouse has physical possession of the Shares) shall, prior to the close of business on the date specified for the purchase, deliver to the Corporate Secretary of the Company the certificates representing the shares to be purchased, and each certificate shall be properly endorsed for transfer. To the extent any of the shares to be purchased by the Company are at the time held in escrow under Article VII, the certificates for such shares shall be promptly delivered out of escrow to the Company. The Company shall, concurrently with the receipt of the stock certificates, pay to the Owner's spouse (in cash or cash equivalents) an amount equal to the fair market value specified for such shares in the Purchase Notice. If the Owner's spouse does not agree with the fair market value specified for the shares in the Purchase Notice, then the spouse shall promptly notify the Company in writing of such disagreement and the fair market value of such shares shall thereupon be determined by an appraiser of recognized standing selected by the Company and the spouse. If they cannot agree on an appraiser within twenty (20) days after the date of the Purchase Notice, each shall select an appraiser of recognized standing, and the two appraisers shall designate a third appraiser of recognized standing whose appraisal shall be determinative of such value. The cost of the appraisal shall be shared equally by the Company and the Owner's spouse. The closing shall then be held on the fifth business day following the completion of such appraisal; provided, however, that if the appraised value is more than twenty-five percent (25%) greater than the fair market value specified for the shares in the Purchase Notice, the Company shall have the right, exercisable prior to the expiration of such fifteen (15) business-day period, to rescind the exercise of the Special Purchase Right and thereby revoke its election to purchase the shares awarded to the spouse. 8.4 LAPSE. The Special Purchase Right under this Article VIII shall lapse and cease to have effect upon the earlier to occur of (i) the first date on which the First Refusal Right under Article VI lapses or (ii) the expiration of the thirty (30)-day exercise period specified in paragraph 8.3, to the extent the Special Purchase Right is not timely exercised in accordance with such paragraph. IX. GENERAL PROVISIONS 9.1 ASSIGNMENT. The Company may assign its Repurchase Right under Article V, its First Refusal Right under Article VI and/or its Special Purchase Right under Article VIII to any person or entity selected by the Company's Board of Directors, including (without limitation) one or more shareholders of the Company. 9.2 DEFINITIONS. For purposes of this Agreement, the following provisions shall be applicable in determining the parent and subsidiary corporations of the Company: -14- 18 (a) Any corporation (other than the Company) in an unbroken chain of corporations ending with the Company shall be considered to be a parent corporation of the Company, provided each such corporation in the unbroken chain (other than the Company) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (b) Each corporation (other than the Company) in an unbroken chain of corporations beginning with the Company shall be considered to be a subsidiary of the Company, provided each such corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 9.3 NO WAIVER. The failure of the Company (or its assignees) in any instance to exercise the Repurchase Right granted under Article ______, or the failure of the Company (or its assignees) in any instance to exercise the First Refusal Right granted under Article VI, or the failure of the Company (or its assignees) in any instance to exercise the Special Purchase Right granted under Article VIII, shall not constitute a waiver of any other repurchase rights, rights of first refusal and/or special purchase rights that may subsequently arise under the provisions of this Agreement or any other agreement between the Company and the Owner or the Owner's spouse. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature. 9.4 NOTICES. Any notice required in connection with (i) the Repurchase Right, Special Purchase Right or the First Refusal Right or (ii) the disposition of any Shares covered thereby shall be given in writing and shall be deemed effective upon personal delivery or upon deposit in the United States mail, registered or certified, postage prepaid and addressed to the party entitled to such notice at the address indicated below such party's signature line on this Agreement or at such other address as such party may designate by ten (10) days advance written notice under this paragraph 9.4 to all other parties to this Agreement. 9.5 CANCELLATION OF SHARES. If the Company (or its assignees) shall make available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Shares to be repurchased in accordance with the provisions of this Agreement, then from and after such time, the person from whom such shares are to be repurchased shall no longer have any rights as a holder of such shares (other than the right to receive payment of such consideration in accordance with this Agreement), and such shares shall be deemed purchased in accordance with the applicable provisions hereof and the Company (or its assignees) shall be deemed the owner and holder of such shares, whether or not the certificates therefor have been delivered as required by this Agreement. -15- 19 X. MISCELLANEOUS PROVISIONS 10.1 PURCHASER UNDERTAKING. Purchaser hereby agrees to take whatever additional action and execute whatever additional documents the Company may in its judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on either Purchaser or the Shares pursuant to the express provisions of this Agreement. In particular, but without limitation, the Purchaser hereby agrees, concurrently with the execution of this Agreement, to deliver two (2) duly executed blank Assignment Separate from Certificate forms (in substantially the form attached hereto as Exhibit C). 10.2 AGREEMENT IS ENTIRE CONTRACT. This Agreement (and consulting agreement attached hereto) constitutes the entire contract between the parties hereto with regard to the subject matter hereof. Purchaser acknowledges that this Agreement supersedes all previous understandings, written or oral, with respect to the subject matter hereof. 10.3 GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California, as such laws are applied to contracts entered into and performed in such State without resort to that State's conflict-of-laws rules. 10.4 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 10.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns and Owner and Owner's legal representatives, heirs, legatees, distributees, assigns and transferees by operation of law or otherwise, whether or not any such person shall have become a party to this Agreement and have agreed in writing to join herein and be bound by the terms and conditions hereof. 10.6 POWER OF ATTORNEY. Purchaser's spouse hereby appoints Purchaser his or her true and lawful attorney in fact, for him or her and in his or her name, place and stead, and for his or her use and benefit, to agree to any amendment or modification of the Agreement and to execute such further instruments and take such further actions as may reasonably be necessary to carry out the intent of this Agreement. Purchaser's spouse further gives and grants unto Purchaser as his or her attorney in fact full power and authority to do and perform every act necessary and proper to be done in the exercise of any of the foregoing powers as fully as he or she might or could do if personally present, with full power of substitution and revocation, hereby ratifying and confirming all that Purchaser shall lawfully do and cause to be done by virtue of this power of attorney. -16- 20 10.7 SEVERABILITY. In the event that any of the provisions of this Agreement shall be held by a court or other tribunal of competent jurisdiction to be illegal, invalid or unenforceable, such provisions shall be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect. 10.8 NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this Agreement shall be construed as giving Purchaser any right to be retained in the employ of the Company. 10.9 CONFLICT WAIVER. Each of the parties to this Agreement understands that Brobeck, Phleger & Harrison LLP is serving as counsel to the Company in connection with the purchase and sale of the Common Stock and the transactions contemplated thereby, and that discussion of such transactions with Purchaser and the other founders of the Company (collectively, the "Founders") could be construed to create a conflict of interest. By executing this Agreement, the parties hereto acknowledge the potential conflict of interest and waive the right to claim any conflict of interest at a later date. Furthermore, by executing this Agreement, the parties acknowledge that if a conflict of interest exists and any litigation arises between the Founders and the Company as a result of the purchase and sale of the Common Stock, Brobeck, Phleger & Harrison LLP would represent the Company. The Purchaser also represents and warrants that he has had the opportunity to seek independent counsel in his review of this and all related Agreements. [Remainder of Page Intentionally Blank] -17- 21 [Signature Page to Founder's Restricted Stock Purchase Agreement] IN WITNESS WHEREOF, the parties have executed this Founder's Restricted Stock Purchase Agreement on the day and year first indicated above. EVEREST DESIGN AUTOMATION INC. By: -------------------------- Address: ------------------------------ ------------------------------ Purchaser(1) ------------------------------ Address: ------------------------------ ------------------------------ The undersigned spouse of Purchaser has read and hereby approves the foregoing Founder's Restricted Stock Purchase Agreement. In consideration of the Company's granting the Purchaser the right to acquire the Shares in accordance with the terms of such Agreement, the undersigned hereby agrees to be irrevocably bound by all the terms and provisions of such Agreement, including (specifically) the right of the Company (or its assignees) to purchase any and all interest or right the undersigned may otherwise have in such shares pursuant to community property laws or other marital property rights. Purchaser's Spouse ----------------------------- - -------- (1) I have received, completed, executed and retained the I.R.C. Section 83(b) election that was attached hereto as Exhibit A. I understand that I, and not the Company, will be responsible for completing the form and filing the election with the appropriate office of the federal and state tax authorities and that if such filing is not completed within thirty (30) days after the date of this Agreement, I will forfeit the significant tax benefits of Section 83(b). I understand further that such filing should be made by registered or certified mail, return receipt requested, and that I must retain two (2) copies of the completed form for filing with my state and federal tax returns the current tax year and an additional copy for my records. 22 EXHIBIT A 83(b) TAX ELECTION This statement is being made under Section 83(b) of the Internal Revenue Code, pursuant to Treas. Reg. Section 1.83-2. (1) The taxpayer who performed the services is: Name: -------------------------------------- Address: ----------------------------------- Taxpayer Ident. No.: ----------------------- Taxable Year: ------------------------------ (2) The property with respect to which the election is being made is ___________ shares of the Common Stock of Everest Design Automation Inc. (3) The property was issued on _____________. (4) The property is subject to a repurchase right pursuant to which the issuer has the right to acquire the property at the original purchase price if taxpayer's service relationship with the issuer ceases. The repurchase right lapses in installments, 25% upon the end of one (1) year after ______________ and the remaining 75% in a series of equal monthly installments over the three (3)-year period thereafter, until taxpayer is fully vested. The Company's repurchase right shall lapse in certain, predetermined portions upon the occurrence of other specified events. (5) The fair market value at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) is _____________ per share. (6) The amount paid for such property is ______________ per share. (7) A copy of this statement was furnished to Everest Design Automation Inc. to which taxpayer rendered the services underlying the transfer of property. (8) This statement is executed as of: ________________. - -------------------------------------------------------------------------------- Taxpayer Spouse (if any) This form must be filed with the Internal Revenue Service Center with which taxpayer files his/her Federal income tax returns. The filing must be made within thirty (30) days after the execution date of the Restricted Stock Purchase Agreement. 23 EXHIBIT B EVEREST DESIGN AUTOMATION INC. VESTING SCHEDULE The Company's Repurchase Right shall lapse and Purchaser shall acquire a vested interest with respect to the Shares in installments as follows: the first 25% of the Shares shall vest upon the completion of one (1) full year of continuous service to the Company, starting from _____________, and the remaining 75% of the Shares shall vest in a series of equal monthly installments of ___________ shares over the three (3)-year period of continuous service to the Company thereafter, such that all of the Shares shall be fully vested in four full (4) years from _______________. Except as otherwise provided for in Article V of this Agreement, in no event shall any additional Shares vest after Purchaser ceases to be a Service Provider to the Company. 24 EXHIBIT C ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ____________________________________________________ (_______) shares of the Common Stock of Everest Design Automation Inc. (the "Company") standing in the undersigned's name on the books of the Company represented by Certificate No. herewith and does hereby irrevocably constitute and appoint Attorney to transfer such Common Stock on the books of the within named Company with full power of substitution in the premises. Dated: --------------------- -------------------------------------- (Signature) -------------------------------------- (Printed Name) -------------------------------------- (Spouse's Signature, if applicable) -------------------------------------- (Printed Name) Instruction: Please do not fill in any blanks (including the date) other than the signature line. 25 EXHIBIT C ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ___________________________________________________ (______) shares of the Common Stock of Everest Design Automation Inc. (the "Company") standing in the undersigned's name on the books of the Company represented by Certificate No. herewith and does hereby irrevocably constitute and appoint ________________________ Attorney to transfer such Common Stock on the books of the within named Company with full power of substitution in the premises. Dated: ----------------------- -------------------------------------- (Signature) -------------------------------------- (Printed Name) -------------------------------------- (Spouse's Signature, if applicable) -------------------------------------- (Printed Name) Instruction: Please do not fill in any blanks (including the date) other than the signature line. 26 COMPENSATION AGREEMENT This Compensation Agreement dated as of the _____day of ________, ____ by and between Everest Design Automation Inc., a California corporation (the "Company"), and ________________ (the "Employee"). WITNESSETH Whereas, in order to induce Employee to continue in the employ of the Company, the Company has determined and agreed to sell shares of the Company's Common Stock pursuant to this Agreement and that certain Founders Restricted Stock Purchase Agreement of even date herewith (the "Purchase Agreement"); NOW, THEREFORE, in consideration of the above premises, the parties hereto agree as follows: 1. Employee shall hereby purchase ______________ shares of the Company's Common Stock (the "Shares") upon the terms and conditions set forth in the Purchase Agreement. 2. The Company and Employee acknowledge and agree that the Shares were granted as compensation for services and not for any capital-raising purposes or in connection with any capital-raising activities. 3. This agreement is intended to constitute a written compensation contract within the meaning of Rule 701 of the Securities Act of 1933, as amended. 4. Nothing herein or in the Purchase Agreement is intended to impair the right of the Company or Employee to terminate Employee's service with the Company at any time in accordance with applicable law. 27 IN WITNESS WHEREOF, the parties hereto have executed this Compensation Agreement as of the date first above written. EVEREST DESIGN AUTOMATION INC. By: -------------------------------------- Title: ----------------------------------- Address: ---------------------------------- ----------------------------------------- EMPLOYEE ----------------------------------------- Address: ---------------------------------- ----------------------------------------- EX-10.4 6 FORM OF EVEREST NON-STATUTORY OPTION AGREEMENT 1 EXHIBIT 10.4 EVEREST DESIGN AUTOMATION INC. STOCK PURCHASE AGREEMENT AGREEMENT made this______ day of _______________, 199__, by and between Everest Design Automation Inc., a California corporation, and _________________, Optionee. All capitalized terms in this Agreement shall have the meaning assigned to them in this Agreement or in the attached Appendix. I. EXERCISE OF OPTION 1. Exercise. Optionee hereby purchases shares of Common Stock (the "Purchased shares") pursuant to that certain option (the "Option") granted Optionee on __________, 199_ (the "Grant Date") to purchase up to __________ shares of Common Stock (the "Option Shares") at the exercise price of $____ per share (the "Exercise Price"). 2. Payment. Concurrently with the delivery of this Agreement to the Corporation, Optionee shall pay the Exercise Price for the Purchased Shares in accordance with the provisions of the Option Agreement and shall deliver whatever additional documents may be required by the Option Agreement as a condition for exercise, together with a duly-executed blank Assignment Separate from Certificate (in the form attached hereto as Exhibit I) with respect to the Purchased Shares. 3. Shareholder Rights. Until such time as the Corporation exercises the Repurchase Right or the First Refusal Right, Optionee (or any successor in interest) shall have all the rights of a shareholder (including voting, dividend and liquidation rights) with respect to the Purchased Shares, subject, however, to the transfer restrictions of Articles B and C. A. SECURITIES LAW COMPLIANCE 1. Restricted Securities. The Purchased Shares have not been registered under the 1933 Act and are being issued to Optionee in reliance upon the exemption from such registration provided by SEC Rule 701 for stock issuances under compensatory benefit agreements, such as the Compensation Agreement. Optionee hereby confirms that Optionee has been informed that the Purchased Shares are restricted securities under the 1933 Act and may not be resold or transferred unless the Purchased Shares are first registered under the Federal securities laws or unless an exemption from such registration is available. Accordingly, Optionee hereby acknowledges that Optionee is prepared to hold the Purchased Shares for an indefinite period and that Optionee is aware that SEC Rule 144 issued under the 1933 Act which exempts certain resales of unrestricted securities is not presently available to exempt the resale of the Purchased Shares from the registration requirements of the 1933 Act. 2. Representations and Warranties of Optionee. Optionee hereby represents and warrants that: 2 (i) The Purchased Shares are being acquired for investment purposes only for the Optionee's own account, and not with a view to the resale or distribution of all or any part of the Purchased Shares. Optionee is prepared to hold the Purchased Shares for an indefinite period and has no present intention of selling, granting any participation in, or otherwise distributing any of the Purchased Shares. Optionee does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant a participating interest in, any of the Purchased Shares. (ii) Optionee has been furnished with, and has had access to, such information as he considers necessary or appropriate for deciding whether to invest in the Purchased Shares, and Optionee has had an opportunity to ask questions and receive answers from the Corporation regarding the terms and conditions of the issuance of the Purchased Shares. (iii) Optionee is able to fend for himself in the transactions contemplated by this Agreement, can bear the economic risk of investment in the Purchased Shares and has such knowledge and experience in financial or business matters to be capable of evaluating the merits and risks of the investment in the Purchased Shares. 3. Restrictions on Disposition of Purchased Shares. Optionee shall make no disposition of the Purchased Shares (other than a Permitted Transfer) unless and until there is compliance with all of the following requirements: (i) Optionee shall have provided the Corporation with a written summary of the terms and conditions of the proposed disposition. (ii) Optionee shall have complied with all requirements of this Agreement applicable to the disposition of the Purchased Shares. (iii) Optionee shall have provided the Corporation with written assurances, in form and substance satisfactory to the Corporation, that (a) the proposed disposition does not require registration of the Purchased Shares under the 1933 Act or (b) all appropriate action necessary for compliance with the registration requirements of the 1933 Act or any exemption from registration available under the 1933 Act (including Rule 144) has been taken. The Corporation shall not be required (i) to transfer on its books any Purchased Shares which have been sold or transferred in violation of the provisions of this Agreement or (ii) to treat as the owner of the Purchased Shares, or otherwise to accord voting, dividend or liquidation rights to, any transferee to whom the Purchased Shares have been transferred in contravention of this Agreement. 4. Restrictive Legends. The stock certificates for the Purchased Shares shall be endorsed with one or more of the following restrictive legends: "The shares represented by this certificate have not been registered under the Securities Act of 1933. The shares may not be sold or offered for sale in the absence of (a) an 2. 3 effective registration statement for the shares under such Act, (b) a "no action" letter of the Securities and Exchange Commission with respect to such sale or offer or (c) satisfactory assurances to the Corporation that registration under such Act is not required with respect to such sale or offer." "The shares represented by this certificate are subject to certain repurchase rights and rights of first refusal granted to the Corporation and accordingly may not be sold, assigned, transferred, encumbered, or in any manner disposed of except in conformity with the terms of a written agreement dated, 199 between the Corporation and the registered holder of the shares (or the predecessor in interest to the shares). A copy of such agreement is maintained at the Corporation's principal corporate offices." 5. Condition of Issuance. THE SALE OF THE PURCHASED SHARES HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, AND THE ISSUANCE OF SUCH SHARES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SUCH SHARES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UNLESS THE SALE IS SO EXEMPT. B. TRANSFER RESTRICTIONS 1. Restriction on Transfer. Except for any Permitted Transfer, Optionee shall not transfer, assign, encumber or otherwise dispose of any of the Purchased Shares which are subject to the Repurchase Right. In addition, Purchased Shares which are released from the Repurchase Right shall not be transferred, assigned, encumbered or otherwise disposed of in contravention of the First Refusal Right or the Market Stand-Off. 2. Transferee Obligations. Each person (other than the Corporation) to whom the Purchased Shares are transferred by means of a Permitted Transfer must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Corporation that such person is bound by the provisions of this Agreement and that the transferred shares are subject to (i) the Repurchase Right, (ii) the First Refusal Right and (iii) the Market Stand-Off, to the same extent such shares would be so subject if retained by Optionee. 3. Market Stand-Off. (a) In connection with any underwritten public offering by the Corporation of its equity securities pursuant to an effective registration statement filed under the 1933 Act, including the Corporation's initial public offering, Owner shall not sell, make any short sale of, loan, hypothecate, pledge, grant any option for the purchase of, or otherwise dispose or transfer for value or otherwise agree to engage in any of the foregoing transactions with respect to, any Purchased Shares without the prior written consent of the Corporation or its underwriters. Such restriction (the "Market Stand-Off") shall be in effect for such period of time from and after the effective date of the final prospectus for 3. 4 the offering as may be requested by the Corporation or such underwriters. In no event, however, shall such period exceed one hundred eighty (180) days and the Market Stand-Off shall in all events terminate two (2) years after the effective date of the Corporation's initial public offering. (b) Owner shall be subject to the Market Stand-Off provided and only if the officers and directors of the Corporation are also subject to similar restrictions. (c) Any new, substituted or additional securities which are by reason of any Recapitalization or Reorganization distributed with respect to the Purchased Shares shall be immediately subject to the Market Stand-Off, to the same extent the Purchased Shares are at such time covered by such provisions. (d) In order to enforce the Market Stand-Off, the Corporation may impose stop-transfer instructions with respect to the Purchased Shares until the end of the applicable stand-off period. C. REPURCHASE RIGHT 1. Grant. The Corporation is hereby granted the right (the "Repurchase Right"), exercisable at any time during the sixty (60)-day period following the date Optionee ceases for any reason to remain in Service, to repurchase at the Exercise Price any or all of the Purchased Shares in which Optionee is not, at the time of his or her cessation of Service, vested in accordance with the Vesting Schedule applicable to those shares or the provisions of Paragraph D.6 of this Agreement (such shares to be hereinafter referred to as the "Unvested Shares"). 2. Exercise of Repurchase Right. The Repurchase Right shall be exercisable by written notice delivered to each Owner of the Unvested Shares prior to the expiration of the sixty (60)-day exercise period. The notice shall indicate the number of Unvested Shares to be repurchased and the date on which the repurchase is to be effected, such date to be not more than thirty (30) days after the date of such notice. The certificates representing the Unvested Shares to be repurchased shall be delivered to the Corporation on or before the close of business on the date specified for the repurchase. Concurrently with the receipt of such stock certificates, the Corporation shall pay to Owner, in cash or cash equivalents (including the cancellation of any purchase-money indebtedness), an amount equal to the Exercise Price previously paid for the Unvested Shares which are to be repurchased from Owner. 3. Termination of Repurchase Right. The Repurchase Right shall terminate with respect to any Unvested Shares for which it is not timely exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate and cease to be exercisable with respect to any and all Purchased Shares in which Optionee vests in accordance with the Vesting Schedule. All Purchased Shares as to which the Repurchase Right lapses shall, however, remain subject to the First Refusal Right and the Market Stand-Off. 4. Aggregate Vesting Limitation. If the Option is exercised in more than one increment so that Optionee is a party to one or more other Stock Purchase Agreements (the "Prior Purchase Agreements") which are executed prior to the date of this Agreement, then the total number 4. 5 of Purchased Shares as to which Optionee shall be deemed to have a fully-vested interest under this Agreement and all Prior Purchase Agreements shall not exceed in the aggregate the number of Option Shares in which Optionee would otherwise at the time be vested, in accordance with the Vesting Schedule, had all the Purchased Shares (including those acquired under the Prior Purchase Agreements) been acquired exclusively under this Agreement. 5. Recapitalization. Any new, substituted or additional securities or other property (including cash paid other than as a regular cash dividend) which is by reason of any Recapitalization distributed with respect to the Purchased Shares shall be immediately subject to the Repurchase Right and any escrow requirements hereunder, but only to the extent the Purchased Shares are at the time covered by such right or escrow requirements. Appropriate adjustments to reflect such distribution shall be made to the number and/or class of Purchased Shares subject to this Agreement and to the price per share to be paid upon the exercise of the Repurchase Right in order to reflect the effect of any such Recapitalization upon the Corporation's capital structure; provided, however, that the aggregate purchase price shall remain the same. 6. Corporate Transaction. (a) Upon the occurrence of a Corporate Transaction, to the extent outstanding, the Repurchase Right shall be assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction. However, to the extent the successor corporation (or parent thereof) does not accept such assignment, the Repurchase Right shall terminate automatically, and the shares of Common Stock subject to those terminated rights shall immediately vest in full. (b) To the extent the Repurchase Right remains in effect following a Corporate Transaction, such right shall apply to any new securities or other property (including any cash payments) received in exchange for the Purchased Shares in consummation of the Corporate Transaction, but only to the extent the Purchased Shares are at the time covered by such right. Appropriate adjustments shall be made to the price per share payable upon exercise of the Repurchase Right to reflect the effect of the Corporate Transaction upon the Corporation's capital structure; provided, however, that the aggregate purchase price shall remain the same. The new securities or other property (including any cash payments) issued or distributed with respect to the Purchased Shares in consummation of the Corporate Transaction shall be immediately deposited in escrow with the Corporation (or the successor entity) and shall not be released from escrow until Optionee vests in such securities or other property in accordance with the same Vesting Schedule in effect for the Purchased Shares. (c) The Repurchase Right may also be subject to termination in whole or in part on an accelerated basis, and the Purchased Shares subject to immediate vesting, in accordance with any special Addendum attached to this Agreement. D. RIGHT OF FIRST REFUSAL 1. Grant. The Corporation is hereby granted the right of first refusal (the "First Refusal Right"), exercisable in connection with any proposed transfer of the Purchased Shares in which 5. 6 Optionee has vested in accordance with the provisions of the Vesting Schedule. For purposes of this Article E, the term "transfer" shall include any sale, assignment, pledge, encumbrance or other disposition of the Purchased Shares intended to be made by Owner, but shall not include any Permitted Transfer. 2. Notice of Intended Disposition. In the event any Owner of Purchased Shares in which Optionee has vested desires to accept a bona fide third-party offer for the transfer of any or all of such shares (the Purchased Shares subject to such offer to be hereinafter referred to as the "Target Shares"), Owner shall promptly (i) deliver to the Corporation written notice (the "Disposition Notice") of the terms of the offer, including the purchase price and the identity of the third-party offeror, and (ii) provide satisfactory proof that the disposition of the Target Shares to such third-party offeror would not be in contravention of the provisions set forth in Articles B and C. 3. Exercise of the First Refusal Right. The Corporation shall, for a period of twenty-five (25) days following receipt of the Disposition Notice, have the right to repurchase any or all of the Target Shares subject to the Disposition Notice upon the same terms as those specified therein or upon such other terms (not materially different from those specified in the Disposition Notice) to which Owner consents. Such right shall be exercisable by delivery of written notice (the "Exercise Notice") to Owner prior to the expiration of the twenty-five (25)-day exercise period. If such right is exercised with respect to all the Target Shares, then the Corporation shall effect the repurchase of such shares, including payment of the purchase price, not more than five (5) business days after delivery of the Exercise Notice; and at such time the certificates representing the Target Shares shall be delivered to the Corporation. Should the purchase price specified in the Disposition Notice be payable in property other than cash or evidences of indebtedness, the Corporation shall have the right to pay the purchase price in the form of cash equal in amount to the value of such property. If Owner and the Corporation cannot agree on such cash value within ten (10) days after the Corporation's receipt of the Disposition Notice, the valuation shall be made by an appraiser of recognized standing selected by Owner and the Corporation or, if they cannot agree on an appraiser within twenty (20) days after the Corporation's receipt of the Disposition Notice, each shall select an appraiser of recognized standing and the two (2) appraisers shall designate a third appraiser of recognized standing, whose appraisal shall be determinative of such value. The cost of such appraisal shall be shared equally by Owner and the Corporation. The closing shall then be held on the later of (i) the fifth (5th) business day following delivery of the Exercise Notice or (ii) the fifth (5th) business day after such valuation shall have been made. 4. Non-Exercise of the First Refusal Right. In the event the Exercise Notice is not given to Owner prior to the expiration of the twenty-five (25)-day exercise period, Owner shall have a period of thirty (30) days thereafter in which to sell or otherwise dispose of the Target Shares to the third-party offeror identified in the Disposition Notice upon terms (including the purchase price) no more favorable to such third-party offeror than those specified in the Disposition Notice; provided, however, that any such sale or disposition must not be effected in contravention of the provisions of Articles B and C. The third-party offeror shall acquire the Target Shares free and clear of the 6. 7 Repurchase Right and the First Refusal Right, but the acquired shares shall remain subject to the provisions of Article B and Paragraph C.3. In the event Owner does not effect such sale or disposition of the Target Shares within the specified thirty (30)-day period, the First Refusal Right shall continue to be applicable to any subsequent disposition of the Target Shares by Owner until such right lapses. 5. Partial Exercise of the First Refusal Right. In the event the Corporation makes a timely exercise of the First Refusal Right with respect to a portion, but not all, of the Target Shares specified in the Disposition Notice, Owner shall have the option, exercisable by written notice to the Corporation delivered within five (5) business days after Owner's receipt of the Exercise Notice, to effect the sale of the Target Shares pursuant to either of the following alternatives: (i) sale or other disposition of all the Target Shares to the third-party offeror identified in the Disposition Notice, but in full compliance with the requirements of Paragraph E.4, as if the Corporation did not exercise the First Refusal Right; or (ii) sale to the Corporation of the portion of the Target Shares which the Corporation has elected to purchase, such sale to be effected in substantial conformity with the provisions of Paragraph E.3. The First Refusal Right shall continue to be applicable to any subsequent disposition of the remaining Target Shares until such right lapses. Owner's failure to deliver timely notification to the Corporation shall be deemed to be an election by Owner to sell the Target Shares pursuant to alternative (i) above. 6. Recapitalization/Reorganization. (a) Any new, substituted or additional securities or other property which is by reason of any Recapitalization distributed with respect to the Purchased Shares shall be immediately subject to the First Refusal Right, but only to the extent the Purchased Shares are at the time covered by such right. (b) In the event of a Reorganization, the First Refusal Right shall remain in full force and effect and shall apply to the new capital stock or other property received in exchange for the Purchased Shares in consummation of the Reorganization, but only to the extent the Purchased Shares are at the time covered by such right. 7. Lapse. The First Refusal Right shall lapse upon the earliest to occur of (i) the first date on which shares of the Common Stock are held of record by more than five hundred (500) persons, (ii) a determination is made by the Board that a public market exists for the outstanding shares of Common Stock or (iii) a firm commitment underwritten public offering, pursuant to an effective registration statement under the 1933 Act, covering the offer and sale of the Common Stock in the aggregate amount of at least ten million dollars ($10,000,000). However, the Market Stand-Off shall continue to remain in full force and effect following the lapse of the First Refusal Right. E. SPECIAL TAX ELECTION 7. 8 The acquisition of the Purchased Shares may result in adverse tax consequences which may be avoided or mitigated by filing an election under Code Section 83(b). Such election must be filed within thirty (30) days after the date of this Agreement. A description of the tax consequences applicable to the acquisition of the Purchased Shares and the form for making the Code Section 83(b) election are set forth in Exhibit II. OPTIONEE SHOULD CONSULT WITH HIS OR HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(b) ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF. F. GENERAL PROVISIONS 1. Assignment. The Corporation may assign the Repurchase Right and/or the First Refusal Right to any person or entity selected by the Board, including (without limitation) one or more shareholders of the Corporation. 2. No Employment or Service Contract. Nothing in this Agreement shall confer upon Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining Optionee) or of Optionee, which rights are hereby expressly reserved by each, to terminate Optionee's Service at any time for any reason, with or without cause. 3. Notices. Any notice required to be given under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, registered or certified, postage prepaid and properly addressed to the party entitled to such notice at the address indicated below such party's signature line on this Agreement or at such other address as such party may designate by ten (10) days advance written notice under this paragraph to all other parties to this Agreement. 4. No Waiver. The failure of the Corporation in any instance to exercise the Repurchase Right or the First Refusal Right shall not constitute a waiver of any other repurchase rights and/or rights of first refusal that may subsequently arise under the provisions of this Agreement or any other agreement between the Corporation and Optionee. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature. 5. Cancellation of Shares. If the Corporation shall make available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Purchased Shares to be repurchased in accordance with the provisions of this Agreement, then from and after such time, the person from whom such shares are to be repurchased shall no longer have any rights as a holder of such shares (other than the right to receive payment of such consideration in accordance with this Agreement). Such shares shall be deemed purchased in accordance with the applicable provisions 8. 9 hereof, and the Corporation shall be deemed the owner and holder of such shares, whether or not the certificates therefor have been delivered as required by this Agreement. G. MISCELLANEOUS PROVISIONS 1. Optionee Undertaking. Optionee hereby agrees to take whatever additional action and execute whatever additional documents the Corporation may deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on either Optionee or the Purchased Shares pursuant to the provisions of this Agreement. 2. Agreement is Entire Contract. This Agreement constitutes the entire contract between the parties hereto with regard to the subject matter hereof. 3. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California without resort to that State's conflict-of-laws rules. 4. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 5. Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and upon Optionee, Optionee's permitted assigns and the legal representatives, heirs and legatees of Optionee's estate, whether or not any such person shall have become a party to this Agreement and have agreed in writing to join herein and be bound by the terms hereof. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first indicated above. EVEREST DESIGN AUTOMATION INC. By: _____________________________ Title: __________________________ Address: ________________________ ________________________ _________________________________ OPTIONEE Address: ________________________ ________________________ 9. 10 SPOUSAL ACKNOWLEDGMENT The undersigned spouse of Optionee has read and hereby approves the foregoing Stock Purchase Agreement. In consideration of the Corporation's granting Optionee the right to acquire the Purchased Shares in accordance with the terms of such Agreement, the undersigned hereby agrees to be irrevocably bound by all the terms of such Agreement, including (without limitation) the right of the Corporation (or its assigns) to purchase any Purchased Shares in which Optionee is not vested at time of his or her cessation of Service. _________________________________ OPTIONEE'S SPOUSE Address: ________________________ _________________________________ 11 EXHIBIT I ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED hereby sell(s), assign(s) and transfer(s) unto Everest Design Automation Inc. (the "Corporation"), () shares of the Common Stock of the Corporation standing in his or her name on the books of the Corporation represented by Certificate No. herewith and do(es) hereby irrevocably constitute and appoint Attorney to transfer the said stock on the books of the Corporation with full power of substitution in the premises. Dated:_____________________ Signature _____________________________ Instruction: Please do not fill in any blanks other than the signature line. Please sign exactly as you would like your name to appear on the issued stock certificate. The purpose of this assignment is to enable the Corporation to exercise the Repurchase Right without requiring additional signatures on the part of Optionee. 12 EXHIBIT II FEDERAL INCOME TAX CONSEQUENCES AND SECTION 83(b) TAX ELECTION II. Federal Income Tax Consequences and Section 83(b) Election For Exercise of Non-Statutory Option. If the Purchased Shares are acquired pursuant to the exercise of a Non-Statutory Option, as specified in the Grant Notice, then under Code Section 83, the excess of the Fair Market Value of the Purchased Shares on the date any forfeiture restrictions applicable to such shares lapse over the Exercise Price paid for such shares will be reportable as ordinary income on the lapse date. For this purpose, the term "forfeiture restrictions" includes the right of the Corporation to repurchase the Purchased Shares pursuant to the Repurchase Right. However, Optionee may elect under Code Section 83(b) to be taxed at the time the Purchased Shares are acquired, rather than when and as such Purchased Shares cease to be subject to such forfeiture restrictions. Such election must be filed with the Internal Revenue Service within thirty (30) days after the date of the Agreement. Even if the Fair Market Value of the Purchased Shares on the date of the Agreement equals the Exercise Price paid (and thus no tax is payable), the election must be made to avoid adverse tax consequences in the future. The form for making this election is attached as part of this exhibit. FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME BY OPTIONEE AS THE FORFEITURE RESTRICTIONS LAPSE. III. Federal Income Tax Consequences and Conditional Section 83(b) Election For Exercise of Incentive Option. If the Purchased Shares are acquired pursuant to the exercise of an Incentive Option, as specified in the Grant Notice, then the following tax principles shall be applicable to the Purchased Shares: (i) For regular tax purposes, no taxable income will be recognized at the time the Option is exercised. (ii) The excess of (a) the Fair Market Value of the Purchased Shares on the date the Option is exercised or (if later) on the date any forfeiture restrictions applicable to the Purchased Shares lapse over (b) the Exercise Price paid for the Purchased Shares will be includible in Optionee's taxable income for alternative minimum tax purposes. (iii) If Optionee makes a disqualifying disposition of the Purchased Shares, then Optionee will recognize ordinary income in the year of such disposition equal in amount to the excess of (a) the Fair Market Value of the Purchased Shares on the date the Option is exercised or (if later) on the date any forfeiture restrictions applicable to the Purchased Shares lapse over (b) the Exercise Price paid for the Purchased Shares. Any additional gain recognized upon the disqualifying disposition will be either short-term or long-term capital gain depending upon the period for which the Purchased Shares are held prior to the disposition. (iv) For purposes of the foregoing, the term "forfeiture restrictions" will include the right of the Corporation to repurchase the Purchased Shares pursuant to the 13 Repurchase Right. The term "disqualifying disposition" means any sale or other disposition1/ of the Purchased Shares within two (2) years after the Grant Date or within one (1) year after the exercise date of the Option. (v) In the absence of final Treasury Regulations relating to Incentive Options, it is not certain whether Optionee may, in connection with the exercise of the Option for any Purchased Shares at the time subject to forfeiture restrictions, file a protective election under Code Section 83(b) which would limit (a) Optionee's alternative minimum taxable income upon exercise and (b) Optionee's ordinary income upon a disqualifying disposition to the excess of the Fair Market Value of the Purchased Shares on the date the Option is exercised over the Exercise Price paid for the Purchased Shares. Accordingly, such election if properly filed will only be allowed to the extent the final Treasury Regulations permit such a protective election. Page 2 of the attached form for making the election should be filed with any election made in connection with the exercise of an Incentive Option. - -------- 1/ Generally, a disposition of shares purchased under an Incentive Option includes any transfer of legal title, including a transfer by sale, exchange or gift, but does not include a transfer to the Optionee's spouse, a transfer into joint ownership with right of survivorship if Optionee remains one of the joint owners, a pledge, a transfer by bequest or inheritance or certain tax free exchanges permitted under the Code. 14 SECTION 83(b) ELECTION This statement is being made under Section 83(b) of the Internal Revenue Code, pursuant to Treas. Reg. Section 1.83-2. (1) The taxpayer who performed the services is: Name: Address: Taxpayer Ident. No.: (2) The property with respect to which the election is being made is _______ shares of the common stock of Everest Design Automation Inc. (3) The property was issued on, 199__. (4) The taxable year in which the election is being made is the calendar year 199__. (5) The property is subject to a repurchase right pursuant to which the issuer has the right to acquire the property at the original purchase price if for any reason taxpayer's employment with the issuer is terminated. The issuer's repurchase right lapses in a series of installments over a two-year period ending on _________, 199__. (6) The fair market value at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) is $_______ per share. (7) The amount paid for such property is $____ per share. (8) A copy of this statement was furnished to Everest Design Automation Inc. for whom taxpayer rendered the services underlying the transfer of property. (9) This statement is executed on, 199__. - ------------------------------------ ------------------------------------- Spouse (if any) Taxpayer This election must be filed with the Internal Revenue Service Center with which taxpayer files his or her Federal income tax returns and must be made within thirty (30) days after the execution date of the Stock Purchase Agreement. This filing should be made by registered or certified mail, return receipt requested. Optionee must retain two (2) copies of the completed form for filing with his or her Federal and state tax returns for the current tax year and an additional copy for his or her records. 15 The property described in the above Section 83(b) election is comprised of shares of common stock acquired pursuant to the exercise of an incentive stock option under Section 422 of the Internal Revenue Code (the "Code"). Accordingly, it is the intent of the Taxpayer to utilize this election to achieve the following tax results: 1. The purpose of this election is to have the alternative minimum taxable income attributable to the purchased shares measured by the amount by which the fair market value of such shares at the time of their transfer to the Taxpayer exceeds the purchase price paid for the shares. In the absence of this election, such alternative minimum taxable income would be measured by the spread between the fair market value of the purchased shares and the purchase price which exists on the various lapse dates in effect for the forfeiture restrictions applicable to such shares. The election is to be effective to the full extent permitted under the Code. 2. Section 421(a)(1) of the Code expressly excludes from income any excess of the fair market value of the purchased shares over the amount paid for such shares. Accordingly, this election is also intended to be effective in the event there is a "disqualifying disposition" of the shares, within the meaning of Section 421(b) of the Code, which would otherwise render the provisions of Section 83(a) of the Code applicable at that time. Consequently, the Taxpayer hereby elects to have the amount of disqualifying disposition income measured by the excess of the fair market value of the purchased shares on the date of transfer to the Taxpayer over the amount paid for such shares. Since Section 421(a) presently applies to the shares which are the subject of this Section 83(b) election, no taxable income is actually recognized for regular tax purposes at this time, and no income taxes are payable, by the Taxpayer as a result of this election. THIS PAGE 2 IS TO BE ATTACHED TO ANY SECTION 83(b) ELECTION FILED IN CONNECTION WITH THE EXERCISE OF AN INCENTIVE STOCK OPTION UNDER THE FEDERAL TAX LAWS. 2. 16 APPENDIX The following definitions shall be in effect under the Agreement: A. Agreement shall mean this Stock Purchase Agreement. B. Board shall mean the Corporation's Board of Directors. C. Code shall mean the Internal Revenue Code of 1986, as amended. D. Common Stock shall mean the Corporation's common stock. E. Compensation Agreement shall mean the compensation agreement entered into on _________, 199__ between the Corporation and Optionee. F. Corporate Transaction shall mean either of the following shareholder-approved transactions: (i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or (ii) the sale, transfer or other disposition of all or substantially all of the Corporation's assets in complete liquidation or dissolution of the Corporation. G. Corporation shall mean Everest Design Automation Inc., a California corporation, and any successor corporation to all or substantially all of the assets or voting stock of Everest Design Automation Inc. H. Disposition Notice shall have the meaning assigned to such term in Paragraph E.2. I. Exercise Notice shall have the meaning assigned to such term in Paragraph E.3. J. Exercise Price shall have the meaning assigned to such term in Paragraph A.1. K. Fair Market Value of a share of Common Stock on any relevant date, prior to the initial public offering of the Common Stock, shall be determined by the Board after taking into account such factors as it shall deem appropriate. L. First Refusal Right shall mean the right granted to the Corporation in accordance with Article E. M. Grant Date shall have the meaning assigned to such term in Paragraph A.1. A-1 17 N. Grant Notice shall mean the Notice of Grant of Stock Option pursuant to which Optionee has been informed of the basic terms of the Option. O. Incentive Option shall mean an option which satisfies the requirements of Code Section 422. P. Market Stand-Off shall mean the market stand-off restriction specified in Paragraph C.3. Q. 1933 Act shall mean the Securities Act of 1933, as amended. R. Non-Statutory Option shall mean an option not intended to satisfy the requirements of Code Section 422. S. Option shall have the meaning assigned to such term in Paragraph A.1. T. Option Agreement shall mean all agreements and other documents evidencing the Option. U. Optionee shall mean the person to whom the Option is granted. V. Owner shall mean Optionee and all subsequent holders of the Purchased Shares who derive their chain of ownership through a Permitted Transfer from Optionee. W. Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. X. Permitted Transfer shall mean (i) a gratuitous transfer of the Purchased Shares, provided and only if Optionee obtains the Corporation's prior written consent to such transfer, (ii) a transfer of title to the Purchased Shares effected pursuant to Optionee's will or the laws of intestate succession following Optionee's death or (iii) a transfer to the Corporation in pledge as security for any purchase-money indebtedness incurred by Optionee in connection with the acquisition of the Purchased Shares. Y. Prior Purchase Agreement shall have the meaning assigned to such term in Paragraph D.4. Z. Purchased Shares shall have the meaning assigned to such term in Paragraph A.1. AA. Recapitalization shall mean any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the Corporation's outstanding Common Stock as a class without the Corporation's receipt of consideration. A-2 18 BB. Reorganization shall mean any of the following transactions: (i) a merger or consolidation in which the Corporation is not the surviving entity, (ii) a sale, transfer or other disposition of all or substantially all of the Corporation's assets, (iii) a reverse merger in which the Corporation is the surviving entity but in which the Corporation's outstanding voting securities are transferred in whole or in part to a person or persons different from the persons holding those securities immediately prior to the merger, or (iv) any transaction effected primarily to change the state in which the Corporation is incorporated or to create a holding company structure. CC. Repurchase Right shall mean the right granted to the Corporation in accordance with Article D. DD. SEC shall mean the Securities and Exchange Commission. EE. Service shall mean the Optionee's performance of services for the Corporation (or any Parent or Subsidiary) in the capacity of an employee, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance, a non-employee member of the board of directors or an independent consultant. FF. Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. GG. Target Shares shall have the meaning assigned to such term in Paragraph E.2. HH. Vesting Schedule shall mean the vesting schedule specified in the Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a series of installments over his or her period of Service. II. Unvested Shares shall have the meaning assigned to such term in Paragraph D.1. A-3 EX-23.2 7 INDEPENDENT AUDITORS' CONSENT 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Synopsys, Inc. We consent to incorporation by reference in the registration statement dated on or about December 14, 1998, on Form S-8/S-3 of Synopsys, Inc. of our report dated October 17, 1997, relating to the consolidated balance sheets of Synopsys, Inc. and subsidiaries as of September 30, 1997, and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended September 30, 1997, which report appears in the September 30, 1997 annual report of Form 10-K of Synopsys, Inc. /S/ KPMG PEAT MARWICK LLP Mountain View, California December 11, 1998 EX-23.3 8 INDEPENDENT ACCOUNTANTS' CONSENT 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF DELOITTE & TOUCHE LLP We consent to the incorporation by reference in the Registration Statement of Synopsys, Inc. on Form S-8/S-3 of our report dated October 11, 1996 (relating to the consolidated financial statements of EPIC Design Technology, Inc. not presented separately therein), appearing in and incorporated by reference in the Annual Report of Form 10-K of Synopsys, Inc. for year ended September 30, 1997. DELOITTE & TOUCHE LLP San Jose, California December 11, 1998 -----END PRIVACY-ENHANCED MESSAGE-----