<PAGE>
As filed with the Securities and Exchange Commission on January 28, 2000
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
NUMERICAL TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
California 7371 94-3232104
(prior to
reincorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification Number)
Delaware
(after
reincorporation)
(State or other
jurisdiction of
incorporation or
organization)
</TABLE>
70 West Plumeria Drive, San Jose, CA 95134, (408) 919-1910
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------
Yagyensh C. Pati
President and Chief Executive Officer
70 West Plumeria Drive, San Jose, CA 95134, (408) 919-1910
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
<TABLE>
<S> <C>
Kathleen B. Bloch Stephen J. Schrader
Julie A. Bell Justin L. Bastian
Anthony Kikuta Stephanie J. Millet
Lynn Hashimoto Amie Peters
Wilson Sonsini Goodrich & Morrison & Foerster, LLP
Rosati 755 Page Mill Road, Palo Alto, CA 94304-1018
Professional Corporation (650) 813-5600
650 Page Mill Road, Palo
Alto, CA 94304
(650) 493-9300
</TABLE>
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
Proposed
Maximum
Title of Each Class of Aggregate Amount of
Securities to be Registered Offering Price(1) Registration Fee
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.0001 par value............. $70,000,000 $18,480
- --------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457 under the Securities Act of 1933.
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 28, 2000
Shares
[NUMERICAL LOGO]
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price of the common stock is expected to be between
$ and $ per share. We have applied to list our common stock on The Nasdaq
Stock Market National Market under the symbol "NMTC."
The underwriters have an option to purchase a maximum of additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 7.
<TABLE>
<CAPTION>
Underwriting
Discounts and Proceeds to
Price to Public Commissions Numerical
--------------- ------------- -------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Chase H&Q
SG Cowen
The date of this prospectus is , 2000.
<PAGE>
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................... 4
Risk Factors......................... 7
Special Note Regarding Fowarding
Looking Statements.................. 16
Use of Proceeds...................... 17
Dividend Policy...................... 17
Capitalization....................... 18
Dilution............................. 19
Selected Financial Data.............. 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business............................. 26
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management..........................38
Related Party Transactions..........48
Principal Stockholders..............53
Description of Capital Stock........55
Shares Eligible for Future Sale.....58
Underwriting........................60
Notice to Canadian Residents........62
Legal Matters.......................63
Experts.............................63
Where You Can Find More
Information........................63
Index to Financial Statements......F-1.
</TABLE>
----------------
You should only rely on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may be used only where it is legal
to sell these securities. The information in this document may only be accurate
on the date on this document.
Dealer Prospectus Delivery Obligation
Until , 2000, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealer's obligation to deliver
a prospectus when acting as an underwriter and with respect to unsold
allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements and notes thereto appearing elsewhere in
this prospectus.
Numerical Technologies
We are the leading commercial provider of proprietary technologies and
software products that enable the design and manufacture of faster, smaller and
more power efficient semiconductor devices with subwavelength feature sizes of
0.18 micron and below. Our subwavelength solution has exceeded the predictions
of industry roadmaps by producing semiconductors with feature sizes of 0.09
micron and below using existing semiconductor equipment. We believe our
patented technologies and software products are critical to key segments of the
semiconductor industry as they strive to design and manufacture subwavelength
semiconductor devices.
The success of our proprietary technologies and software products has been
demonstrated by our customers. Motorola used our proprietary technologies in
its 0.18 micron fabrication facilities to produce 0.10 micron microprocessor
features. Lucent Technologies announced that it had developed the world's
fastest one volt digital signal processor by reducing feature sizes from 0.25
micron to 0.12 micron using our proprietary technologies. We have strategic
industry partnerships with leading companies in all key segments of the
semiconductor industry, including semiconductor design tool vendors such as
Cadence Design Systems, photomask manufacturers such as Dupont Photomasks and
Photronics, semiconductor equipment manufacturers such as Applied Materials and
KLA-Tencor, and foundries such as TSMC and UMC.
Our Market and the Subwavelength Challenge
The Semiconductor Industry Association estimates that the worldwide market
for semiconductors will grow from $144 billion in 1999 to $233 billion in 2002.
This growth is being driven by the proliferation of semiconductors in a broad
range of electronic products, including personal computers, mobile phones,
Internet appliances, video game consoles, and high-speed networking and
communications products that serve as the backbone of the Internet. To
capitalize on this growing market, electronics manufacturers must continuously
introduce higher-performance products that are cheaper and more portable. These
advanced products must incorporate semiconductors that are faster and smaller,
integrate more functionality, consume less power and can be manufactured at a
lower cost. As a result, the growth in wafer starts for devices with feature
sizes of less than 0.25 micron is expected to be significantly greater than the
growth for devices with larger feature sizes.
The ability to produce advanced ICs depends on developing technologies that
enable the design and manufacture of devices with increasingly smaller feature
sizes. Advances in semiconductor design and manufacturing processes have driven
reductions in feature sizes from 3.0 micron in 1980 to 0.18 micron in today's
advanced fabrication facilities. This progression has required large research
and development investments in sophisticated semiconductor design tools,
photomask manufacturing and semiconductor equipment. In addition, each
incremental reduction in feature size has required significant capital
expenditures. The purchase and installation of new equipment and the
construction of new fabrication facilities can require billions of dollars and
several years before becoming operational.
At 0.18 micron and smaller, traditional technology approaches are no longer
adequate. The wavelength of light used in production semiconductor equipment to
manufacture these features is significantly larger than the features
themselves. This growing disparity between feature sizes and the wavelength of
light is referred to as the "subwavelength gap." Alternative manufacturing
processes that can bridge the subwavelength gap are not expected to be
commercially viable for many years. We believe advances in manufacturing
equipment technology alone can no longer enable the progression to smaller
feature sizes.
4
<PAGE>
Our Solution
We have developed patented phase shifting and proprietary optical proximity
correction and process modeling technologies that enable the progression to
subwavelength feature sizes. Our comprehensive subwavelength solution allows
our customers to produce smaller, faster and more power efficient
semiconductors with existing semiconductor equipment. This saves them the time
and cost necessary to establish a more advanced fabrication facility. As a
result, our customers can significantly accelerate their time to revenue and
increase their return on invested capital.
We license our proprietary technology and software products to semiconductor
designers, design tool vendors, photomask manufacturers, semiconductor
equipment manufacturers and foundries. By providing a common platform and
architecture, our technologies and products integrate the entire subwavelength
design-to-silicon flow. We believe that we can capitalize on the pressing need
for proven subwavelength solutions by leveraging our technology leadership and
our relationships with leading semiconductor infrastructure companies to drive
the adoption of our solution as the industry standard.
We were incorporated in California in October 1995 and will reincorporate in
Delaware prior to the closing of this offering. Our principal executive office
is located at 70 West Plumeria Drive, San Jose, CA 95134. Our telephone number
is (408) 919-1910, and our Internet address is www.numeritech.com. Information
contained on our Internet site does not constitute part of this prospectus.
Unless otherwise indicated, information in this prospectus assumes the
following:
. a three-for-two forward stock split of preferred stock and common stock,
which is subject to stockholder approval, prior to the closing of this
offering;
. the automatic conversion of all outstanding shares of preferred stock
into shares of common stock immediately prior to the completion of this
offering;
. our reincorporation in Delaware prior to the closing of this offering;
and
. no exercise of the underwriters' over-allotment option.
5
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by us.................. shares
Common stock to be outstanding after the
offering................................... shares
Use of proceeds............................. For the repayment of outstanding promissory
notes issued pursuant to our acquisition of
Transcription Enterprise Limited and for
general corporate purposes.
Proposed Nasdaq National Market Symbol......
</TABLE>
Summary Financial Information
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------------
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Statement of Operations Data:
Revenue.............................................. $ 620 $ 736 $ 5,492
Total costs and expenses............................. 1,239 7,469 14,693
Loss from operations................................. (619) (6,733) (9,201)
Net loss............................................. (584) (6,551) (8,828)
Pro forma net loss per common share, basic and
diluted (unaudited)................................. $ (0.62)
Pro forma weighted average common shares, basic and
diluted (unaudited)................................. 14,306
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......................... $13,486 $ 8,486
Working capital................................... 10,499 (3,178)
Total assets...................................... 17,605 94,375
Notes payable..................................... -- 35,000 --
Total stockholders' equity........................ 12,405 53,045
</TABLE>
- --------
See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing per share data.
The pro forma balance sheet data reflects our acquisition of Transcription
Enterprises Limited effected in January 2000 and the conversion of
approximately 11,913,000 shares of preferred stock into shares of common stock.
The pro forma as adjusted amounts give effect to the sale of shares of
common stock in this offering at an assumed initial public offering price of
$ per share after deducting estimated underwriting discounts and commissions
and estimated offering expenses and the application of the net proceeds from
this offering. See Note 9 of Notes to Financial Statements.
6
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock. If
any of the negative events referred to below occur, our business could suffer.
Additional risks and uncertainties not presently known to us or that we
presently consider immaterial may also harm our business.
Our business depends on the adoption of our propriety technologies and software
products by the key markets within the semiconductor industry. If this adoption
does not occur, we may not be able to generate substantial sales of our
products and our business could fail.
The key markets within the semiconductor industry include semiconductor
designers and design tool vendors, photomask manufacturers, semiconductor
equipment manufacturers and semiconductor manufacturers. If our proprietary
technologies and software products are not adopted by these semiconductor
industry segments, the full benefit of our subwavelength solution may not be
realized. This could cause our product sales to decline, which would negatively
affect our results of operations and cause our business to fail. Factors that
may limit adoption of our subwavelength solution include:
. unsuccessful implementation of our proprietary technologies and software
products into each of the key segments within the semiconductor
industry;
. failure of our current and potential industry partners to adopt our
technologies and products;
. a decline in the need for designers to access subwavelength processes;
. a decline in the growth of the market for semiconductor equipment;
. development of alternative methods to produce subwavelength features
with existing capital equipment; and
. a decline in the semiconductor industry in general.
Adoption of our proprietary technologies and software products will require
a broad acceptance by each semiconductor industry segment of a new and
substantially different method of approaching the subwavelength gap problem. We
cannot assure you that our proprietary technologies and software products will
gain acceptance within these market segments at the level or in the time frame
we anticipate. Moreover, since our subwavelength solution involves a new
approach to the subwavelength gap problem, intensive marketing and sales
efforts will be necessary to educate prospective industry partners and
customers regarding the uses and benefits of our technologies and products.
Our limited operating history and dependence on new technologies make it
difficult to evaluate our future prospects.
We only have a limited operating history on which you can base your
evaluation of our business. Our company was founded in October 1995. In
February 1997, we shipped our initial software product, IC Workbench. We have
only recently begun to expand our operations significantly. For example, we
grew from 47 employees as of January 1, 1999 to 105 employees as of January 1,
2000. We face a number of risks as an emerging company in a new market,
including the failure of the semiconductor industry to adopt our proprietary
technologies and software products, delays in the transition to subwavelength
feature sizes and the failure to successfully establish distribution channels.
We have a history of losses, we expect to incur losses in the future and we may
be unable to achieve profitability.
We have not been profitable in any quarter, and we had an accumulated
deficit of approximately $16.2 million as of December 31, 1999. We expect to
continue to incur significant operating expenses in
7
<PAGE>
connection with increased funding for research and development and expansion of
our sales and marketing efforts. In addition, we expect to incur additional
noncash charges relating to amortization of intangibles and deferred stock
compensation. As a result, we will need to generate significant revenue to
achieve and maintain profitability. We may not achieve profitability if our
revenue increases more slowly than we expect. If we do achieve profitability,
we may be unable to sustain or increase profitability on a quarterly or annual
basis. In addition, our operating expenses are largely fixed, and any shortfall
in anticipated revenue in any given period could harm our operating results.
Any of the factors discussed above could cause our stock price to decline.
We recently acquired Transcription Enterprises Limited and if we are not
successful in integrating Transcription's products and operations with ours,
our revenue and operating results could decline.
Our recent acquisition of Transcription Enterprises Limited will only be
successful if we are able to integrate its operations with ours, which will
substantially divert attention from the day-to-day operations of the combined
company. The diversion of the attention of management and any difficulties
encountered in the transition process could cause the revenue and operating
results of the combined company to decline. We must successfully integrate
Transcription's products with ours. We must also coordinate our research and
development and sales and marketing efforts to realize the technological
benefits of this combination.
Integrating personnel with disparate business backgrounds and combining two
different corporate cultures may be difficult. In addition, the process of
combining our company with Transcription could cause the interruption of, or
loss of momentum in, the activities of either or both of the companies'
businesses. It is possible that we will not be able to retain key Transcription
management, technical and sales personnel.
In addition, the acquisition of Transcription could cause customers to be
uncertain about our ability to support the combined companies' products and the
direction of the combined companies' product development efforts. This may
result in the delay or cancellation of orders, significantly decrease our
revenue and limit our ability to implement our combined business strategy.
Our acquisition of Transcription may increase the focus of the semiconductor
industry on the manufacturing data preparation market, which could lead to a
rapid and substantial increase in competition.
Our recent acquisition of Transcription may increase the semiconductor
industry's awareness of the market for manufacturing data preparation software.
This could lead to a substantial increase in the number of start-up companies
that focus on software solutions for data preparation. In addition, some of our
current competitors may increase their own research and development budgets
relating to data preparation, or may more aggressively market competing
solutions. Potential competitors could pursue and execute partnership
agreements with key industry partners, to our detriment.
If we do not continue to introduce new technologies and software products or
product enhancements ahead of rapid technological change in the market for
subwavelength solutions, our operating results could decline and our
competitive position could be harmed.
We must continually devote significant engineering resources to enable the
introduction of new technlogies and software products or product enhancements
to address the evolving needs of key segments within the semiconductor industry
in solving the subwavelength gap problem. These innovations must be introduced
and adopted before changes in the semiconductor industry render them obsolete,
which could harm our competitive position. These innovations are inherently
complex, require long development cycles and a substantial investment before
their commercial viability can be determined. We cannot assure you that we will
achieve these technological innovations in a timely manner. Furthermore, we
cannot assure you that we will
8
<PAGE>
have the financial resources necessary to fund future development or that
revenue from enhancements or new generations of our proprietary technologies
and software products, even if successfully developed, will exceed the costs of
development.
Fluctuations in our quarterly operating results may cause our stock price to
decline.
It is likely that our future quarterly operating results may fluctuate from
time to time and may not meet the expectations of securities analysts and
investors in some future period. As a result the price of our common stock
could decline. We have historically experienced fluctuating quarterly operating
results. We may experience significant fluctuations in future quarterly
operating results that may be caused by many factors, including:
. market acceptance of phase shifting and OPC technologies;
. the timing and structure of our product license agreements;
. the success of, or costs associated with, past or future acquisitions,
including our acquisition of Transcription;
. the timing of introductions or enhancements of our software products or
our competitors' products;
. changes in our pricing policies or those of our competitors; and
. changes in the level of our operating expenses to support our projected
growth.
If we cannot maintain our current, or establish new, relationships with
industry partners, market acceptance of our proprietary technologies and
software products could be delayed.
We expect to derive significant benefits, including increased revenue and
customer awareness, from our current and potential semiconductor industry
relationships. We have only recently entered into many of our current industry
partner relationships. We cannot assure you that these relationships will
continue or that they will be successful in any respect. We also cannot assure
you that we will be able to find suitable additional industry partners. In
addition, our pursuit to establish industry relationships within each of the
key segments within the semiconductor industry will divert management
attention, resources and sales personnel. This may require us to expend
additional financial resources, with no guarantee of success. To date, we have
entered into agreements with industry partners, including:
. Cadence in the electronic design automation, or EDA, market segment;
. Etec Systems, Hitachi, Ltd. and Leica Jena in the photomask
manufacturing market segment; and
. Applied Materials, KLA-Tencor and Zygo Corporation in the semiconductor
equipment market segment.
If our industry partners decide not to implement our proprietary technologies
and software products, the implementation of our strategy could be delayed and
our reputation could be harmed.
We believe widespread adoption of our proprietary technologies and software
products depends in part upon our industry partners' successful implementation
of these technologies and products. Achieving widespread adoption of our
subwavelength solution will be difficult if our industry partners do not devote
the resources necessary to integrate our proprietary technologies and software
products into their operations. For example, if our technologies and products
are not adopted by semiconductor manufacturers, it will be difficult for us to
successfully market our proprietary technologies and software products to other
key segments of the semiconductor industry, such as design tool vendors and
photomask manufacturers.
9
<PAGE>
Our limited current customer base represents a high percentage of our total
revenue. As a result, if our customers terminate or weaken their relationships
with us, our revenue could significantly decrease.
To date, a relatively small number of customers has accounted for a large
percentage of our total revenue. The loss of or reduction in expected revenue
from a significant customer could significantly decrease our revenue, harm our
results of operations, harm our reputation or limit our ability to execute our
strategy. We expect that sales to a limited number of customers will continue
to represent a high percentage of our total revenue for the foreseeable future.
For example, in 1999, revenue from KLA-Tencor accounted for 23% of our total
revenue, revenue from Zygo accounted for 17% of our total revenue and revenue
from Cadence accounted for 16% of our total revenue. No other customer
accounted for more than 10.0% of our total revenue in 1999. We anticipate that
a significant portion of our revenue will continue to be derived from a limited
number of customers.
In addition, any significant delays in or cancellations of a major
customer's development projects or delays or cancellations of new product
announcements and releases by us could decrease our revenue. This decrease in
revenue could be greater if there are any downturns in general economic
conditions or in the semiconductor industry in particular.
The market for software solutions that address the subwavelength gap problem is
new and rapidly evolving. We expect competition to intensify in the future,
which could slow our ability to grow or execute our strategy.
We cannot assure you that our proprietary technologies and software products
will successfully compete within the key segments of the semiconductor
industry. We encounter direct competition from other direct providers of phase
shifting, OPC and manufacturing data technologies. These competitors include
such companies as Avant! and Mentor Graphics. We also compete with companies
that have developed or have the ability to develop their own proprietary phase
shifting and OPC solutions, such as IBM. These companies may wish to promote
their internally developed products and may be reluctant to purchase products
from us or other independent vendors. We must offer better products, customer
support, prices and response time, or a combination of these factors, than
those of our competitors in order to grow our business.
In addition, any shift of customer preferences away from our technologies
and software products as a result of the increase in competition would require
us to develop new proprietary technologies and software products to address
these new customer demands. This would divert management attention and could
cause us to be unable to execute our strategy. We believe that the demand for
solutions to the subwavelength gap problem may cause many competitors to enter
into our market. This increased competition could harm our business. As the
market for software solutions to the subwavelength gap problem proliferates, to
the extent our competitors are able to attract customers on a more accelerated
pace than us and retain them more effectively, our ability to grow would be
slowed.
Many of our current and potential competitors have longer operating histories
and significantly greater financial, technical, marketing and other resources
than we do and as a result, they may acquire a significant market share before
us.
It is possible that new competitors or alliances among potential competitors
may emerge and rapidly acquire significant market share. These alliances or
potential competitors may have greater name recognition and more extensive
customer bases that could be leveraged, thereby gaining market share to our
detriment. Our potential competitors may offer a wider range of products than
we do and thus may be able to respond more quickly to new or changing
opportunities, technologies and customer requirements. These competitors may
also be able to undertake more extensive promotional activities, offer more
attractive terms to customers than we do and adopt more aggressive pricing
policies. Moreover, potential competitors may establish relationships among
themselves or with third parties to enhance their services, including third
parties with which we may desire to establish a relationship.
10
<PAGE>
We are growing rapidly and must effectively manage and support our growth in
order for our business strategy to succeed.
We have grown rapidly and will need to continue to grow in all areas of
operation in order to execute our business strategy. Managing and sustaining
our growth will place significant demands on management as well as on our
administrative, operational and financial systems and controls. If we are
unable to do this effectively, we will have to divert resources, such as
management time and our limited revenue, away from the continued growth of our
business and implementation of our business strategy. We anticipate significant
increases in the number of our employees, especially in our engineering and
technical support areas, in order to continually enhance our existing
technologies and software products, develop new technologies and software
products and support our industry partners and customers. If we are unable to
successfully integrate existing and new employees into our operations, our
business will be harmed. With our rapid headcount growth, we outgrew our
principal office facilities earlier than we expected. As a result, we recently
relocated to San Jose, California and may be required to relocate again in the
future, which could be difficult in the very competitive Silicon Valley office
leasing market.
We must continually attract and retain engineering personnel or we will be
unable to execute our business strategy.
We must continually enhance and introduce new generations of our phase
shifting and OPC technologies. As a result, our future success depends in part
on our ability to identify, attract, retain and motivate qualified engineering
personnel with the requisite educational background and industry experience.
The loss of the services of a significant number of our engineers could be
disruptive to the implementation of our business strategy. Competition for
qualified engineers is intense, especially in the Silicon Valley where we are
located. We have experienced, and we expect to continue to experience,
difficulty in hiring and retaining highly skilled engineers with appropriate
qualifications to support our rapid growth and expansion.
Our chief executive officer and chief technology officer, as well as the co-
founders of Transcription, are critical to our business and they may not remain
with us in the future.
Our future success will depend to a significant extent on the continued
services of Y. C. (Buno) Pati, our President and Chief Executive Officer, Yao-
Ting Wang, our Chief Technology Officer, Roger Sturgeon, one of our directors
and a senior executive of Transcription and Kevin MacLean, Vice President and
General Manager of Transcription. The loss of the services of any of these key
executives could harm our business, reduce our market share and slow our
product development processes, as well as cause us to incur increased operating
expenses and divert other senior management time in searching for their
replacements. The loss of their services could also harm our reputation if our
industry partners and customers become concerned about our future operations.
We do not have long-term employment agreements with these executives and we do
not maintain any key person life insurance policies on their lives.
If we fail to protect our intellectual property rights, competitors may be able
to use our technologies which could weaken our competitive position, reduce our
revenue or increase our costs.
Our success is heavily dependent upon proprietary technologies, specifically
our patent portfolio. We rely primarily on a combination of patents,
copyrights, trademarks and trade secrets to protect our proprietary rights and
prevent competitors from using our proprietary technologies in their products.
These laws and procedures provide only limited protection. We have been granted
two patents and have 13 patent applications currently pending in the U.S. and
in selected foreign countries. We cannot assure you that any of the rights
granted under these patents will provide competitive advantages to us. In
addition, patents may not be issued on our pending applications, and our
existing and future patents may not be sufficiently broad to protect our
proprietary technologies. Furthermore, failure to adequately protect our
trademark rights could damage our brand identity and impair our ability to
compete effectively. If we are not successful in protecting our trademark
rights, we
11
<PAGE>
may be forced to incur costs to re-establish our name or our product names,
including significant marketing activities. In addition, litigation may be
necessary in the future to enforce our intellectual property rights, to protect
our trademarks or to determine the validity and scope of the proprietary rights
of others. Any such litigation could result in unexpected substantial operating
costs and diversion of resources, including our managerial and engineering
resources.
If third parties assert that our proprietary technologies and software products
infringe their intellectual property rights, our reputation could be harmed and
our ability to license or sell our proprietary technologies or software
products could be limited.
Third parties, for competitive or other reasons, could assert that our
proprietary technologies and software products infringe their intellectual
property rights. These claims could injure our reputation and decrease our
ability to license or sell our software products. For example, we may be
invited to take a license from a company for patented technology which we may
use in the future. Any similar future claims could affect our relationships
with existing customers and may prevent future customers from licensing our
software products. The intensely competitive nature of our industry and the
important nature of our technologies to our competitors' businesses may
contribute to the likelihood of being subject to third party claims of this
nature.
Any potential dispute involving our patents or other intellectual property
could include our industry partners and customers, which could trigger our
indemnification obligations with them and result in substantial expense to us.
In any potential dispute involving our patents or other intellectual
property, our licensees could also become the target of litigation. Some of our
license agreements now require and in the future may require that we provide
technical support and indemnification to a licensee that becomes involved in
litigation involving the use of our proprietary technologies. Our support and
indemnification obligations could result in substantial expense to us. In
addition to the time and expense required for us to supply such support or
indemnification to our licensees, the business of our licensees could be
severely disrupted or shut down as the result of the litigation, which in turn
could have a serious adverse effect on our customer relations and the sale of
our proprietary technologies and software products.
Defects in our proprietary technologies and software products could harm our
reputation and decrease our revenue.
If our industry partners and customers discover any defects after they
implement our proprietary technologies and software products, our reputation
could be damaged and the market acceptance and sales of our software products
could be significantly harmed. Any actual or perceived defects with our
proprietary technologies and software products may also hinder our ability to
attract or retain customers, leading to a decrease in our revenue. These
defects are frequently found during the period following introduction of new
products or enhancements to existing products. Despite testing prior to
introduction, our software products may contain software errors that will not
be discovered until after customer implementation. If our software products
contain errors or defects, we may be required to expend significant resources
to alleviate these problems, which could result in the diversion of technical
and other resources from our other development efforts.
If we do not substantially expand our direct sales operations, our sales and
market share will not grow.
In order to increase market awareness and sales of our proprietary
technologies and software products, we will need to substantially expand our
direct sales operations, both domestically and internationally. If we fail to
effectively hire, retain and motivate our direct sales personnel, our growth
will be limited. Our proprietary technologies and software products require a
sophisticated sales effort targeted at our prospective industry partners and
customers. Competition for these qualified sales personnel is intense. We
cannot assure you that we will hire the quality and number of sales people we
require.
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<PAGE>
We face operational and financial risks associated with international
operations.
A significant portion of our revenue is derived from international sales. As
a result, we are subject to risks inherent in doing business in international
markets. These risks include:
. difficulty managing foreign operations;
. fluctuations in exchange rates which may negatively affect our operating
results;
. greater difficulty in collecting accounts receivable resulting in longer
collection periods;
. compliance with and unexpected changes in a wide variety of foreign laws
and regulatory environments with which we are not familiar;
. export controls which could prevent us from shipping our software
products into and from some markets;
. changes in import/export duties and quotas could affect the competitive
pricing of our software products and reduce our market share in some
countries; and
. economic or political instability.
We cannot assure you that we will continue to market our proprietary
technologies and software products successfully in international markets. We
have only limited experience in developing, marketing, selling and supporting
our proprietary technologies and software products internationally and may not
succeed in expanding our international operations, which would slow our revenue
growth.
We may need to raise additional funds to support our growth or execute our
strategy and if we are unable to do so, we may be unable to develop or enhance
our proprietary technologies and software products, respond to competitive
pressures or acquire desired businesses or technologies.
We currently anticipate that our available cash resources, combined with the
net proceeds from this offering, will be sufficient to meet our presently
anticipated working capital and capital expenditure requirements for at least
the next 12 months. However, we may need to raise additional funds in order to:
. support more rapid expansion;
. develop new or enhanced products;
. respond to competitive pressures; or
. acquire complementary businesses or technologies.
Such factors will impact our future capital requirements and the adequacy of
our available funds. We may be required to raise additional funds through
public or private financings, strategic relationships or other arrangements.
We may be unable to consummate other potential acquisitions or investments or
successfully integrate them with our business, which may slow our ability to
expand the range of our proprietary technologies and software products.
To expand the range of our proprietary technologies and software products,
we may acquire or make investments in additional complementary businesses,
technologies or products if appropriate opportunities arise. We may be unable
to identify suitable acquisition or investment candidates at reasonable prices
or on reasonable terms. Additionally, regardless of whether suitable candidates
are available, we may be unable to consummate future acquisitions or
investments, which could harm our growth strategy. If we do acquire additional
companies or make other types of acquisitions, we could have difficulty
integrating the acquired products, personnel or technologies. These
difficulties could disrupt our ongoing business, distract our management and
employees and increase our expenses.
13
<PAGE>
Management will have broad discretion as to the use of proceeds from this
offering and, as a result, the proceeds may not be used to the satisfaction of
our stockholders.
We have designated only limited specific uses for the net proceeds from this
offering. Consequently, our board of directors and management will have broad
discretion in allocating the net proceeds of this offering. They may choose to
allocate such proceeds in ways that do not yield a favorable return or are not
supported by our stockholders. Please see "Use of Proceeds."
Our capital stock ownership will likely be concentrated with insiders upon the
completion of this offering, which will limit your ability to influence
corporate matters.
The concentration of ownership of our outstanding capital stock with our
directors and executive officers after this offering may limit your ability to
influence corporate matters. Prior to the completion of this offering, our
directors and executive officers, and their affiliates, beneficially own 65.0%
of our outstanding capital stock, and we expect them to remain significant
stockholders upon the completion of this offering. As a result, these
stockholders, if acting together, will have the ability to control all matters
submitted to our stockholders for approval, including the election and removal
of directors and the approval of any corporate transactions.
We have anti-takeover defenses that could delay or prevent an acquisition of
our company.
Provisions of our certificate of incorporation and bylaws in effect after
completion of this offering and Delaware law could make it more difficult for a
third party to acquire us, even if doing so would be beneficial to our
stockholders. Please see "Description of Capital Stock."
The initial public offering price is determined by negotiations between the
underwriters and us, but the market price may be less or may be volatile, and
you may not be able to resell your shares at or above the initial public
offering price.
This initial public offering price may vary from the market price of our
common stock after the offering. The market price of our common stock may
fluctuate significantly in response to factors, some of which are beyond our
control, including:
. actual or anticipated fluctuations in our operating results;
. changes in market valuations of other technology companies;
. conditions or trends in the semiconductor industry;
. announcements by us or our competitors of significant technical
innovations, contracts, acquisitions or partnerships;
. additions or departures of key personnel;
. any deviations in net revenue or in losses from levels expected by
securities analysts;
. volume fluctuations, which are particularly common among highly volatile
securities of technology related companies; and
. sales of substantial amounts of our common stock or other securities in
the open market.
General political or economic conditions, such as recession or interest rate
or currency rate fluctuations in the United States or abroad, also could harm
the market price of our common stock. Please see "Underwriting."
Our stock price is likely to be extremely volatile as the market for technology
companies' stock has recently experienced extreme price and volume
fluctuations.
Despite the strong pattern of operating losses of technology companies, the
market demand, valuation and trading prices of these companies have been high.
At the same time, the share prices of these companies'
14
<PAGE>
stocks have been highly volatile and have recorded lows well below their
historical highs. As a result, investors in these companies often buy the stock
at very high prices only to see the price drop substantially a short time
later, resulting in an extreme drop in value in the stock holdings of these
investors. We cannot assure you that our stock will trade at the same levels as
other technology stocks or that technology stocks in general will sustain
current market prices. Volatility in the market price of our common stock could
result in securities class action litigation. Any litigation would likely
result in substantial costs and a diversion of management's attention and
resources.
An active public market for our common stock may not develop.
An active public market for our common stock may not develop or be sustained
after this offering. The initial public offering price for the shares has been
determined by negotiations between us and the representatives of the
underwriters and may not be indicative of prices that will prevail in the
trading market.
A large number of shares becoming eligible for sale after this offering could
cause our stock price to decline.
Sales of a substantial number of shares of our common stock after this
offering could cause our stock price to fall. Our current stockholders hold a
substantial number of shares, which they will be able to sell in the public
market in the near future. Please see "Shares Eligible for Future Sale."
You will incur immediate and substantial dilution in the book value of the
stock you purchase.
The initial public offering price is substantially higher than the book
value per share of our outstanding common stock immediately after the offering.
This is referred to as dilution. Accordingly, if you purchase common stock in
the offering, you will incur immediate dilution of approximately $ , at an
initial public offering price of $ per share, in the book value per share of
our common stock from the price you pay for our common stock. Please see
"Dilution."
If we raise additional capital through the issuance of new securities, you will
incur additional dilution.
If we raise additional capital through the issuance of new securities, you
will be subject to additional dilution. In addition, any new securities may
have rights, preferences or privileges senior to those securities held by you.
Exercise of registration rights after this offering could adversely affect our
stock price.
If holders of registration rights exercise those rights after this offering,
a large number of securities could be registered and sold in the public market,
which could result in a decline in the price of our common stock. If we were to
include in a company-initiated registration shares held by these holders
pursuant to the exercise of their registration rights, our ability to raise
needed capital could suffer. After this offering, the holders of
shares of our common stock, which will represent a total of approximately %
of our outstanding stock after completion of this offering, will be entitled to
rights with respect to registration under the Securities Act of 1933.
15
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements in "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business" and elsewhere. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks
outlined under "Risk Factors," that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels or activity, performance or
achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results.
16
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of shares of common stock in this
offering at an estimated initial public offering price of $ per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses, will be $ . If the underwriters' over-allotment option is
exercised in full, we estimate that our net proceeds will be approximately
$ million.
In connection of our acquisition of Transcription Enterprises Limited, we
issued promissory notes in the aggregate principal amount of $40 million, $35
million of which is outstanding. Interest on the notes accrues at 8.0% per
annum. These notes are payable in 16 equal quarterly payments of $2.2 million,
plus interest, commencing on April 1, 2000. We expect to pay the balance of
principal and accrued interest under the notes with a portion of the net
proceeds from this offering. The remaining proceeds will be used for working
capital and general corporate purposes. We may use a portion of the net
proceeds to acquire businesses, products and technologies that are
complementary to our business. However, we have no present plans or
committments and are not engaged in any negotiations with respect to any
transactions of this type. Pending these uses, our net proceeds from this
offering will be invested in short-term, interest-bearing, investment grade
securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock or
other securities. We currently anticipate that we will retain all of our future
earnings for use in the expansion and operation of our business and do not
anticipate paying any cash dividends for the foreseeable future.
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<PAGE>
CAPITALIZATION
The following table sets forth our total capitalization as of December 31,
1999:
. on an actual basis after giving effect to the three-for-two forward stock
split of our preferred stock and common stock;
. on a pro forma basis to reflect our acquisition of Transcription
Enterprises Limited effected in January 2000 and the automatic conversion
of all outstanding shares of preferred stock into common stock upon the
closing of this offering; and
. on a pro forma as adjusted basis to reflect the sale of the shares of
common stock at an assumed initial public offering price of $ per share
in this offering, after deducting estimated underwriting discounts and
commissions and estimated offering expenses to be paid by us.
You should read this information together with the consolidated financial
statements and the notes to these statements appearing elsewhere in this
prospectus.
As of December 31, 1999
--------------------------------------
Actual Pro Forma Pro Forma As Adjusted
------ --------- ---------------------
(in thousands, except per share data)
<TABLE>
<S> <C> <C> <C>
Notes payable......................................... $ -- $ 35,000 $--
-------- -------- ----
Stockholders' equity:
Convertible preferred stock, $0.0001 par value:
12,253 shares authorized, 8,103 issued and
outstanding, actual; no shares issued or
outstanding, pro forma and pro forma as adjusted... 1 -- --
Common stock, $0.0001 par value: 30,000 shares
authorized, actual, pro forma and pro forma as
adjusted; 9,570 shares issued and outstanding,
actual; 17,673 shares issued and outstanding, pro
forma; shares issued and outstanding, pro
forma as adjusted.................................. 1 1 --
Additional paid in capital........................... 50,100 90,741 --
Receivable from stockholders......................... (315) (315)
Deferred stock compensation.......................... (21,220) (21,220)
Accumulated deficit.................................. (16,162) (16,162)
-------- -------- ----
Total stockholders' equity ......................... 12,405 53,045
-------- -------- ----
Total capitalization.............................. $ 12,405 $ 88,045 $
======== ======== ====
</TABLE>
18
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999, after giving
effect to our acquisition of Transcription Enterprises Limited effected in
January 2000 and the conversion of our outstanding preferred stock into common
stock, was $(27.3) million or $(1.27) per share of common stock. Pro forma net
tangible book value per share represents total tangible assets less total
liabilities, divided by the number of outstanding shares of common stock.
Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of our common stock in this
offering and the net tangible book value per share of our common stock
immediately afterwards. After giving effect to our sale of the shares of
common stock offered by this prospectus and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us, our net tangible book value at December 31, 1999 would have been $
or $ per share. This represents an immediate increase in net tangible book
value to existing stockholders of $ per share and an immediate dilution to
new public investors of $ per share. The following table illustrates the per
share dilution:
<TABLE>
<S> <C> <C> <C>
Assumed initial public offering price per share............... $
Pro forma net tangible book value per share as of December
31, 1999................................................... $(1.27)
Increase per share attributable to new public investors.....
------- ---
Pro forma net tangible book value per share after offering....
---- ---
Dilution per share to new public investors.................... $
====
</TABLE>
The following table sets forth on a pro forma basis as of December 31, 1999,
after giving effect to the conversion of our preferred stock and the
acquisition of Transcription Enterprises Limited, and assuming a three-for-two
forward stock split of all the outstanding common stock, the differences
between the number of shares of common stock purchased from us, the total price
paid, and the average price per share paid by the existing stockholders and new
public investors, deducting estimated underwriting discounts and commissions
and offering expenses to be paid by us, using an assumed initial public
offering price of $ per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 21,483,450 % $24,488,000 % $1.14
New public investors.......
---------- --- ----------- ---
Total.................... % $ %
========== === =========== ===
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new investors increase to , or %, of the total shares
of common stock outstanding after this offering.
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<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data are qualified by reference to, and
should be read in conjunction with, Management's Discussion and Analysis of
Financial Condition and Results of Operations and the financial statements and
notes thereto and other information contained in this prospectus. The selected
balance sheet data as of December 31, 1998 and 1999 and selected statement of
operations data for the years ended December 31, 1997, 1998 and 1999 have been
derived from our audited financial statements and the notes thereto included
elsewhere in this prospectus. The selected balance sheet data as of December
31, 1996 and 1997 and the selected statement of operations data for the year
ended December 31, 1996 were derived from financial statements not included in
this prospectus.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1996 1997 1998 1999
------ ------ ------- -------
(in thousands, except per
share data)
<S> <C> <C> <C> <C>
Statement of Operations Data
Revenue..................................... $ 51 $ 620 $ 736 $ 5,492
------ ------ ------- -------
Costs and expenses:
Cost of revenue........................... 9 57 127 307
Research and development.................. 202 993 2,721 4,816
Sales and marketing....................... 2 58 1,404 4,277
General and administrative................ 43 131 2,355 1,303
Amortization of deferred stock
compensation............................. -- -- 862 3,990
------ ------ ------- -------
Total costs and expenses................ 256 1,239 7,469 14,693
------ ------ ------- -------
Loss from operations........................ (205) (619) (6,733) (9,201)
Interest income, net........................ 6 35 182 373
------ ------ ------- -------
Net loss.................................... $ (199) $ (584) $(6,551) $(8,828)
====== ====== ======= =======
Net loss per common share, basic and
diluted.................................... $(0.04) $(0.08) $ (0.89) $ (1.21)
====== ====== ======= =======
Weighted-average common shares, basic and
diluted.................................... 4,722 7,397 7,373 7,290
====== ====== ======= =======
Pro forma net loss per common share, basic
and diluted (unaudited).................... $ (0.62)
=======
Pro forma weighted-average common share,
basic and diluted (unaudited).............. 14,306
=======
<CAPTION>
As of December 31,
--------------------------------
1996 1997 1998 1999
------ ------ ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data
Cash and cash equivalents................... $ 615 $ 656 $ 4,973 $13,486
Working capital............................. 340 377 2,319 10,499
Total assets................................ 650 1,081 6,611 17,605
Total stockholders' equity.................. 338 474 2,815 12,405
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section contains forward-looking statements. The outcome of the events
described in these forward-looking statements is subject to factors out of our
control. You should not rely on these forward-looking statements. Our actual
results could differ materially from those discussed in the forward-looking
statements contained in this section. The following discussion and analysis of
our financial condition and results of operations should be read in conjunction
with "Selected Financial Data" and our financial statements and notes thereto
appearing elsewhere in this prospectus.
Overview
We design and develop proprietary technologies and software products that
enable the design and manufacture of semiconductors with subwavelength feature
sizes. From our incorporation in October 1995 through February 1997, our
activities were primarily focused on conducting research and development and
establishing markets and distribution channels for our proprietary technologies
and software products. In February 1997, we shipped our first software product,
IC Workbench.
In January 2000, we acquired Transcription Enterprises Limited for
approximately $42.0 million in Series E preferred stock and $40.0 million in
notes payable. The acquisition will be accounted for under the purchase method
of accounting and the resultant goodwill and other intangible assets of $81.5
million will be amortized on a straight-line basis over two to five years.
We derive revenue from intellectual property and software licenses,
maintenance and related technical services. To date, a significant portion of
our revenue has been derived from research and development licenses to IDMs and
foundries of our phase shifting technologies and software and OPC software
licenses, as well as licenses of photomask verification software to
semiconductor original equipment manufacturers, or OEMs. Our research and
development licenses limit the use of our proprietary technologies for pre-
production purposes.
We expect to enter into production licenses with semiconductor manufacturers
as they adopt our proprietary technologies for production. Production licenses
grant licensees the right to use our phase shifting intellectual property and
software to design and manufacture subwavelength ICs. We entered into our first
production license with Texas Instruments in December 1999. We expect
production licenses to account for a significant portion of our revenue in the
future and that fees for production licenses will be time-based, and structured
on a per fabrication facility or per device basis.
We license our intellectual property and software products through our
direct sales force and to OEMs and resellers. To date, our direct sales force
has primarily focused on selling research and development licenses to
semiconductor manufacturers. We anticipate an increase in direct sales efforts
related to converting these manufacturers to production licensees. Our OEM
licensees are primarily leading semiconductor equipment manufacturers, such as
Applied Materials, KLA-Tencor and Zygo, that integrate our software products
with their equipment. In the fourth quarter of 1999, we entered into a reseller
agreement with Cadence that provides Cadence with unlimited distribution rights
for a fixed fee that is payable quarterly over approximately three years. In
return, Cadence agreed to integrate portions of our OPC software products with
its physical design and verification tools. Our agreement with Cadence expires
on December 31, 2002, but may be extended by Cadence for an additional two-year
period.
Revenue from existing research and development licenses is recognized
ratably over a related service period. Maintenance revenue is typically priced
based on a percentage of the license fee and is recognized ratably over the
term of the agreement, typically 12 months. Revenue from technical services is
typically recognized as the services are performed. For licenses to OEMs and
licenses of our manufacturing data preparation software, where the license fee
is fixed or determinable and the collection of the fee is probable, revenue is
recognized upon delivery if no significant post delivery obligations remain. We
record billed
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<PAGE>
amounts due from customers in excess of recognized revenue as deferred revenue.
The timing and amounts billed to customers can vary significantly depending on
specific contract terms and can therefore have a significant impact on the
amount of deferred revenue in any given period.
Since inception, we have incurred substantial costs to develop our
proprietary technologies and software products, to recruit and train personnel
for our engineering, sales and marketing and technical support departments, and
to establish an administrative organization. As a result, we have incurred net
losses in each year since inception and had an accumulated deficit of $16.2
million as of December 31, 1999. We anticipate that our operating expenses will
increase substantially in future years as we increase sales and marketing
operations, increase research and development, broaden technical support
services and expand international operations. In addition, we expect to incur
additional non-cash operating expenses relating to amortization of deferred
stock compensation and goodwill associated with our acquisition of
Transcription Enterprises Limited. Accordingly, we expect to incur additional
losses for the foreseeable future. In addition, our limited operating history
makes it difficult for us to predict future operating results and, accordingly,
there can be no assurance that we will achieve or sustain revenue growth or
profitability.
Results of Operations
Years 1998 and 1999
Revenue. Revenue increased from $736,000 in 1998 to $5.5 million in 1999.
The increase in 1999 was primarily due to increased research and development
licenses to foundries and IDMs and increased OEM sales.
Costs and Expenses
Cost of revenue. Cost of revenue includes primarily salary and related costs
for engineers associated with maintenance and technical services. Cost of
revenue increased from $127,000 in 1998 to $307,000 in 1999. This increase was
due primarily to an increase in the time spent on service and integration
efforts by our engineering personnel. Cost of revenue decreased as a percentage
of sales from 17.0% of revenue in 1998 to 6.0% of revenue in 1999. We
anticipate that cost of revenue will increase in dollar amount as we support
our expanding customer and OEM base and assist our research and development
licensees to transition into production. We expect, however, that cost of
revenue will continue to decrease as a percentage of revenue in the long term.
Research and development. Research and development expenses consist
primarily of personnel and related costs. Research and development expenses
increased from $2.1 million in 1998, exclusive of a $600,000 bonus paid to one
of our founders and executive officers, to $4.8 million in 1999. The increase
in dollar amounts reflects our expanding research and development efforts in
subwavelength technologies and products. Research and development expenses
decreased as a percentage of revenue from 285.3% of revenue in 1998, exclusive
of the $600,000 bonus, to 87.3% of revenue in 1999. A significant portion of
the increase was due to the addition of personnel and personnel-related costs
for enhancement of existing applications and development of new products. We
anticipate that we will continue to commit substantial resources to research
and development in the future. We expect that research and development expenses
will increase in dollar amounts to support increased research and development
efforts, but decline as a percentage of revenue in the long term.
Sales and marketing. Sales and marketing expenses consist primarily of
salaries and related costs for sales and marketing personnel, sales
commissions, tradeshows and other marketing activities. Sales and marketing
expenses increased from $1.4 million in 1998 to $4.3 million in 1999. This
increase was primarily due to the hiring of additional sales and marketing
personnel, increased sales commissions and higher tradeshow expenses. Sales and
marketing expenses decreased as percentage of revenue from 190.2% of revenue in
1998 to 77.8% of revenue in 1999. We expect that sales and marketing expenses
will increase in dollar amounts to support increased sales efforts, but decline
as a percentage of revenue in the long term.
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<PAGE>
General and administrative. General and administrative expenses consist
primarily of salaries and related costs for operations and finance employees
and legal and accounting services. General and administrative expenses
increased, exclusive of the $1.4 million bonus to a founder and officer in
1998, from $1.0 million in 1998 to $1.3 million in 1999. Exclusive of the
bonus, general and administrative expenses increased in 1999 primarily as a
result of increased spending in personnel and personnel-related costs. General
and administrative expenses decreased as a percentage of revenue from 129.8% of
revenue in 1998, exclusive of the $1.4 million bonus, to 23.6% of revenue in
1999. We expect that general and administrative will increase in dollar amounts
to support increased administrative efforts, but decline as a percentage of
revenue in the long term.
Amortization of deferred stock compensation. Amortization of deferred stock
compensation represents the amount of amortization related to the difference
between the exercise price of options granted and the estimated fair market
value of the underlying common stock on the date of the grant. We recognized
stock-based compensation of $2.8 million in 1998 and $23.3 million in 1999
related to the grant of stock options. We are amortizing these amounts over the
vesting periods of the individual options, using the multiple option method.
Amortization of deferred stock-based compensation totaled $862,000 and $4.0
million for 1998 and 1999, respectively. Outstanding options will continue to
vest over the next four years. Future compensation expense from options granted
through December 31, 1999 is estimated to be $11.2 million for 2000, $5.9
million for 2001, $3.0 million for 2002 and $1.1 million for 2003.
Interest income. Interest income increased from $182,000 in 1998 to $373,000
in 1999 primarily due to higher average cash and short-term investment
balances.
Years 1997 and 1998
Revenue. Revenue increased from $620,000 in 1997 to $736,000 in 1998. This
increase was primarily attributable to increased OEM sales, as well as
maintenance and support on an increased customer base.
Costs and Expenses
Cost of Revenue. Cost of revenue increased from $57,000 in 1997 to $127,000
in 1998. This increase was due primarily to increased service and integration
efforts by our engineering personnel.
Research and development. Research and development expenses increased from
$1.0 million in 1997 to $2.7 million in 1998. This increase was due to the
addition of personnel and higher personnel-related costs to enhance and expand
our product offerings and a $600,000 bonus paid to a founder and officer.
Sales and marketing. Sales and marketing expenses increased from $58,000 in
1997 to $1.4 million in 1998. This increase was primarily due to the addition
of personnel and higher personnel-related costs resulting from the continued
growth of our sales and marketing organizations, as well as costs associated
with the sales and marketing of our products.
General and administrative. General and administrative expenses increased
from $131,000 in 1997 to $2.4 million in 1998. General and administrative
expenses increased in 1998 partly as a result of increased spending in legal,
accounting and human resources professional services. General and
administrative expenses also included a bonus of $1.4 million to one of our
founders and executive officers in 1998.
Interest income. Interest income increased from $35,000 in 1997 to $182,000
in 1998 primarily due to higher average cash and short-term investment
balances.
Net Operating Losses and Tax Credit Carryforwards
As of December 31, 1999, we had federal net operating losses and research
and development credit carryforwards of approximately $6.9 million and
$217,000, respectively. The net operating loss and research and development
credit carryforwards will expire at various dates, beginning in 2010, if not
utilized. Under the provisions of the Internal Revenue Code of 1986, as
amended, substantial changes in our ownership may limit
23
<PAGE>
the amount of net operating loss carryforwards that can be utilized annually in
the future to offset taxable income. A valuation allowance has been established
to fully reserve the potential benefits of these carryforwards in our financial
statements to reflect the uncertainty of future taxable income required to
utilize available tax loss carryforwards and other deferred tax assets.
Liquidity and Capital Resources
Since inception, we have funded our operations primarily through the private
sale of our equity securities in aggregate net proceeds of approximately $24.5
million. As of December 31, 1999 we had $10.5 million in working capital and
$13.5 million in cash and cash equivalents. We anticipate using available cash
to fund growth in operations, invest in capital equipment, acquire businesses,
and license technologies or software products related to our line of business.
Net cash used in operating activities was $3.3 million in 1998, compared to
$4.4 million in 1999. Net cash used in operating activities in 1999 primarily
reflects a net loss of $8.8 million, partly offset by amortization of deferred
stock compensation costs of $4.0 million.
Net cash provided by financing activities was approximately $700,000 in
1997, $8.0 million in 1998 and $4.4 million in 1999. Net cash provided by
financing activities includes proceeds from the issuance of preferred and
common stock and stock warrants.
Capital expenditures were approximately $82,000 in 1997, $455,000 in 1998
and $1.5 million in 1999. Our capital expenditures consisted of purchases of
computer hardware and software, office furniture and equipment and leasehold
improvements. Purchases of computer equipment represent the largest component
of our capital expenditures. We expect to invest approximately $2.0 million in
2000 mainly for computer equipment, facilities and business systems upgrades.
On January 1, 2000, we acquired Transcription Enterprises Limited. In
connection with the acquisition, we issued $40.0 million in promissory notes.
Shortly after issuance of the notes, we repaid $5.0 million of the principal,
leaving a balance of $35.0 million outstanding under the notes. The remaining
principal amount, plus interest at 8% per annum, is payable in 16 equal
quarterly payments of $2.2 million, plus interest commencing on April 1, 2000.
We expect to repay these notes in full with the net proceeds of this offering.
We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, for the
foreseeable future in order to execute our business strategy. As a result, we
anticipate that such operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. In
addition, we may utilize cash resources to fund acquisitions of, or investments
in, complementary businesses, technologies or product lines. We believe that
the net proceeds from the sale of the common stock in this offering, together
with funds generated from operations, will be sufficient to meet our working
capital requirements for at least the next 12 months. Thereafter, we may find
it necessary to obtain additional equity or debt financing. In the event
additional financing is required, we may not be able to raise it on acceptable
terms or at all.
Recent Accounting Pronouncements
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities", which establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other
contracts, collectively referred to as derivatives, and for hedging activities.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. This statement does not apply to us as we currently do not
have any derivative instruments or hedging activities.
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<PAGE>
Disclosures About Market Risk
Our exposure to market risk is limited to interest income sensitivity, which
is affected by changes in the general level of U.S. interest rates,
particularly since the majority of our investments are in short-term debt
securities issued by corporations. We place our investments with high quality
issuers and limit the amount of credit exposure to any one issuer. Due to the
nature of our short-term investments, we believe that we are not subject to any
material market risk exposure.
Year 2000 Compliance
As of January 2, 2000, we had not experienced, nor do we expect to
experience, any Year 2000-related disruption in the operation of our systems.
To our knowledge, none of our material suppliers or vendors experienced any
material Year 2000 problems. Although most Year 2000 problems should have
become evident on January 1, 2000, additional Year 2000-related problems may
become evident only after that date. For example, some software programs may
have difficulty resolving the so-called "century leap year" algorithm which
will also occur during the Year 2000.
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<PAGE>
BUSINESS
Overview
We are the leading commercial provider of proprietary technologies and
software products that enable the design and manufacture of subwavelength
semiconductors using existing design tools and semiconductor equipment. We have
accelerated the semiconductor technology roadmap by at least two years,
enabling the production of semiconductors with feature sizes of 0.09 micron.
Our comprehensive solution addresses each key stage of the design-to-silicon
flow, including physical design, design verification, manufacturing data
preparation and photomask manufacturing and inspection, and photolithography.
By offering a common platform and architecture, we integrate the entire design-
to-silicon flow for subwavelength ICs.
Our patented phase shifting and proprietary optical proximity correction and
process modeling technologies form the foundation of our subwavelength
solution. By enabling customers to produce smaller, faster and more power
efficient semiconductors with existing semiconductor equipment, our
subwavelength solution accelerates our customers' introduction of new high
performance semiconductor devices while significantly increasing their return
on invested capital. Customers such as Motorola and Lucent have already
demonstrated success with our proprietary technologies. We believe our
technology leadership and our relationships with leading semiconductor
infrastructure companies are driving the adoption of our comprehensive
subwavelength solution as the industry standard. Our industry partners include
Applied Materials, KLA-Tencor, DuPont Photomasks, Phototronics, Cadence, TSMC
and UMC.
Industry Background
Businesses and individuals are increasingly relying on electronic products
and systems powered by semiconductors. These products and systems include
desktop and portable personal computers, mobile phones, Internet appliances,
video game consoles, and high-speed networking and communications products that
serve as the backbone of the Internet. Enhancements to these products, and the
continued introduction of new, more sophisticated electronic products, would
not have been possible without advances in semiconductor technology. Growing
recognition of the benefits of advances in electronics, including enhanced
productivity and communications capability, is driving demand for higher
performance, lower cost, smaller and more power efficient products with greater
functionality. To meet this demand, manufacturers of electronic products and
systems require an increasing supply of faster, cheaper and more power
efficient semiconductor devices. The Semiconductor Industry Association
estimates that the worldwide market for semiconductors will grow from $144
billion in 1999 to $233 billion in 2002. Delivering these advanced
semiconductor devices will require rapid advances in IC design and
manufacturing technologies.
The Historical March to Smaller Feature Sizes and Systems-on-a-Chip
The ability to produce advanced ICs is contingent upon developing technology
that enables the design and manufacture of devices with smaller feature sizes.
A semiconductor device's "feature size" relates to the size of circuit
components in the device and is measured in microns, or millionths of a meter.
Advanced semiconductors today have feature sizes of 0.18 to 0.25 micron. To
illustrate how small these features are, when placed side by side, one thousand
0.10 micron transistors can fit within the width of a single human hair.
Smaller feature sizes significantly increase performance while decreasing the
size, cost and power consumption of semiconductor devices. Smaller feature
sizes also allow multiple components, such as microprocessors, memory, analog
components and digital signal processors, to be integrated in a single device.
The resulting complex device, commonly referred to as system-on-a-chip, offers
significant performance, cost, power and reliability benefits over systems that
require multiple devices to perform the same tasks.
Advances in semiconductor design and manufacturing technologies have enabled
reductions in feature sizes from 3.0 micron in 1980 to 0.18 micron in today's
advanced production fabrication facilities. These advances have led to
significant improvements in electronic systems and products. For example,
today's cellular phones compared to those of a few years ago have a battery
life of days instead of hours, weigh ounces instead of pounds and can be
produced at a fraction of the price. In addition, today's cellular phones have
many times the computing power of the most advanced personal computer in 1980.
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To date, the semiconductor industry has relied upon advances in
semiconductor equipment to produce smaller feature sizes on silicon. However,
to fully realize the benefits of smaller feature sizes, significant advances
have also been required in each of the following segments of the semiconductor
design-to-silicon flow:
. Semiconductor Design Tools. A variety of complex software programs used
to design, simulate and verify semiconductor designs.
. Photomasks. Transparent templates used to transfer images of electronic
circuits onto silicon wafers.
. Semiconductor Equipment. Sophisticated equipment used to manufacture
semiconductor devices.
. Semiconductor Manufacturing. Complex processes required to create
semiconductor devices on silicon.
Historically, leading semiconductor companies designed, manufactured and
tested their semiconductors in their own facilities using internally developed
tools. The growing complexity of the design and manufacturing processes and the
escalating cost of manufacturing facilities resulted in a disaggregation of the
semiconductor industry into companies separately focusing on each individual
segment of the design-to-silicon flow. This disaggregation is fueling the rapid
growth of "fabless" semiconductor companies, design tool vendors, semiconductor
equipment manufacturers and third-party semiconductor manufacturers, or
foundries. Each of these industry segments is facing significant challenges as
feature sizes continue to decrease.
The Subwavelength Challenge
Semiconductor manufacturing equipment transmits light at a specific
wavelength through a photomask to create images of circuit patterns on a
silicon wafer. This process is referred to as photolithography or optical
lithography. At feature sizes below 0.25 micron, the semiconductor industry
reached a critical technology transition. At and above 0.25 micron, the
wavelength of light used is smaller than the circuit features. However, at 0.18
micron and below, the wavelength of light used in production semiconductor
manufacturing equipment is significantly larger than the circuit features,
resulting in the rapid degradation in image quality. This growing disparity
between feature sizes and wavelength of light is referred to as the
"subwavelength gap." As a result, devices with feature sizes of 0.18 micron and
smaller cannot be manufactured with acceptable yield levels using traditional
technologies. Furthermore, as the demand for feature size reduction continues
to outpace the reduction in wavelengths used by available equipment, this
subwavelength gap will widen.
[Graph depicting wavelengths used in optical lithography equipment and feature
sizes with the vertical axis representing a time line and the horizontal axis
representing the dimension of the feature]
In its 1999 International Technology Roadmap, the Semiconductor Industry
Association predicted the introduction of microprocessors with 0.10 micron
feature sizes for semiconductors by the end of 2001 and 0.10 micron DRAM by the
end of 2005. Advances in manufacturing equipment technology alone can no longer
enable the progression to smaller feature sizes and alternative non-optical
manufacturing processes are not expected to be commercially viable for many
years. New subwavelength solutions must be developed and integrated into all
aspects of the design-to-silicon flow.
Our Solution
We are the leading commercial provider of proprietary technologies and
software products that enable the design and manufacture of subwavelength
semiconductors using existing design tools and semiconductor equipment. We have
accelerated the semiconductor technology roadmap by at least two years,
enabling the production of semiconductors with feature sizes of 0.09 micron.
Our comprehensive solution addresses each key stage of the design-to-silicon
flow, including physical design, design verification, manufacturing data
preparation, photomask manufacturing inspection and photolithography. By
offering a common platform and architecture, we integrate the entire design-to-
silicon flow for subwavelength ICs.
[Pictorial representation of the subwavelength relationship between photomask
manufacturing and semicondutor fabrication]
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Our patented phase shifting and proprietary OPC and process modeling
technologies serve as the foundation for our subwavelength solution. Our
subwavelength solution leverages our expertise in semiconductor and photomask
manufacturing processes, semiconductor equipment, IC design, software
development and subwavelength technologies.
Our proprietary technologies and software products are designed to offer the
following key benefits:
Proven Path to Smaller, Faster, Cheaper and Power Efficient Devices. The
success of our proprietary technologies and software products has been
demonstrated by our customers. For example, Motorola used our phase shifting
technology and software to enable its 0.18 micron wafer fabrication facilities
to produce 0.10 micron features. Similarly, in November 1999, Lucent
Technologies announced that it had developed the world's fastest digital signal
processor operating at one volt. To create this high-performance digital signal
processor, Lucent reduced the feature sizes from 0.25 micron to 0.12 micron
using our phase shifting technology software.
Accelerate Time to Market. In today's economy, semiconductor manufacturers
can achieve a significant market advantage by being the first to introduce more
advanced semiconductors. Introducing next generation semiconductors has
historically required the installation of new equipment or construction of new
manufacturing facilities, which may take up to three years to complete. Our
phase shifting technology and software products enable companies to use
existing equipment to produce smaller, faster and more power efficient
semiconductors, thereby enabling the rapid introduction of new products.
Increase Return on Capital Equipment Investment. Our proprietary
technologies and software products are designed to enable existing
semiconductor manufacturing equipment to produce subwavelength ICs. Using our
technologies and products, semiconductor manufacturers will not be required to
spend billions of dollars to produce ICs with smaller and smaller feature
sizes. As a result, these semiconductor manufacturers can significantly
increase their return on invested capital. Furthermore, we believe that the use
of our proprietary technologies and software products results in higher
manufacturing yields.
Integrate Segments of Design-to-Silicon Flow. Our proprietary technologies
and software products are designed on a common platform and architecture and
are implemented in key stages of the design-to-silicon flow. Our software
products utilize a common process modeling and simulation technique that allows
the results generated by each of these stages to be understood and processed by
the tools and equipment used in subsequent stages. For example, the separate
tools and equipment used to design, verify and manufacture semiconductors can
be made to coordinate with each other to ensure an accurate design-to-silicon
flow. This coordination is particularly critical in the semiconductor industry,
which has disaggregated into different companies that specialize in separate
segments. We believe this is necessary to the successful production of
subwavelength semiconductors.
Our Strategy
Our objective is to establish our proprietary technologies and software
products as the industry standard for the design and manufacture of
subwavelength semiconductor devices. Key elements of our strategy include:
Drive Continued Adoption of Our Subwavelengh Solution. We seek to
proliferate our proprietary technologies and software products as the solution
to the subwavelength gap problem. As part of this strategy, we intend to
continue to expand our relationships with leading IDMs, such as Lucent and
Motorola, and leading foundries such as TSMC and UMC. Due to the increasing
proportion of semiconductors manufactured at foundries, we intend to
increasingly focus our efforts on establishing our patented phase shifting
technologies as the standard at TSMC, UMC and other foundries to further drive
the adoption of our subwavelength solution by each of the other participants in
the design-to-silicon flow.
Expand Relationships with Our Industry Partners. We intend to strengthen and
expand our industry relationships with the leading companies within each key
segment of the design-to-silicon flow. To date, we
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have developed relationships with semiconductor design tool vendors such as
Cadence, photomask manufacturers such as Dupont Photomasks and Photronics, and
semiconductor equipment manufacturers such as Applied Materials and KLA-Tencor.
We believe that these broad-based industry relationships will help to
proliferate our proprietary technologies and software products as the industry
standard.
Leverage Our Comprehensive Platform. We intend to leverage the common
platform and architecture of our proprietary technologies and software products
to aggressively market our products to each key semiconductor industry segment.
This common platform enables efficient data and information regarding
subwavelength designs to be shared by participants in each key segment of the
design-to-silicon flow. Because our proprietary technologies and software
products ensure the accurate and consistent communication of subwavelength
design and process data, each participant in the design-to-silicon flow
benefits from their use.
Leverage Our Dominant Market Position in Manufacturing Data Preparation
Products. The vast majority of semiconductor, photomask and semiconductor
equipment manufacturers and foundries use our manufacturing data preparation
software as the essential link between the design and production stages of the
design-to-silicon flow. We intend to leverage this dominant market position in
manufacturing data preparation to market our subwavelength proprietary
technologies and software products to this broad customer base.
Extend Technology Leadership Position. We believe we were among the first to
recognize that the subwavelength gap would represent a significant challenge to
continued advances in semiconductor technology. To capitalize on this business
opportunity, we have engaged in significant research and development activities
over the past four years, pioneering proprietary and manufacturable phase
shifting technologies that we believe are the key to bridging the subwavelength
gap. We have assembled a strong team of subwavelength experts, more than half
of which have graduate technical degrees, and we intend to continue expanding
our research and development efforts to further enhance our proprietary
technologies.
Maintain Time-Based Software and Intellectual Property Licensing Models. We
have adopted a highly leveraged business model that allows us to generate
predictable, high growth revenues. We seek to generate the majority of our
future revenue through time-based license fees, intellectual property licensing
agreements and other innovative, ongoing agreements with IDMs, foundries and
OEM and reseller licensees.
Technology
As feature sizes have decreased to dimensions smaller than the wavelength of
light used in optical lithography equipment, phase shifting and optical
proximity correction technologies have become critical to the continued growth
of the semiconductor industry. Mainstream deployment of subwavelength
technologies requires the creation of an efficient and integrated design-to-
silicon flow and the introduction of new technologies in several segments of
this flow. Our proprietary technologies and software products allow IC
designers, as well as manufacturers of photomasks, semiconductor equipment and
semiconductor devices, to successfully deploy phase shifting and OPC
technologies. We believe we are the only company exclusively focused on
delivering a comprehensive solution that enables the design and manufacture of
subwavelength ICs.
Phase Shifting
The foundation of our subwavelength process technologies lies in the
manipulation of light waves to produce high-resolution images of subwavelength
circuit features. Our phase shifting technology sequences positive and negative
light wave patterns to prevent interfering waves from causing the image on
silicon to blur or disappear entirely. This enables the creation of circuit
features that are less than half the size of those that can be produced using
conventional optical lithography techniques. Our phase shifting technology also
dramatically reduces sensitivity to process variations such as focus deviations
and lens imperfections, significantly improving manufacturing yields. We have
developed the industry's first production-worthy, commercial phase shifting
technology by combining the multidisciplinary expertise of our scientists and
engineers and investing significantly in joint research and development
activities with leading photomask and semiconductor device manufacturers.
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[Graphic: Rendition of scanning electron micrograph of silicon features
produced using a non-phase shifted process as compared to silicon features
produced using a phase shifted process demonstrating silicon results]
Optical Proximity Correction
Our OPC technologies embed corrective features in the IC design and
photomask to reduce image distortions caused by interfering light waves. We
have developed these technologies in close collaboration with photomask and
semiconductor device manufacturers to improve photomask manufacturability
without sacrificing device performance. Our device performance driven OPC
technologies focus on correcting distortions in semiconductor features that
would most affect device performance. OPC makes it possible to obtain a
silicon pattern that more closely resembles the original desired design.
However, as feature sizes continue to decrease, OPC is no longer sufficient to
ensure acceptable manufacturing yields. At these smaller feature sizes,
semiconductor manufacturers will employ both OPC and phase shifting process
technologies.
[Graphic: Rendition of an image formed on silicon with OPC as compared to an
image formed on silicon without OPC for a given target design]
Process Modeling and Simulation
Historically, the designed layout of a semiconductor device, its
representation on the photomask, and the corresponding features on silicon
were essentially identical. At subwavelength feature sizes, this relationship
no longer exists. As a result of process-induced distortions and the
application of phase shifting and OPC, the design of a semiconductor device,
its representation on the photomask and the pattern transferred to silicon all
look different. We have developed proprietary process modeling and simulation
technologies that recharacterize the relationship between device design,
photomask pattern and silicon features. This recharacterization allows
designers and manufacturers to accurately translate designs and photomasks to
final silicon. Our process models can be calibrated to accurately characterize
the specific processes of semiconductor manufacturers and then used in our
software products throughout the design-to-silicon flow. The use of a common
process model throughout the design-to-silicon flow facilitates consistency in
the communication of process and design data.
Implementation Technologies
We have developed several implementation technologies necessary for the
mainstream design and manufacturing use of phase shifting and OPC
technologies. These include:
. design automation algorithms for phase shifting and OPC;
. hierarchical design data management technologies;
. subwavelength design verification technologies;
. photomask defect analysis technologies;
. high-performance process simulation algorithms and process model
calibration technologies; and
. algorithms for manufacturing data preparation.
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Products
We offer technology products, software products and services that together
provide a comprehensive subwavelength design-to-silicon solution.
Technology Products
Phase Shift IP. Our phase shifting intellectual property licenses allow the
licensee to produce subwavelength semiconductor devices using our proprietary
technologies. We offer limited use research and development licenses that allow
the licensee to use our proprietary technologies for pre-production purposes.
We also offer time-based, per fabrication facility or per device production
licenses of our phase shifting intellectual property.
Subwavelength Process Development. We offer a comprehensive implementation
package that includes a development plan, calibration and test photomasks and
on-site customer assistance to develop advanced subwavelength manufacturing
processes using our phase shifting and OPC technologies and software products.
Our engineers and scientists work on-site at our customers' fabrication
facilities to develop these processes and generate design rules, calibrated
models and associated design-to-silicon flows to enable commercial
subwavelength semiconductor production.
Software Products
We offer a comprehensive suite of complex, tightly integrated software
products that share a common platform and architecture. Our software products
are used independently or integrated with IC design tools, and photomask and
semiconductor manufacturing equipment, and address the needs of subwavelength
design and manufacture in four key sectors of the design-to-silicon flow:
<TABLE>
<CAPTION>
Sector Products Applications
------ -------- ------------
<S> <C> <C>
Physical Design and Post- iNPhase . Ensure compatability of semiconductor
Layout Data Processing TROPiC designs with subwavelength processes
iMagic . Create phase shifted and OPC device
SiVL design layout
. Verify silicon performance of designs
- --------------------------------------------------------------------------------------
Manufacturing Data CATS . Process design data required for
Preparation and iNMask fabrication and inspection of
Photomask Manufacturing iNMask-MRC photomasks
. Verify input data, manufacturing data
processing and photomask layout
. Convert photomask design data to
formats required by specific photomask
manufacturing equipment
. Verify photomask and wafer
manufacturability
- --------------------------------------------------------------------------------------
Photomask Inspection Virtual Stepper . Characterize located photomask defects
and Metrology iNSpect . Transcribe and transfer design data to
photomask and wafer inspection and
metrology equipment
- --------------------------------------------------------------------------------------
IC Fabrication and Process IC Workbench . Optimize fabrication process
Development ModelCal parameters
RuleGen . Generate calibrated process models and
CheckIt design rules for phase shift and OPC
processes and our products
. Verify silicon performance of designs
</TABLE>
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Each of these products is described below.
Physical Design and Post-Layout Data Processing Products
iNPhase. Our iNPhase product automates and integrates the design,
verification and OPC functions of our phase shifting technology. iNPhase also
verifies that the semiconductor design is free of "phase conflicts," or design
configurations that could result in manufacturing failures.
TROPiC. This integrated product automatically corrects designs for process-
induced distortions of subwavelength features. TROPiC implements our device
performance driven OPC technologies that control photomask complexity to lower
photomask cost without sacrificing semiconductor device performance.
iMagic. Our process simulation software product uses process models
calibrated to individual semiconductor manufacturers' processes. iMagic is used
by designers to visualize the final silicon features corresponding to their
designs.
SiVL. Our silicon-versus-layout product utilizes our proprietary process
simulation technologies to verify that conventional, phase shifting and OPC
designs produce printed silicon patterns within specified tolerances. By
accurately predicting "silicon level" failures, SiVL reduces or eliminates
design and manufacturing process iterations. SiVL integrates with leading
verification tools.
Manufacturing Data Preparation and Photomask Manufacturing Products
CATS. This family of products includes products that automatically create
different photomask layers by sizing and combining input design layers. CATS
products also support advanced synthesis functions such as tiling and serifing.
Our CATS products allow users to view the input and output data of the
manufacturing data preparation process and verify photomask design accuracy
using a combination of graphical algorithmic and query analyses.
iNMask. Our iNMask formatting product automatically transcribes photomask
layout data into input data formats optimized for specific photomask
manufacturing equipment. iNMask supports leading photomask equipment
manufacturers, including Etec, Hitachi, JEOL, and Leica.
iNMask-MRC. This product verifies that the photomask data files produce
manufacturable photomasks and wafers. The data is checked for violations of
manufacturing requirements, including minimum widths, spacing and layer to
layer errors.
Photomask Inspection and Metrology Products
Virtual Stepper. This product allows photomask manufacturers to accurately
assess the impact of photomask defects on the silicon wafer. Photomask
manufacturers using Virtual Stepper can quickly determine photomask quality,
improving their throughput and yield. The Virtual Stepper takes direct input
from defect inspection and review equipment manufactured by leading equipment
companies including Applied Materials, KLA-Tencor and Zygo.
iNSpect. Our iNSpect product automatically transcribes photomask layout data
into input data formats optimized for specific photomask and wafer inspection
equipment. iNSpect also identifies measurement locations for photomask and
wafer metrology equipment. This product supports leading equipment
manufacturers, including Applied Materials, KLA-Tencor, Leica and Zygo.
Semiconductor Fabrication and Process Development
IC Workbench. IC Workbench is an interactive process simulation, analysis
and optimization tool. This product includes a powerful graphical user
interface, design data viewer and editor with real-time simulation
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<PAGE>
feedback. This allows users to rapidly evaluate the impact of design and
process parameters on the final silicon results while optimizing subwavelength
processes.
ModelCal. This product enables users to automatically calibrate process
models using empirical measurement data from specific semiconductor
manufacturers' processes. ModelCal implements our proprietary model calibration
technology to produce extremely accurate process models using our calibration
photomask designs for both phase shifting and OPC applications.
RuleGen. Our product automatically generates design rules and parameters for
phase shifting and OPC processes using our calibrated process models. The
output of RuleGen is fully compatible with the input requirements of InPhase
and TROPiC.
CheckIt. This product performs accurate, exhaustive, silicon-level
verification for phase shifting and OPC designs prior to silicon production.
CheckIt accurately predicts potential silicon failures and marginal locations
on phase shifting and OPC designs.
Services
Design Services. We assist our customers with semiconductor device designs
that use our phase shifting and OPC technologies. Our design services include
creating phase shifted designs, applying OPC technology to designs and
verifying the final design layout. Our design services help customers rapidly
adopt our technologies.
Technology Integration Services. We offer technology integration services to
our OEM and reseller customers to integrate our software products with their
respective products. We develop software interfaces to semiconductor design
tools and equipment to enable the necessary data communication for integrated
operation of the combined products.
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Customers, Resellers and OEMs
We license our proprietary technologies and software products to companies
in key segments of the semiconductor industry. Our customers include licensees
of phase shifting intellectual property and software, manufacturing data
preparation software, and silicon verification and photomask verification
software. A number of our customers integrate our technology and software into
their products and act as OEMs and resellers. The following customers accounted
for license, maintenance and technical service revenues of more than $100,000
in 1999:
<TABLE>
<S> <C>
IDMs and Foundries Design Tool Vendors
CNet Cadence
Conextant
Fujitsu Semiconductor Equipment
IBM Manufacturers
LG International Applied Materials
Lucent KLA-Tencor
Matsushita Ultrabeam
Motorola Zygo
National Semiconductor
NEC Mask Manufacturers
OKI Align Rite
Samsung Compugraphics
Siemens Dai Nippon
ST Microelectronics Dupont Photomasks
Texas Instruments Hoya
Tokyo University Photronics
Toshiba Precision Semiconductor
VLSI Mask Corporation
World Semiconductor Samsung
Manufacturing Company Taiwan Mask Corporation
Toppan
</TABLE>
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<PAGE>
Sales and Marketing
We rely on our direct sales force and on a combination of reseller and OEM
relationships to penetrate each key segment of the semiconductor industry.
Domestically, our direct sales force operates primarily out of our headquarters
in California. We also employ sales personnel in Minnesota and Texas. In
addition, we maintain sales personnel and support staff who work closely with
resellers and partners in Korea, Japan, The Netherlands and Taiwan. We intend
to continue to expand our sales and support personnel both domestically and
internationally. As of January 1, 2000, we had 28 employees involved in sales
and marketing.
Our marketing personnel focus on developing our relationships with OEMs and
resellers. Our OEM and reseller partners include leading semiconductor
equipment manufacturers, such as Applied Materials and KLA-Tencor, and design
tool companies, such as Cadence. We also have entered into joint-marketing
relationships with leading photomask manufacturers, such Dupont Photomasks and
Photronics. Our direct sales efforts have focused primarily on licensing to
foundries and IDMs. To date, we have concentrated our sales and marketing
efforts on selling research and development licenses. We expect to extend these
efforts to generate production licenses as semiconductor manufacturers move
into production of subwavelength ICs. We have already entered into a production
license with a leading IDM. We believe that our broad-based sales and marketing
efforts will facilitate the adoption of our subwavelength technologies as the
industry standard.
Research and Development
Our future success will depend to a large extent on our ability to rapidly
develop and introduce new proprietary technologies and software products and
enhancements to our existing products. We have made and expect to continue to
make substantial investments in research and development. The complexity of
phase shifting and OPC technologies require expertise in physical IC design and
layout, photomask manufacturing, optical lithography, numerical algorithms and
software development. We believe that the multidisciplinary expertise of our
team of scientists and engineers will continue to advance our market and
technological leadership.
As of January 1, 2000, our engineering group consisted of 51 employees, 67%
of which have advanced degrees, including 35% who have Ph.D.s. These employees
are focused on the following objectives:
Product Development. Our product development group is organized in teams
around the different products within our software platform and includes a
separate solution architecture group that ensures that each product fits into a
common architecture.
Advanced Research. Our advanced research group works independently from our
product development group to assess and develop new technologies that meet the
evolving needs of subwavelength design and manufacturing.
Product Engineering. Our product engineering group is primarily focused on
product release, platform support, quality assurance and product documentation.
Competition
The semiconductor industry is highly competitive and characterized by
rapidly changing design and process technologies. The market for phase shifting
and OPC solutions is rapidly evolving and we expect competition to continue to
increase. We face direct competition from other providers of phase shifting,
OPC and manufacturing data preparation solutions, including Avant! and Mentor
Graphics. We also compete with companies that have developed or have the
ability to develop their own proprietary phase shifting and OPC enabling
solutions, such as IBM. Many of these companies are larger than we are, have
greater financial or other resources than we do and therefore can withstand
adverse market or economic conditions more readily than we can. We may also
face competition from alternatives to current photolithography systems. In
addition, commercially viable manufacturing processes that provide alternatives
to our subwavelength solution may be developed in the future by existing or
potential competitors. We believe that the principal competitive factors in
35
<PAGE>
our market include technology viability, product availability, performance,
reliability, functionality, cost and customer service. We believe we compete
favorably with respect to each of these factors.
Intellectual Property
Our future success and competitive position depend upon our continued
ability to develop and protect proprietary technologies. We rely significantly
on a combination of patents, copyrights, trademarks and trade secrets to
protect our proprietary technologies and prevent competitors from using our
technologies in their products. We have been granted two patents and have 13
patent applications currently pending in the U.S. and in selected foreign
countries. In the future, we may seek additional patent protection when we feel
it is necessary.
Our existing or future patents may be invalidated, circumvented, challenged
or licensed to others. The rights granted thereunder may not provide
competitive advantages to us. In addition, our future patent applications may
not be issued with the scope of the claims sought by us, if at all.
Furthermore, others may develop technologies that are similar or superior to
our proprietary technologies, duplicate our proprietary technologies or design
around the patents owned or licensed by us. In addition, effective patent and
trademark protection may be unavailable or limited in foreign countries where
we may need this protection. We cannot be sure that steps taken by us to
protect our proprietary technologies will prevent misappropriation of our
technologies.
In addition, we generally enter into confidentiality agreements with our
employees, industry partners and customers, as well as generally control access
to and distribution of our documentation and other proprietary information.
Despite this protection, unauthorized parties may copy aspects of our current
or future software products or obtain and use information that we regard as
proprietary.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions. There are also numerous
patents in the semiconductor industry and new patents are being issued at a
rapid rate. This often results in significant and often protracted and
expensive litigation. There is no intellectual property litigation currently
pending against us. However, we may from time to time be notified of third
party intellectual property infringement claims. If it is necessary or
desirable, we may seek licenses under these third party patents or intellectual
property rights. However, we cannot be sure that licenses will be offered or
that the terms of any offered licenses will be acceptable to us.
The failure to obtain a license from a third party for proprietary
technologies used by us could cause us to incur substantial liabilities and to
suspend the sale of our software products or our use of processes requiring the
technologies. Litigation could result in significant expenses to us, harm sales
of the challenged technologies or software product and divert the efforts of
our technical and management personnel, whether or not the litigation is
determined in our favor. In the event of an adverse result in any litigation,
we could be required to pay substantial damages, cease sale of infringing
products, expend significant resources to develop or acquire non-infringing
technology and discontinue the use of processes requiring the infringing
technology or obtain licenses to the infringing technology. We may not be
successful in the development or acquisition, or the necessary licenses may not
be available under reasonable terms, and any development, acquisition or
license could require expenditures by us of substantial time and other
resources. Any of these developments would harm our business.
Employees
As of January 1, 2000, we employed 98 individuals in the United States, of
which 96 were located in the Silicon Valley. As of January 1, 2000, we also
employed seven individuals abroad to provide technical support to customers in
Asia and Europe, two of which were located in Korea, two in Taiwan, one in
Japan and two in The Netherlands. None of our employees is represented by a
labor union or is subject to a collective bargaining agreement. We believe that
our relationship with our employees is good.
36
<PAGE>
Facilities
Our executive offices and principal operations are currently located in
approximately 39,300 square feet of office space in San Jose, California under
a lease that expires in May 2004. We also lease approximately 2,400 square feet
of office space in Los Gatos, California under a lease that expires in January
2001. We believe that our existing facilities are adequate for our current
needs.
Legal Proceedings
We are not currently party to any material legal proceedings.
37
<PAGE>
MANAGEMENT
The following table sets forth information regarding our executive officers
and directors as of December 31, 1999:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
William H. Davidow(b)..... 64 Chairman of the Board
Y. C. (Buno) Pati......... 35 President, Chief Executive Officer and
Director
Yao-Ting Wang............. 36 Chief Technology Officer and Director
Richard Mora.............. 53 Chief Financial Officer and Vice President,
Operations
Atul Sharan............... 40 Vice President, Marketing and Business
Development
Lars Herlitz.............. 35 Vice President, Engineering
John Traub................ 53 Vice President, Worldwide Sales
Kevin MacLean............. 37 Vice President and General Manager,
Transcription
Roger Sturgeon............ 55 Director and Fellow
Thomas Kailath(b)......... 64 Director
Narendra K. Gupta(a)...... 51 Director
Abbas El Gamal(a)......... 49 Director
Harvey Jones(a)(b)........ 47 Director
</TABLE>
- --------
(a) Member of the Audit Committee
(b) Member of the Compensation Committee
William H. Davidow has served as our Chairman of the Board since January
2000 and as a director of our company since June 1998. Mr. Davidow has served
as a partner at Mohr, Davidow Ventures since May 1985 and has been a high-
technology industry executive and a venture investor for over 20 years. From
August 1973 to January 1985, Mr. Davidow was at Intel Corporation where he was
Senior Vice President of marketing and sales, Vice President of the
microcomputer division and Vice President of the microcomputer systems
division. Mr. Davidow received a Ph.D. in electrical engineering from Stanford
University, an M.S. in electrical engineering from the California Institute of
Technology, an M.S. in electrical engineering from Dartmouth College and a B.S.
in electrical engineering from Dartmouth. Mr. Davidow is chairman of the board
at both Rambus Corporation and Viant Corporation. Mr. Davidow also serves on
the boards of several other start-up companies.
Dr. Y. C. (Buno) Pati has served as our President and Chief Executive
Officer and a director since he co-founded our company in October 1995. From
October 1995 to December 1996, Dr. Pati served as an assistant professor of
electrical engineering and computer science at Harvard University. From October
1992 to October 1995, Dr. Pati conducted research efforts in computational and
system sciences applied to integrated circuit manufacturing at Stanford
University. Dr. Pati has published numerous articles in signal processing,
communications, fast lithography simulations and automated phase shifting
photomask design. Dr. Pati received a B.S., an M.S. and a Ph.D. in electrical
engineering from the University of Maryland at College Park.
Dr. Yao-Ting Wang has served as our Chief Technology Officer and a director
since he co-founded our company in October 1995. Dr. Wang's doctoral
dissertation research was on automated design of phase shifting photomasks
using fast algorithms and signal processing techniques. Dr. Wang is active in
the areas of fast lithography simulations and automated advanced photomask
designs, with specific interests in communications, signal processing and
lithographic techniques. Dr. Wang received a B.S. degree from National Taiwan
University and a Ph.D. in Electrical Engineering from Stanford University.
Richard Mora has served as our Chief Financial Officer and Vice President,
Operations since May 1999. From August 1994 to April 1999, Mr. Mora was Chief
Financial Officer and Vice President of Finance at Mattson Technologies, Inc.,
a semiconductor equipment manufacturer. During 1994, Mr. Mora was also Vice
38
<PAGE>
President and General Manager of the High Temp Products Division at Mattson.
From September 1988 to August 1994, Mr. Mora served as Chief Financial Officer
and Vice President of Finance at Actel Corporation, a semiconductor
manufacturer. From June 1985 to August 1988, Mr. Mora was Chief Financial
Officer and Vice President of Finance at HHB Systems. Mr. Mora received a B.S.
in Accounting from Santa Clara University and is a Certified Public Accountant.
Atul Sharan has served as our Vice President, Marketing and Business
Development since October 1998. From April 1997 to October 1998, Mr. Sharan was
director of strategic business development at Ambit Design Systems where he
helped establish and manage key partner relationships with LSI Logic and
Cadence. From May 1991 to March 1997, Mr. Sharan held senior sales and
marketing management positions at Compass Design Automation. While at Compass
as General Manager-Compass India Operations, Mr. Sharan helped establish a
software development center in India. From December 1984 to May 1991, Mr.
Sharan worked in semiconductor manufacturing operations at VLSI Technology and
Integrated Device Technology. While at IDT, Mr. Sharan helped initiate the
company's first overseas test and assembly plant in Penang, Malaysia.
Mr. Sharan received an M.B.A. from the University of California at Berkeley, an
M.S. in engineering from the University of Houston, Texas and a B.Tech. Degree
in engineering from the Indian Institute of Technology in Kanpur, India.
Lars Herlitz has served as our Vice President, Engineering since December
1998. From March 1994 to November 1998, Mr. Herlitz served in various positions
at Escalade Corporation, an engineering design automation company focused on
system-on-chip design. Mr. Herlitz culminated his career at Escalade as Vice
President of Engineering from 1997 to 1998. From December 1987 to March 1994,
Mr. Herlitz served in various positions at Cadence, including as Director of
Engineering from 1993 to 1994. Mr. Herlitz received an M.S. in electrical
engineering and computer science from the University of Linkoping in Sweden.
John Traub has served as our Vice President, Worldwide Sales since September
1999. From December 1998 to September 1999, Mr. Traub served as Vice President
of Worldwide Sales at Ultratech Stepper, Inc. From June 1997 to December 1998,
he was President and Chief Executive Officer of Cyberspace Inc., a technology
consulting company which he founded. From June 1989 to June 1997, Mr. Traub
held various positions at Systems Chemistry, Inc., a manufacturer of ultra-high
parity chemical systems, including Vice President of Worldwide Sales, Chairman,
President and Chief Executive Officer. From April 1982 to June 1989, he was
founder and Managing Director and Vice President of Business Development of
Align-Rite Ltd. in Wales, where he successfully expanded the U.S. company's
business into the European market.
Kevin MacLean has served as our Vice President and General Manager,
Transcription since January 2000. In June 1986, Mr. MacLean co-founded
Transcription Enterprises Limited, where he served as Vice President until we
acquired the company in January 2000. Mr. MacLean received a B.S. in mechanical
engineering from Cornell University.
Roger Sturgeon has served as a director of our company and a Fellow since
January 2000. In June 1986, he co-founded Transcription Enterprises Limited,
where he served as President until we acquired the company in January 2000. Mr.
Sturgeon received an M.S. in electrical engineering and computer science from
the University of California at Berkeley and a B.S. in engineering sciences
from the University of California at Berkeley.
Dr. Thomas Kailath has served as a director of our company since October
1995 and was Chairman of the Board from October 1995 to January 2000. Dr.
Kailath has served as the Hitachi American Professor of Engineering at Stanford
University since 1987. From January 1981 to June 1987, Dr. Kailath was
Associate Department Chairman of the Department of Electrical Engineering at
Stanford University and served as Director of the Information Systems
Laboratory from January 1971 to January 1981. In February 1980, Dr. Kailath co-
founded Integrated Systems Inc., a leading developer of embedded software, and
has served as a director of Integrated Systems since its inception.
39
<PAGE>
Dr. Kailath received an Sc.D. in Electrical Engineering from the Massachusetts
Institute of Technology, an S.M. in Electrical Engineering from MIT and a B.E.
in telecommunications from the University of Poona, India. Dr. Kailath is a
member of the National Academy of Engineering and the American Academy of Arts
and Sciences. Dr. Kailath serves on the board of Excess Bandwidth Corporation.
Dr. Narendra K. Gupta has served as director of our company since April
1997. Dr. Gupta co-founded Integrated Systems in 1980 and has served as its
Chairman since November 1992. He was the President and Chief Executive Officer
of Integrated Systems from its inception until May 1994. Dr. Gupta received a
Ph.D. in engineering from Stanford and an M.S. in engineering from the
California Institute of Technology. Dr. Gupta also received a B. Tech. Degree
in mechanical engineering from the Indian Institute of Technology. Dr. Gupta
was elected a Fellow of the Institute for Electrical and Electronics in 1991.
Dr. Abbas El Gamal has served as a director of our company since April 1997.
Dr. El Gamal has been on the faculty of the Electrical Engineering department
at Stanford University since September 1981. In December 1990, Dr. El Gamal co-
founded Silicon Architects, which was acquired by Synopsis in 1995 and served
as its Chief Technical Officer until May 1995. In July 1986, Dr. El Gamal co-
founded Actel Corporation and served as its Chief Scientist until November
1990. From July 1984 to July 1986, Dr. El Gamal served as a director of LSI
Logic's Research Lab, where he developed silicon compilation technology, DSP
and image processing ASICs. Dr. El Gamal's research interests include CMOS
image sensors and digital cameras, image processing, photomask programmable
gate arrays and information theory. He has authored or co-authored over 100
papers and 20 patents in these areas. Dr. El Gamal received a Ph.D. in
electrical engineering from Stanford, an M.S. in Statistics from Stanford and a
B.S. in Electrical Engineering from Cairo University, Egypt. Dr. El Gamal is a
Fellow of The Institute of Electrical and Electronics Engineers and serves on
the boards of Lightspeed Semiconductor and PiXIM, Inc.
Harvey Jones has served as a director of our company since June 1998. From
December 1987 to February 1998, Mr. Jones was employed by Synopsys, an
electronic design automation software company. Mr. Jones served as President
and Chief Executive Officer of Synopsys from December 1987 to January 1995, and
as its Executive Chairman of the Board from January 1995 to February 1998. From
April 1981 to November 1987, Mr. Jones served in various positions at Daisy
Systems, a computer-aided engineering company he co-founded, most recently as
President and Chief Executive Officer. From August 1974 to March 1981, Mr.
Jones served in various positions at Calma, a computer-aided design company,
most recently as Vice President of Marketing. In addition to his operational
roles, Mr. Jones has been an investor and active board member of such ventures
as Remedy Corporation, an enterprise software company, and NVIDIA Corporation,
a 3-D graphics processor company. Mr. Jones received an M.S. degree from MIT's
Sloan School of Management and a B.S. in mathematics and computer sciences from
Georgetown University.
Classified Board
Immediately following the offering, our board of directors will consist of
eight directors divided into three classes with each class serving for a term
of three years as follows:
<TABLE>
<CAPTION>
Class Expiration Member
----- ---------- ------
<S> <C> <C>
Class I............. 2001 El Gamal, Jones and Wang
Class II............ 2002 Kailath and Sturgeon
Class III........... 2003 Davidow, Gupta and Pati
</TABLE>
At each annual meeting of stockholders, directors will be elected by the
holders of common stock to succeed those directors whose terms are expiring. In
addition, our bylaws provide that the authorized number of directors may be
changed only by resolution of the board of directors. Any additional
directorships resulting
40
<PAGE>
from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the total number of directors. This classification of the board of directors
may have the effect of delaying or preventing changes in control of our
company.
Board Committees
The board of directors has a compensation committee and an audit committee.
The compensation committee, currently comprised of Mr. Davidow, Mr. Jones and
Mr. Kailath, administers the 1997 stock plan, the 2000 stock plan, the 2000
employee stock purchase plan and all matters concerning executive compensation
and employee agreements. The audit committee, currently comprised of Mr. El
Gamal, Mr. Gupta and Mr. Jones, performs the following functions:
. monitors our system of internal controls;
. corporate financial reporting and internal and external audits;
. provides the board of directors with the results of its examinations and
recommendations;
. outlines to the board of directors the improvements made or to be made in
internal accounting controls;
. nominates independent auditors; and
. provides the board of directors with other information and materials
necessary to make the board of directors aware of significant financial
matters.
Each of the audit committee and compensation committee was established in
January 2000.
Director Compensation
We do not currently pay compensation to directors for serving in that
capacity, nor do we reimburse directors for expenses incurred in attending
board meetings. In November 1999, Mr. Davidow received an option to purchase an
aggregate of 150,000 shares of common stock at an exercise price per share of
$1.00. Please see "Certain Transactions--Restricted Stock Purchase Agreements."
On January 1, 2000, Mr. Sturgeon was granted the right to receive an option to
purchase an aggregate of 225,000 shares of common stock at an exercise price
per share of $2.67. Please see "Employment Agreements." The board has the
discretion to grant options to non-employee directors under the 2000 stock
plan. See "Employee Benefit Plans--2000 Stock Plan."
Compensation Committee Interlocks and Insider Participation
The compensation committee is currently comprised of Mr. Davidow, Mr. Jones
and Mr. Kailath. None of these committee members has at any time been an
officer or employee of our company. No interlocking relationship exists between
our board of directors or compensation committee and the board of directors or
compensation committee of any other company, nor has any such interlocking
relationship existed in the past.
Limitation on Liability and Indemnification Matters
Our amended and restated certificate of incorporation limits the personal
liability of directors for breach of fiduciary duty to the maximum extent
permitted by Delaware law. Delaware law provides that directors of a
corporation will not be personally liable to us or our stockholders for
monetary damages for breach of their fiduciary duties as directors, except for:
. any breach of the director's duty of loyalty to us or our stockholders;
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases, redemptions
or other distributions; or
. any transaction from which the director derived an improper personal
benefit.
41
<PAGE>
Our bylaws require that we indemnify our directors and officers to the
extent permitted by Delaware law. We may, in our discretion, indemnify other
employees and agents to the extent permitted by Delaware law. We believe that
indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any of our officers, directors, employees or
other agents for any liability incurred in that capacity or arising out of that
status, regardless of whether indemnification is permitted under Delaware law.
We have also entered into agreements to indemnify our directors and
officers. These agreements indemnify our directors and officers for some
expenses, including attorneys' fees, judgments, fines and settlement amounts
incurred by them in any action or proceeding, including any action by or in the
right of our company, arising out of their services as one of our directors or
officers, any of our subsidiaries or any other company or enterprise to which
the person provides services at our request. In addition, we have obtained
directors' and officers' insurance providing indemnification for some of our
directors, officers and employees for certain liabilities. We believe that
these provisions, agreements and insurance are necessary to attract and retain
qualified directors and officers.
The limited liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty and may reduce the
likelihood of derivative litigation against our directors and officers, even
though a derivative action, if successful, might otherwise benefit us and our
stockholders. Moreover, a stockholder's investment in us may be adversely
affected to the extent we pay the costs of settlement or damage awards against
our directors and officers under these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
Executive Compensation
The following table sets forth information concerning the compensation that
we paid during the fiscal year ended December 31, 1999 to our Chief Executive
Officer and our three other most highly compensated officers who earned more
than $100,000 during that fiscal year. All option grants were made under our
1997 stock plan. The amounts listed under "All Other Compensation" represent
the dollar value of term life insurance premiums paid by us on behalf of the
named executive officer during the fiscal year ended December 31, 1999. There
is no cash surrender value under the life insurance policy.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual
Compensation Long Term Compensation
---------------- ----------------------------
Securities
Salary Bonus Underlying All Other
Name and Principal Position ($) ($) Options (#) Compensation ($)
- --------------------------- -------- ------- ----------- ----------------
<S> <C> <C> <C> <C>
Buno Pati........................ $104,000 $ -- -- $ 91
President and Chief Executive
Officer
Richard Mora..................... 80,095 25,962 412,500 78
Chief Financial Officer and Vice
President, Operations
Atul Sharan...................... 130,000 52,000 277,500 101
Vice President, Marketing and
Business Development
Lars Herlitz..................... 130,000 37,250 255,000 101
Vice President, Engineering
</TABLE>
42
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth information with respect to stock options
granted to our Chief Executive Officer and our three most highly compensated
executive officers during the fiscal year ended December 31, 1999. We have
never granted any stock appreciation rights. All option grants were made under
our 1997 stock plan. The exercise price per share was equal to the fair market
value of the common stock on the date of grant as determined by the board of
directors. Percentage of total options is based on an aggregate of
3,019,050 shares of common stock granted under the 1997 stock plan in the year
ended December 31, 1999. The potential realizable value is calculated based on
the term of the ten-year option and assumed rates of stock appreciation of 5%
and 10%, compounded annually. These assumed rates comply with the rules of the
Securities and Exchange Commission and do not represent our estimate of future
stock price. Actual gains, if any, on stock option exercises will be dependent
on the future performance of our common stock.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
------------------------------------------------ Value at Assumed
Number Annual Rates of Stock
of Securities % of Price Appreciation
Underlying Total Options Exercise for Option Term ($)
Options Granted in Price Per Expiration ----------------------
Name Granted (#) 1999 (%) Share ($) Date 5% 10%
- ---- ------------- ------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Buno Pati............... -- -- -- -- -- --
Richard Mora............ 195,000 6.5 0.50 05/26/09 61,317 155,390
Richard Mora............ 217,500 7.2 1.00 12/27/09 136,785 346,639
Atul Sharan............. 90,000 3.0 0.33 03/31/09 18,865 47,807
Atul Sharan............. 187,500 6.2 1.00 12/27/09 117,918 298,827
Lars Herlitz............ 172,500 5.7 0.33 02/03/09 36,158 91,631
Lars Herlitz............ 82,500 2.7 1.00 12/27/09 51,884 131,484
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth our Chief Executive Officer and our three
other most highly compensated executive officers information concerning shares
acquired upon exercise of stock options in fiscal year ended December 31, 1999
and exercisable and unexercisable options held as of December 31, 1999. All
options were granted under our 1997 stock plan. The value realized is based on
the assumed initial public offering price of $ , minus the per share exercise
price, multiplied by the number of shares issued upon exercise of the option.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at December 31, In-the-Money Options at
Shares 1999 (#) December 31, 1999 ($)
Acquired on Value ------------------------- -------------------------
Name Exercise (#)(a) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Buno Pati............... -- -- -- -- -- --
Richard Mora............ 412,500 -- -- -- --
Atul Sharan............. 73,500 339,000 -- 101,000 --
Lars Herlitz............ 198,282 56,718 -- -- --
</TABLE>
- --------
(a) The shares acquired by each of Mr. Mora, Mr. Sharan and Mr. Herlitz were
acquired pursuant to restricted stock purchase agreements. We have the
right to repurchase any unvested shares at their cost in the event of any
of such employees termination of employment. As of December 31, 1999,
approximately 412,500 shares held by Mr. Mora, 17,250 shares held by Mr.
Sharan and 155,157 shares held by Mr. Herlitz were unvested and subject to
our repurchase.
43
<PAGE>
Employment Agreements
Mr. Sturgeon.
On January 1, 2000, Mr. Sturgeon entered into an employment agreement with
Transcription. Pursuant to the employment agreement, Mr. Sturgeon is to serve
as Fellow for a term of two years. Mr. Sturgeon is entitled to a base salary of
$205,000 per year and a bonus for the year 2000 of up to approximately $50,000,
based upon the achievement of mutually agreed upon performance objectives. In
addition, Mr. Sturgeon is to receive an option exercisable for 225,000 shares
of our common stock, at an exercise price per share of approximately $2.67. The
shares subject to the option are to be immediately exercisable. However, we
have the right to repurchase any of the unvested shares upon Mr. Sturgeon's
termination of employment. The shares subject to our repurchase option will be
released according to the following schedule:
. 50% of the shares will be released on January 1, 2002; and
. 6.25% of the remaining shares will be released at the end of each three
month period thereafter, subject to Mr. Sturgeon's continued employment.
In the event Mr. Sturgeon's employment with Transcription is terminated
prior to January 1, 2002 as a result of death or disability, the shares subject
to the option will be released according to the following accelerated schedule:
. 6.25% of the shares will be released for each three month period,
measured from January 1, 2000, for which Mr. Sturgeon completed
employment with Transcription prior to his termination as a result of
death or disability.
Simultaneously with the execution of his employment agreement, Mr. Sturgeon
entered into a non-competition agreement with us and Transcription. Pursuant to
the non-competition agreement, Mr. Sturgeon agreed not to compete against or
solicit the employees of either us or Transcription for, generally, a period of
two years after his termination of employment.
Mr. MacLean.
On January 1, 2000, Mr. MacLean entered into an employment agreement with
Transcription. Pursuant to the employment agreement, Mr. MacLean is to serve as
Vice President and General Manager of Transcription for a term of two years.
Mr. MacLean is entitled to a base salary of $200,000 per year and a bonus for
the year 2000 of up to approximately $100,000, based upon the achievement of
mutually agreed upon revenue quotas. In addition, Mr. MacLean is to receive an
option exercisable for 225,000 shares of our common stock, at an exercise price
per share of approximately $2.67. The shares subject to the option are to be
immediately exercisable. However, we have the right to repurchase any of the
unvested shares upon Mr. MacLean's termination of employment. The shares
subject to our repurchase option will be released according to the following
schedule:
. 50% of the shares will be released on January 1, 2002; and
. 6.25% of the remaining shares will be released at the end of each three
month period thereafter, subject to Mr. MacLean's continued employment.
In the event Mr. MacLean's employment with Transcription is terminated prior
to January 1, 2002 as a result of death or disability, the shares subject to
the option will be released according to the same accelerated schedule
described under Mr. Sturgeon's employment agreement above.
Simultaneously with the execution of his employment agreement, Mr. MacLean
entered into a non-competition agreement with us and Transcription
substantially similar to the non-competition agreement executed by Mr. Sturgeon
described above.
44
<PAGE>
Generally.
We require each of our employees to enter into confidentiality agreements
prohibiting the employee from disclosing any of our confidential or proprietary
information. In addition, the agreements generally provide that upon
termination, the employee will not solicit our employees for a period of twelve
months. At the time of commencement of employment, our employees also generally
sign offer letters specifying certain basic terms and conditions of employment.
Other than as described above, in general, our employees are not subject to
written employment agreements.
Employee Benefit Plans
2000 Stock Plan.
Our 2000 stock plan provides for the granting to employees of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code
and for the granting to employees, directors, and consultants of nonstatutory
stock options and stock purchase rights. As of January 24, 2000, 3,000,000
shares were authorized under the plan, and all of these shares remain available
for future grant. The 2000 stock plan provides for annual increases on the
first day of each fiscal year beginning 2001 equal to the lesser of:
.3,000,000 shares;
.5% of our outstanding shares as of such date; or
.a lesser amount determined by the board of directors.
The 2000 stock plan may be administered by the board of directors or a
committee of the board. The board has the power to determine the terms of the
options granted, including the exercise price, the number of shares subject to
each option, the exercisability of the option grant and the form of
consideration payable upon such exercise. The board also has the authority to
amend, suspend or terminate the 2000 stock plan, provided that no such action
may affect any share of common stock previously issued and sold or any option
previously granted under the plan. The 2000 stock plan terminates in 2010.
The 2000 stock plan provides that in the event we merge with or into another
corporation, or we sell substantially all of our assets, each option may be
assumed or substituted by the successor corporation. If the outstanding options
are not assumed or substituted by the successor corporation, each outstanding
option will fully vest and become exercisable, and the optionee will have 15
days to exercise the option, after which such time the option will terminate.
Non-Employee Director Stock Program. Pursuant to the 2000 stock plan, the
board has the discretion to grant options to non-employee directors. The
director option component of the 2000 stock plan will not become effective
until the date of this offering. Each non-employee director who first becomes a
board member after the date of this offering may be granted options for up to
30,000 shares. In addition, each non-employee director may be granted options
for up to 7,500 shares annually.
The exercise price of all options granted to non-employee directors under
the 2000 stock plan is required to be 100% of the fair market value per share
of the common stock, determined with reference to the closing price of the
common stock as reported on the Nasdaq National Market on the date of grant.
In the event of a change of control, each option granted pursuant to the
non-employee director stock program will become fully-vested and exercisable.
1997 Stock Plan. Our 1997 stock plan provides for the granting to employees
of incentive stock options within the meaning of Section 422 of the Internal
Revenue Code and for the granting to employees and
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<PAGE>
consultants of nonstatutory stock options. The terms of the 1997 stock plan are
substantially similar to those of the 2000 stock plan. As of January 15, 2000,
6,196,500 shares were authorized under the plan, 1,345,293 shares were subject
to outstanding options and approximately 1,324,781 shares remain available for
future grant. Upon the completion of this offering, the 1997 stock plan will
terminate, no further option grants will be made under the 1997 stock plan, and
any shares reserved but not yet issued under the 1997 stock plan will be
available for future grant under the 2000 stock plan.
The stock option agreements under the 1997 stock plan provide for the full
acceleration of vesting of options and stock purchase rights if such options or
stock purchase rights are not assumed or substituted by the successor
corporation in a merger or asset sale.
2000 Employee Stock Purchase Plan. As of January 24, 2000, a total of
300,000 shares of common stock have been reserved for issuance under our 2000
employee stock purchase plan, plus annual increases on the first day of each
fiscal year beginning 2001 equal to the lesser of:
. 675,000 shares;
. 2% of our outstanding shares as of such date; or
. a lesser amount determined by the board of directors.
The 2000 employee stock purchase plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, contains 24 month offering periods.
The offering periods generally start on the first trading day on or after May
15 and November 15 of each year, except for the first such offering period,
which will commence on the first trading day on or after the effective date of
this offering and ends on the last trading day on or before November 14, 2000.
Subsequent offering periods will each have a six-month duration commencing on
the first trading day on or after May 15 and November 15 of each year.
Employees are eligible to participate if they are employed by us or any
participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, the following employees may not be
granted options to purchase stock under the purchase plan:
. any employee who immediately after the grant would own stock possessing
5% or more of the total combined voting power or value of all classes of
our capital stock; or
. any employee whose rights to purchase stock under all of our employee
stock purchase plans accrues at a rate which exceeds $25,000 worth of
stock for each calendar year.
Participants may purchase common stock through payroll deductions of up to
15% of the participant's compensation. The maximum number of shares a
participant may purchase during a six month offering period is 2,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the purchase plan is 85% of the lower of the fair market value
of the common stock at the beginning of the offering period and the fair market
value of the common stock at end of the offering period.
The purchase plan provides that in the event we merge with or into another
company, or we sell substantially all of our assets, each outstanding option
may be assumed or substituted by the successor company. If the successor
company refuses to assume or substitute the options, the offering period then
in progress will be shortened and a new exercise date will be set, which will
occur before the proposed merger or sale.
The purchase plan will become effective on the effective date of this
offering and will terminate ten years thereafter, unless sooner terminated by
the board of directors. The board has the authority to amend or terminate the
purchase plan, except that no such action may adversely affect any outstanding
rights to purchase stock.
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<PAGE>
401(k) Savings Plan
We sponsor a 401(k) savings in which eligible employees may participate. The
401(k) savings plan is intended to qualify under Sections 401(a) and 401(k) of
the Internal Revenue Code of 1986, as amended. Contributions to the 401(k)
savings plan and income earned on such contributions are not taxable to
employees until withdrawn from the 401(k) savings plan. Subject to restrictions
imposed by the Internal Revenue Code on highly compensated employees, employees
may generally defer up to 15% of their pre-tax earnings up to the statutorily
prescribed annual limit, which is $10,500 for the 2000 calendar year, and to
have the amount of such reduction contributed to the 401(k) savings plan. The
401(k) savings plan permits, but does not require, additional matching
contributions to the 401(k) savings plan. To date, we have not made any
matching contributions to the 401(k) savings plan. The 401(k) savings plan may
be amended or terminated by us at anytime, and in our sole discretion.
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<PAGE>
RELATED PARTY TRANSACTIONS
Equity Investment Transactions
In October and December 1996, we sold 2,250,006 shares of Series A preferred
stock for $0.24 per share. In June and August 1997, we sold 1,050,000 shares of
Series B preferred stock for $0.67 per share. In June and August 1998, we sold
2,445,089 shares of Series C preferred stock for $3.26 per share. In June and
August 1999, we sold 2,357,906 shares of Series D preferred stock for $5.89 per
share. In January 2000, we issued 3,809,994 shares of Series E preferred stock,
for $10.67 per share, in connection with our acquisition of Transcription.
Listed below are the directors, executive officers and stockholders who
beneficially own 5% or more of our securities who participated in these
financings.
<TABLE>
<CAPTION>
Directors, Executive Series A Series B Series C Series D Series E Aggregate
Officers Preferred Preferred Preferred Preferred Preferred Cash
and 5% Stockholders Stock Stock Stock Stock Stock Consideration
-------------------- --------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Entities affiliated with
Mohr, Davidow
Ventures(a)............ -- -- 1,687,116 -- -- $5,500,000
Thomas Kailath(b)....... 416,667 -- 19,500 -- -- 163,579
Narendra Gupta(c)....... 416,666 -- 338,248 -- -- 1,202,705
Abbas El Gamal.......... 416,667 -- -- -- -- 100,000
Roger Sturgeon.......... -- -- -- -- 2,388,715 25,479,632
Kevin MacLean........... -- -- -- -- 1,194,356 12,739,808
</TABLE>
- --------
(a) The Mohr, Davidow Ventures shares include shares purchased by Mohr,
Davidow Ventures V, L.P. and Mohr, Davidow Ventures V, L.P., as nominee
for MDV Entrepreneur's Network Fund II (A), L.P. and MDV Entrepreneur's
Network Fund II (B), L.P. Entities affiliated with Mohr, Davidow Ventures
also hold warrants exercisable for an aggregate of 150,000 shares of
Series C preferred stock, at an exercise price per share of $3.26, for an
additional aggregate cash consideration of $489,000. Mr. Davidow, a
partner of Mohr, Davidow Ventures and a director of our company, disclaims
beneficial ownership of the securities held by these entities except for
his proportional interest in the entities.
(b) Includes shares held by Paul V. Kailath Revocable Trust u/a/d 10/1/89 and
Priya S. Kailath Revocable Trust u/a/d 10/1/89. Includes 145,833 shares of
Series A preferred stock and 19,500 shares of Series C preferred stock
held by a limited number of relatives of Dr. Kailath.
(c) Includes shares held by Dr. Gupta, as custodian, for his minor children.
Includes 338,248 shares of Series C preferred stock held by a limited
number of relatives of Dr. Gupta.
Restricted Stock Purchase Agreements
Mr. Davidow.
In November 1999, Mr. Davidow exercised an option grant to purchase 150,000
shares of common stock and entered into a restricted stock purchase agreement
regarding the shares. Pursuant to the restricted stock purchase agreement, we
have the right to repurchase any of the unvested shares upon termination of his
services. As of January 15, 2000, 93,750 shares held by Mr. Davidow remain
unvested. Mr. Davidow paid the $1.00 exercise price per share for such shares
in cash. In addition, Mr. Davidow's stock option agreement provides that if we
enter into any transaction which involves a change of control, the shares held
by Mr. Davidow will automatically vest in full. Generally, a "change of
control" is defined to include mergers, asset sales or other transactions
involving a transfer of at least 50% of our securities.
Mr. Mora.
In May and December 1999, Mr. Mora exercised option grants to purchase an
aggregate of 412,500 shares of common stock and entered into restricted stock
purchase agreements regarding the shares. Pursuant to the restricted stock
purchase agreements, we have the right to repurchase any of the unvested shares
upon his
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<PAGE>
termination of employment. As of January 15, 2000, an aggregate of 412,500
shares held by Mr. Mora remain unvested. Mr. Mora paid the $0.50 exercise price
per share for 195,000 of such shares by delivery of two-year full-recourse
promissory note bearing interest at 4.90% per annum, compounded annually. Mr.
Mora paid the $1.00 exercise price per share for the remaining 217,500 shares
by delivery of a two-year full-recourse promissory note bearing interest at
5.74% per annum, compounded annually. Each of the notes is secured by the
shares of common stock purchased by Mr. Mora. As of January 15, 2000,
approximately $318,543 in unpaid principal and interest was outstanding in the
aggregate under the notes. In addition, each of Mr. Mora's option agreements
provide that:
. upon a change of control of our company, 50% of the shares subject to the
options held by Mr. Mora that have not vested as of six months after the
change of control shall vest in full; and
. if Mr. Mora's employment is terminated as a result of an involuntary or
constructive termination within 12 months of the change of control, all
of the shares subject to the options held by Mr. Mora will vest in full.
Mr. Sharan.
In March and December 1999, Mr. Sharan received option grants to purchase an
aggregate of 277,500 shares of common stock. The December 1999 option grant,
exercisable for 187,500 shares of common stock at an exercise price of $1.00
per share, has not yet been exercised by Mr. Sharan. Mr. Sharan has exercised
and entered into a restricted stock purchase agreement regarding 28,500 of the
90,000 shares of common stock subject to the March 1999 option grant. Pursuant
to the restricted stock purchase agreement, we have a right to repurchase any
of the unvested shares upon his termination of employment. As of January 15,
2000, 375 shares held by Mr. Sharan remain unvested. Mr. Sharan paid the $0.33
exercise price per share for such shares in cash. The remaining 249,000 shares
subject to option grants to Mr. Sharan in 1999 have not been exercised, but are
exercisable at any time at an exercise price per share of $0.33 for 61,500 of
the shares and $1.00 for 187,500 of the shares. Each of Mr. Sharan's option
agreements will be amended to provide that:
. upon a change of control of our company, 50% of the shares subject to the
options held by Mr. Sharan that have not vested as of six months after
the change of control shall vest in full; as of January 15, 2000, an
aggregate of 342,188 shares have not vested; and
. if Mr. Sharan's employment is terminated as a result of an involuntary or
constructive termination within 12 months of the change of control, all
of the shares subject to the options held by Mr. Sharan will vest in
full.
Mr. Herlitz.
In February and December 1999, Mr. Herlitz received option grants to
purchase an aggregate of 255,000 shares of our common stock. Mr. Herlitz has
exercised and entered into restricted stock purchase agreements regarding all
172,500 shares of the February 1999 option grant and 25,782 shares of the
82,500 shares of common stock subject to the December 1999 option grant.
Pursuant to the restricted stock purchase agreements, we have the right to
repurchase any of the unvested shares upon his termination of employment. As of
January 15, 2000, 129,375 shares of the February 1999 option grant and 25,782
shares of the December 1999 option grant held by Mr. Herlitz remain unvested.
Mr. Herlitz paid the $0.33 exercise price per share for 172,500 of the shares,
and the $1.00 exercise price per share for the remaining 25,782 shares, in
cash. The remaining 56,718 shares subject to the December 1999 option grant
held by Mr. Herlitz have not been exercised, but are exercisable at any time at
an exercise price per share of $1.00. Each of Mr. Herlitz's option agreements
will be amended to provide that:
. upon a change of control of our company, 50% of the shares subject to the
options held by Mr. Herlitz that have not vested as of six months after
the change of control shall vest in full; as of January 15, 2000, an
aggregate of 211,875 shares have not vested; and
. if Mr. Herlitz's employment is terminated as a result of an involuntary
or constructive termination within 12 months of the change of control,
all of the shares subject to the options held by Mr. Herlitz will vest in
full.
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<PAGE>
Mr. Traub.
In November and December 1999, Mr. Traub received option grants to purchase
an aggregate of 232,500 shares of common stock. Mr. Traub has exercised and
entered into restricted stock purchase agreements for 37,500 shares of the
150,000 shares of common stock subject to the November 1999 option grant, and
20,625 of the 82,500 shares of common stock subject to the December 1999 option
grant. Pursuant to the restricted stock purchase agreements, we have the right
to repurchase any of the unvested shares upon his termination of employment. As
of January 15, 2000, all of the 58,125 shares held by Mr. Traub remain
unvested. Mr. Traub paid the $1.00 exercise price per share for all such shares
in cash. The remaining 174,375 shares subject to the option grants held by Mr.
Traub have not been exercised, but are exercisable at any time at an exercise
price per share of $1.00. Each of Mr. Traub's option agreements will be amended
to provide that:
. upon a change of control of our company, 50% of the shares subject to the
options held by Mr. Traub that have not vested as of six months after the
change of control shall vest in full; as of January 15, 2000, an
aggregate of 232,500 shares have not vested; and
. if Mr. Traub's employment is terminated as a result of an involuntary or
constructive termination within 12 months of the change of control, all
of the shares subject to the options held by Mr. Traub will vest in full.
Mr. Jones
In April 1999, Mr. Jones exercised an option grant to purchase 150,000
shares of common stock and entered into a restricted stock purchase agreement
regarding the shares. Pursuant to the restricted stock purchase agreement, we
have the right to repurchase any of the unvested shares upon termination of his
services. As of January 15, 2000, 93,750 shares held by Mr. Jones remain
unvested. Mr. Jones paid the $0.33 exercise price per shares for such shares in
cash. In addition, Mr. Jones' stock option agreement provides that if we enter
into any transaction which involves a change of control, the shares held by Mr.
Jones will automatically vest in full. Generally, a "change of control" is
defined to include mergers, asset sales or other transactions involving a
transfer of at least 50% of our securities.
Acquisition of Transcription
Agreement and Plan of Reorganization.
Pursuant to an agreement and plan of reorganization, dated December 21,
1999, among Transcription, Transcription Enterprises Limited, Mr. Sturgeon, Mr.
MacLean and us, we acquired Transcription. The acquisition was effective
January 1, 2000 and, as a result, Transcription is now our wholly-owned
subsidiary.
The consideration paid by us for Transcription Enterprises Limited was a
combination of stock and promissory notes. We issued 3,809,994 shares of our
Series E preferred stock, which the parties agreed had a fair market value of
$10.67 per share. Mr. Sturgeon received 2,388,715 of such shares, or an
aggregate of $25,479,632, and Mr. MacLean received 1,194,356 of such shares, or
an aggregate of $12,739,808. We also issued an aggregate principal amount of
$40,000,000 in promissory notes, $5,000,000 of which has already been paid by
us. As of January 1, 2000, the aggregate principal amounts of the notes
outstanding to Mr. Sturgeon and Mr. MacLean is approximately $21,943,574 and
$10,971,787, respectively.
As collateral security for the payment of any indemnification obligations of
the former shareholders of Transcription Enterprises Limited, subject to a
deductible of $100,000, 1,904,995 shares of the Series E preferred stock we
issued to such shareholders were pledged to us. Such shares were withheld from
the former shareholders, on a pro rata basis, and are being held in escrow with
an escrow agent. 1,194,357 of the shares of Series E preferred stock issued to
Mr. Sturgeon and 597,178 of the shares of Series E preferred stock issued to
Mr. MacLean have been pledged to us and are in escrow. Generally, all of the
pledged shares to be issued to the former shareholders of Transcription
Enterprises Limited, other than Mr. Sturgeon and Mr. MacLean, or approximately
113,460 shares, will be released from the escrow upon the closing of this
offering. The
50
<PAGE>
remaining pledged shares, approximately 1,791,535 shares, will be released to
Mr. Sturgeon and Mr. MacLean as follows:
. 50% of such shares will be released on January 1, 2001; and
. the remaining 50% of the pledged shares will be released on January 1,
2002.
Pursuant to the reorganization agreement, 55% of a specified amount of the
accounts receivable of Transcription Enterprises Limited is to be distributed
to the former shareholders of the company, on a pro rata basis, as such
receivables are collected by Transcription. We are entitled to retain 45% of
such accounts receivable, plus all fees associated with maintenance, support or
other services rendered by Transcription Enterprises Limited on such accounts.
As of January 27, 2000, we will have collected and are retaining approximately
$523,000 of the accounts receivables and maintenance services and distributing
approximately $204,000 of such receivables to the former shareholders of
Transcription Enterprises Limited. Of that $204,000 amount, Mr. Sturgeon and
Mr. MacLean are to receive $128,000 and $64,000, respectively.
Promissory Notes.
We issued an aggregate principal amount of $40,000,000 in promissory notes,
with each note dated January 1, 2000, to the ten former shareholders of
Transcription Enterprises Limited. An aggregate principal amount of $5,000,000
under the notes was paid by us to such shareholders shortly after January 1,
2000. The remaining $35,000,000 in unpaid principal amount under the notes
bears interest at a rate of 8.0% per annum. The unpaid principal amount, plus
accrued interest, is due and payable in 16 equal quarterly installments of
approximately $2,187,500, commencing on April 1, 2000, and thereafter on July
1, October 1 and December 31, with the final installments due December 31,
2003. With some limitations, the notes may be prepaid in whole or in part by us
at any time, without penalty.
The holders of a majority of the outstanding aggregate principal amount of
the notes have the option to set-off, on behalf of all holders of the notes,
any indemnification obligations owned to us under the agreement and plan of
reorganization against the outstanding aggregate principal amount of the notes.
Any such set-off is to be on a pro rated basis.
In the event of our default under the notes, the outstanding aggregate
principal amounts of the notes, and all accrued interest on the notes, will be
immediately due and payable. Events of default under the notes include:
. default in the payment of principal or interest on a payment date;
. our general nonpayment of our debts as they become due, or the
institution of bankruptcy proceedings against us which we do not cure
within 60 days;
. the entry of an order for relief relating to bankruptcy, or an order
ordering our liquidation or winding up; or
. our default of a material term under the security agreement which is not
cured within 30 days.
Security Agreement.
Pursuant to the security agreement, dated January 1, 2000, the former
shareholders of Transcription Enterprises Limited were granted a security
interest in the assets of Transcription, including, without limitation, all
software, licenses, intellectual property and receivables. In addition,
Transcription agreed to several standards covenants for such agreements,
including without limitation to preserve and protect the assets and pay all
material taxes on the assets as they become due. Upon our event of default
under the notes, or Transcription's default of a material term of the security
agreement which is not cured within 30 days, the former shareholders of
Transcription Enterprises Limited may foreclose on Transcription's assets.
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<PAGE>
Other Transactions
We have entered into indemnification agreements with each of our executive
officers and directors.
We have granted options to certain of our executive officers and directors.
Please see "Management--Option Grants in Last Fiscal Year", "--Employment
Agreements" and "--Restricted Stock Purchase Agreements."
Holders of preferred stock are entitled to certain registration rights with
respect to the common stock issued or issuable upon conversion of the preferred
stock. Please see "Description of Capital Stock--Registration Rights."
We believe that all related-party transactions described above were on terms
no less favorable than could have been otherwise obtained from unrelated third
parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of our common stock, as of January 15, 2000, and as
adjusted to reflect the sale of common stock offered by us in this offering,
for:
. each person who we know beneficially owns more than 5% of the common
stock;
. each of our directors;
. each executive officer named in the Summary Compensation Table; and
. all of our directors and officers as a group.
Unless otherwise indicated, the principal address of each of the
stockholders below is c/o Numerical Technologies, Inc., 70 West Plumeria Drive,
San Jose, California 95134. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission and includes voting or
investment power with respect to the securities. Except as indicated by
footnote, and subject to applicable community property laws, each person
identified in the table possesses sole voting and investment power with respect
to all shares of common stock shown held by them. The number of shares of
common stock outstanding used in calculating the percentage for each listed
person includes shares of common stock underlying options or warrants held by
such person that are exercisable within 60 days of January 15, 2000, but
excludes shares of common stock underlying options or warrants held by any
other person. Percentage of beneficial ownership is based on 21,498,619 shares
of common stock outstanding as of January 15, 2000, after giving effect to the
conversion of all outstanding shares of preferred stock upon the closing of
this offering. The numbers shown in the table assume no exercise by the
underwriters of their over-allotment option.
<TABLE>
<CAPTION>
Shares Owned
Prior to the Percentage
Offering Beneficially Owned
------------ ------------------------------
Number Before Offering After Offering
------------ --------------- --------------
<S> <C> <C> <C>
5% Stockholders:
Funds affiliated with Mohr,
Davidow Ventures(a).............. 1,837,116 8.5%
Directors and Executive Officers:
Buno Pati......................... 2,518,500 11.7
Roger Sturgeon.................... 2,388,715 11.1
Yao-Ting Wang..................... 2,092,500 9.7
William H. Davidow(a) (b)......... 1,987,116 9.2
Kevin MacLean..................... 1,194,356 5.6
Thomas Kailath(c)................. 1,066,914 5.0
Narendra K. Gupta(d).............. 948,414 4.4
Abbas El Gamal(e)................. 641,667 3.0
Richard Mora(f)................... 412,500 1.9
Atul Sharan(g).................... 412,500 1.9
Harvey Jones(b)................... 303,373 1.4
Lars Herlitz(h)................... 255,000 1.2
John Traub(i)..................... 236,746 1.1
All executive officers and
directors as a group (13)
persons)(j)...................... 14,458,301 65.0
</TABLE>
- --------
(a) Principal address is 2775 Sand Hill Road, Suite 240, Menlo Park, CA 94025.
Number of shares includes 1,569,018 shares held by Mohr, Davidow Ventures
V, L.P. ("MDVV"), 118,098 shares held by Mohr, Davidow Ventures V, L.P., as
nominee for MDV Entrepreneurs Network Fund II (A), L.P. and
MDV Entrepreneur's Network Fund II (B), L.P. ("MDV Nominee Fund"), a
warrant issued to MDV V to purchase 139,500 shares exercisable within 60
days of January 15, 2000 and a warrant issued to
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<PAGE>
MDV Nominee Fund to purchase 10,500 shares exercisable within 60 days of
January 15, 2000. Mr. Davidow, a director of our company, is a partner at
Mohr, Davidow Ventures. Mr. Davidow disclaims beneficial ownership of the
shares held by these entities except to the extent of his proportional
interest in the entities.
(b) Includes 150,000 shares issued upon exercise of stock options, 93,750 of
which are subject to a repurchase option we hold as of January 15, 2000.
(c) Includes 676,080 shares held by Thomas and Sarah Kailath Revocable Living
Trust Dated 02/15/89, 185,001 shares held by Thomas Kailath, Trustee of the
Paul V. Kailath Irrevocable Trust UAD 10-1-89, and 205,833 shares held by
Thomas Kailath, Trustee of the Priya S. Kailath Irrevocable Trust
UAD 10-1-89.
(d) Includes 225,000 shares held directly by Dr. Gupta, all of which were
issued upon exercise of a stock option, 56,250 of which are subject to a
repurchase option we hold as of January 15, 2000, 306,748 shares held by
Naren and Vinita Gupta Living Trust dated 12/2/94, and 416,666 shares held
by Mr. Gupta as custodian for his minor children.
(e) Includes 225,000 shares held by El Gamal Family Partnership, all of which
were issued upon exercise of a stock option by Dr. El Gamal, 56,250 of
which are subject to a repurchase option we hold as of January 15, 2000.
(f) All of such shares issued upon exercise of stock options, all of which are
subject to a repurchase option we hold as of January 15, 2000. Includes
26,000 shares held by Mr. Mora as custodian for his minor children.
(g) Includes 73,500 shares issued upon exercise of stock options, 3,188 of
which are subject to a repurchase option we hold as of January 15, 2000,
and options to purchase 339,000 shares exercisable within 60 days of
January 15, 2000. Includes 19,500 shares held by Mr. Sharan as custodian
for his minor child.
(h) Includes 198,285 shares issued upon exercise of stock options, 155,157 of
which are subject to a repurchase option we hold as of January 15, 2000,
and options to purchase 56,718 shares exercisable within 60 days of January
15, 2000.
(i) Includes 58,125 shares issued upon exercise of stock options, all of which
are subject to a repurchase option we hold as of January 15, 2000, and
options to purchase 174,375 shares exercisable within 60 days of January
15, 2000.
(j) Includes an aggregate of:
--928,970 shares of which are subject to a repurchase option we hold as of
January 15, 2000;
--1,492,407 shares issued upon exercise of stock options; and
--options and warrants to purchase 720,093 shares exercisable within 60
days of January 15, 2000.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, our authorized capital stock will
consist of 100,000,000 shares of common stock, $0.0001 par value, and 5,000,000
shares of preferred stock, $0.0001 par value.
The following summary of the rights of the common stock and preferred stock
does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of our amended and restated certificate of
incorporation and bylaws which are included as exhibits to the registration
statement of which this prospectus is a part and by the provisions of Delaware
law.
Common Stock
After giving effect to the three for two forward stock split of the all
outstanding common stock and preferred stock and the conversion of all
previously outstanding preferred stock into shares of common stock, as of
January 15, 2000, there were 21,498,619 shares of common stock outstanding held
of record by approximately 160 stockholders. There will be shares of
common stock outstanding, assuming no exercise of the underwriters' over-
allotment option and no exercise of certain outstanding options or warrants,
after giving effect to the sale of common stock in the offering.
Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to the following rights:
. to receive dividends out of assets legally available therefor at such
times and in such amounts as the board of directors from time to time may
determine;
. one vote for each share held on all matters submitted to a vote of
stockholders; and
. upon our liquidation, dissolution or winding-up, to share ratably in all
assets remaining after payment of liabilities and the liquidation of any
preferred stock.
Cumulative voting for the election of directors is not authorized by our
certificate of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election. The
common stock is not entitled to preemptive rights and is not subject to
conversion or redemption. Each outstanding share of common stock is, and all
shares of common stock to be outstanding upon completion of this offering will
be, upon payment therefor, duly and validly issued, fully paid and
nonassessible.
Preferred Stock
Upon the consummation of this offering, each outstanding share of Series A,
Series B, Series C, Series D and Series E preferred stock will automatically
convert into one share of common stock. Pursuant to our amended and restated
certificate of incorporation, the board of directors has the authority, without
further action by the stockholders, to issue up to 5,000,000 shares of
preferred stock in one or more series and to fix the designations, powers,
preferences, privileges, which may be greater than the rights of the common
stock. The board, without stockholder approval, can issue preferred stock with
voting, conversion or other rights that could adversely affect the voting power
and other rights of the holders of common stock. Preferred stock could thus be
issued quickly with terms calculated to delay or prevent a change in control of
our company or make removal of management more difficult. Additionally, the
issuance of preferred stock may have the effect of decreasing the market price
of the common stock. At present, there are no shares of preferred stock
outstanding, and we have no plans to issue any of the preferred stock.
Registration Rights
Upon completion of the offering, the holders of an aggregate of
approximately 17,481,325 shares of common stock will be entitled to certain
rights with respect to the registration of such shares under the Securities Act
of 1933. Under the terms of the 1999 second amended and restated shareholders
rights
55
<PAGE>
agreement, as amended, if we propose to register any of its securities under
the Securities Act of 1933, either for our own account or for the account of
other security holders, these holders are entitled to notice of such
registration and are entitled to include shares of common stock in the
registration. The rights are subject to conditions and limitations, among them
the right of the underwriters of an offering subject to the registration to
limit the number of shares included in such registration. A limited number of
the holders of these rights may also require us to file a registration
statement under the Securities Act of 1933 with respect to their shares of
common stock and we are required to use our best efforts to effect such
registration, subject to conditions and limitations. Furthermore, stockholders
with registration rights may require us to file additional registration
statements on Form S-3, subject to conditions and limitations.
Delaware Anti-Takeover Law and Certain Charter and Bylaws Provisions
Delaware Anti-Takeover Statute. We are subject to Section 203 of the
Delaware General Corporation Law. In general, these provisions prohibit a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that the
stockholder became an interested stockholder, unless the transaction in which
the person became an interested stockholder is approved in a manner presented
in Section 203 of the Delaware General Corporation Law.
Generally, a "business combination" is defined to include mergers, asset or
stock sales and other transactions resulting in financial benefit to a
stockholder. In general, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years, did own, 15% or
more of a corporation's outstanding voting stock.
Certificate of Incorporation and Bylaws. Our certificate of incorporation
and bylaws include provisions that:
. allow the board of directors to issue, without further action by the
stockholders, up to 5,000,000 shares of undesignated preferred stock;
. require that any action to be taken by our stockholders be effected at a
duly called annual or special meeting and not by written consent;
. divide the board of directors into three classes, with each class serving
for a term of three years;
. prohibit cumulative voting in the election of directors;
. require that special meetings of our stockholders be called only by the
board of directors, the chairman of the board, the chief executive
officer and the president;
. establish an advance notice procedure for stockholder proposals to be
brought before an annual meeting of our stockholders, including proposed
nominations of persons for election to the board of directors; and
. require that certain amendments to the certificate of incorporation and
the bylaws require the approval of the holders of at least 66 2/3% of the
voting power of all outstanding stock.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the board and in the policies formulated by the
board and to discourage certain types of transactions that may involve an
actual or threatened change of control of our company. These provisions are
designed to reduce our vulnerability to an unsolicited proposal for a takeover
that does not contemplate the acquisition of all of our outstanding shares or
an unsolicited proposal for the restructuring or sale of all or part of our
company. These provisions, however, could discourage potential acquisition
proposals and could complicate, delay or prevent a change in control of our
company. They may also have the effect of preventing changes in our management.
We believe that the benefits of increased protection of our potential ability
to negotiate with the proponent of an unfriendly or unsolicited proposal to
acquire or restructure us outweighs the disadvantages of discouraging these
proposals, including proposals that are priced above the then current market
value of our common stock, because, among other things, negotiation of these
proposals could result in an improvement of their terms.
56
<PAGE>
Transfer Agent and Registrar
The transfer agent and registrar for common stock is ChaseMellon Shareholder
Services, L.L.C.
Listing
We have applied to list our common stock on the Nasdaq National Market under
the trading symbol "NMTC." We have not applied to list our common stock on any
other exchange or quotation system.
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market
following the offering could cause the prevailing market price of our common
stock to fall and impede our ability to raise equity capital at a time and on
terms favorable to us.
Upon completion of the offering, we will have outstanding an aggregate of
shares of common stock, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options or outstanding warrants
after January 15, 2000. Of these outstanding shares, the shares sold in
the offering will be freely tradable without restriction or further
registration under the Securities Act of 1933, unless purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act of
1933. The remaining 21,498,619 shares of common stock outstanding upon
completion of the offering and held by existing stockholders will be
"restricted securities" as that term is defined in Rule 144 under the
Securities Act of 1933. Restricted shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act of 1933, which rules
are summarized below, or another exemption. Sales of the restricted shares in
the public market, or the availability of such shares for sale, could adversely
affect the market price of the common stock.
All officers, directors and certain other holders of common stock have
entered into contractual "lock-up" agreements providing that they will not
offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of shares of common stock owned by them or that could be purchased by
them through the exercise of options or warrants for a period of 180 days after
the date of this prospectus without the prior written consent of Credit Suisse
First Boston Corporation. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, additional shares will be available beginning 181
days after the effective date of the offering, subject in some cases to certain
volume limitations.
Of the remaining restricted shares:
. shares are subject to our repurchase option in the event of
termination of employment; and
. shares will not be eligible for sale pursuant to Rule 144 until the
expiration of a one-year holding period.
In general, under Rule 144 as currently in effect, beginning 91 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who has beneficially owned restricted shares for at least one year, including
persons who may be deemed to be our "affiliates", would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after the offering; or
. the average weekly trading volume of the common stock as reported through
the Nasdaq National Market during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 144(k), a person who is not deemed to have been our
affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned for at least two years the restricted shares proposed to be
sold, including the holding period of any prior owner except an affiliate, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 permits resales of shares issued
prior to the date the issuer becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, pursuant to certain compensatory benefit
plans and contracts commencing 90 days after the issuer becomes subject to the
reporting requirements of the Securities
58
<PAGE>
Exchange Act of 1934, in reliance upon Rule 144 but without compliance with
certain restrictions, including the holding period requirements. In addition,
the Securities and Exchange Commission has indicated that Rule 701 will apply
to typical stock options granted by an issuer before it becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, along with the
shares acquired upon exercise of such options, including exercises after the
date the issuer becomes so subject. Securities issued in reliance on Rule 701
are restricted securities and, subject to the contractual restrictions
described above, beginning 91 days after the date of this prospectus, may be
sold by persons other than affiliates subject only to the manner of sale
provisions of Rule 144 and by affiliates under Rule 144 without compliance with
its one-year minimum holding period requirements.
We have agreed not to sell or otherwise dispose of any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock, or enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of the common stock, for a
period of 180 days after the date of this prospectus, without the prior written
consent of Credit Suisse First Boston Corporation, subject to limited
exceptions.
We intend to file a registration statement under the Securities Act of 1933
covering the shares of common stock subject to outstanding options or reserved
for issuance under the 2000 stock plan, 1997 stock plan and 2000 employee stock
purchase plan. This registration statement is expected to be filed
simultaneously with the effectiveness of the registration statement covering
the shares of common stock offered in this offering and will automatically
become effective upon filing. Accordingly, shares registered under such
registration statement will, subject to Rule 144 volume limitations applicable
to affiliates and the expiration of a 180-day lockup period, be available for
sale in the open market, except to the extent that such shares are subject to
our vesting restrictions or the contractual restrictions described above.
59
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement, dated 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Hambrecht & Quist LLC
and SG Cowen Securities Corporation are acting as representatives, the
following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
of
Underwriters Shares
------------ ------
<S> <C>
Credit Suisse First Boston Corporation................................
Hambrecht & Quist LLC.................................................
SG Cowen Securities Corporation.......................................
----
Total...............................................................
====
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase shares of common stock in the offering if any are purchased, other
than those shares covered by the over-allotment option described below. The
underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares from us at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-Allotment Over-allotment Over-Allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions paid by
us..................... $ $ $ $
Expenses paid by us..... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5.0% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the data of this prospectus.
Our officers and directors and certain other stockholders, including holders
of our preferred stock and warrants, have agreed that they will not offer,
sell, contract to sell pledge or otherwise dispose of, directly or indirectly,
any shares of our common stock or securities convertible into or exchangeable
or exercisable for shares of our common stock,
60
<PAGE>
or publicly disclose the intention to make any such offer, sale, pledge or
disposal, without, in each case, the prior written consent of Credit Suisse
First Boston Corporation for a period of 180 days after the date of this
prospectus.
The underwriters have reserved for sale, at the initial public offering
price up to shares of the common stock for employees, directors and certain
other persons associated with us who have expressed an interest in purchasing
common stock in the offering. The number of shares available for sale to the
general public in the offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the
other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in that respect.
We will apply to list the shares of common stock on The Nasdaq Stock
Market's National Market.
Prior to the offering, there has been no public market for the common stock.
The initial public offering price for the common stock will be determined by
negotiation between us and the representatives, and does not reflect the market
price for the common stock following the offering. Among the principal factors
considered in determining the initial public offering price will be:
. the information in this prospectus and otherwise available to the
representatives;
. market conditions for initial public offerings;
. the history of and prospects for the industry in which we will compete;
. the ability of our management;
. our prospects for future earnings;
. the present state of our development and our current financial condition;
. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies; and
. the general condition of the securities markets at the time of this
offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934, as amended.
. Over-allotment involves sales in excess of the offering size, which
creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq Stock Markets National Market or otherwise and, if
commenced, may be discontinued at any time.
61
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that: (i) such purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under the securities laws; (ii) where
required by law, such purchaser is purchasing as principal and not as agent;
and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or these persons. All or a substantial portion of the assets of
the issuer and these persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against the
issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. This report must be
in the form attached to British Columbia Securities Commission Blanket Order
BOR #95/17, a copy of which may be obtained from us. Only one report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult with their own legal and
tax advisors with respect to the tax consequences of an investment in the
common stock in their particular circumstances and with respect to the
eligibility of the common stock for investment by the purchaser under relevant
Canadian legislation.
62
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. Certain legal matters in connection with
this offering will be passed upon for the underwriters by Morrison & Forrester,
LLP, Palo Alto, California. WS Investment Company, an investment partnership
composed of certain current and former members of and persons associated with
Wilson Sonsini Goodrich & Rosati, Professional Corporation, as well as an
individual attorney of this firm, beneficially own an aggregate of 87,000
shares of our common stock.
EXPERTS
The balance sheets of Numerical Technologies, Inc. at December 31, 1998 and
1999 and the statements of operations, of stockholders' equity and of cash
flows for each of the three years in the period ended December 31, 1999,
included in this prospectus, have been included herein in reliance upon the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The balance sheets of Transcription Enterprises Limited at December 31, 1998
and 1999 and the statements of operations, of shareholders' equity and of cash
flows for the years then ended, included in this prospectus, have been included
herein in reliance upon the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, under the Securities Act of 1933, a registration statement on Form S-1
relating to the common stock offered hereby. This prospectus does not contain
all of the information set forth in the registration statement and the exhibits
and schedules thereto. For further information with respect to our company and
the shares we are offering by this prospectus you should refer to the
registration statement, including the exhibits and schedules thereto. You may
inspect a copy of the registration statement without charge at the Public
Reference Section of the Securities and Exchange Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 or at the Securities and Exchange
Commission's regional offices at 5670 Wilshire Boulevard, 11th Floor, Los
Angeles, California 90036. The public may obtain information on the operation
of the Public Reference Room by calling the Securities and Exchange Commission.
The Securities and Exchange Commission also maintains an Internet site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission. The Securities and Exchange Commission's World Wide Web address is
http://www.sec.gov.
We intend to furnish holders of the common stock with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing
unaudited condensed financial information for the first three quarters of each
fiscal year. We intend to furnish such other reports as it may determine or as
may be required by law.
63
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Numerical Technologies, Inc.
Report of Independent Accountants.......................................... F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Stockholders' Equity......................................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
Unaudited Pro Forma Combined Financial Information
Overview................................................................... F-18
Unaudited Pro Forma Combined Balance Sheet................................. F-19
Unaudited Pro Forma Combined Statement of Operations....................... F-20
Notes to Unaudited Pro Forma Combined Financial Information................ F-21
Transcription Enterprises Ltd.
Report of Independent Accountants.......................................... F-22
Balance Sheets............................................................. F-23
Statements of Operations................................................... F-24
Statements of Shareholders' Equity (Deficit)............................... F-25
Statements of Cash Flows................................................... F-26
Notes to Financial Statements.............................................. F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The reincorporation and three-for-two stock split described in Note 1 to the
financial statements have not been consummated at January 27, 2000. When they
have been consummated, we will be in a position to furnish the following
report:
To the Board or Directors and
Stockholders of
Numerical Technologies, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Numerical Technologies, Inc. at
December 31, 1998 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers llp
San Jose, California
January 27, 2000
F-2
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity
----------------- December 31,
1998 1999 1999
------- -------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 4,973 $ 13,486
Accounts receivable......................... 1,083 1,819
Prepaid and other........................... 60 394
------- --------
Total current assets...................... 6,116 15,699
Property and equipment, net................... 456 1,613
Other assets.................................. 39 293
------- --------
$ 6,611 $ 17,605
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 239 $ 613
Accrued expenses............................ 1,341 1,945
Deferred revenue............................ 2,216 2,642
------- --------
Total current liabilities................. 3,796 5,200
------- --------
Commitments (See Note 3)
Stockholders' equity:
Convertible preferred stock, $0.0001 par
value:
Authorized: 12,253 shares;
Issued and outstanding: 5,745 and 8,103
shares in 1998 and 1999, respectively, and
none in pro forma (unaudited).............. 1 1 $ --
Common stock, $0.0001 par value:
Authorized: 30,000 shares;
Issued and outstanding: 7,727 and
9,570 shares in 1998 and 1999,
respectively, and 17,673 in pro forma
(unaudited)................................ 1 1 1
Additional paid in capital.................... 12,090 50,100 50,101
Receivable from stockholders.................. (5) (315) (315)
Deferred stock compensation................... (1,938) (21,220) (21,220)
Accumulated deficit........................... (7,334) (16,162) (16,162)
------- -------- --------
Total stockholders' equity................ 2,815 12,405 $ 12,405
------- -------- ========
$ 6,611 $ 17,605
======= ========
</TABLE>
The accompanying notes are an integral part of financial statements.
F-3
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------------------
1997 1998 1999
------ ------- -------
<S> <C> <C> <C>
Revenue............................................. $ 620 $ 736 $ 5,492
------ ------- -------
Costs and expenses:
Cost of revenue................................... 57 127 307
Research and development.......................... 993 2,721 4,816
Sales and marketing............................... 58 1,404 4,277
General and administrative........................ 131 2,355 1,303
Amortization of deferred stock compensation....... -- 862 3,990
------ ------- -------
Total costs and expenses........................ 1,239 7,469 14,693
------ ------- -------
Loss from operations................................ (619) (6,733) (9,201)
Interest income..................................... 35 182 373
------ ------- -------
Net loss............................................ $ (584) $(6,551) $(8,828)
====== ======= =======
Net loss per common share, basic and diluted........ $(0.08) $ (0.89) $ (1.21)
====== ======= =======
Weighted average common shares, basic and diluted... 7,397 7,373 7,290
====== ======= =======
Pro forma net loss per common share, basic and
diluted (unaudited)................................ $ (0.62)
=======
Pro forma weighted average common shares, basic and
diluted (unaudited)................................ 14,306
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1998 and 1999
(in thousands)
<TABLE>
<CAPTION>
Convertible
Preferred Receivable Deferred
Stock Common Stock Additional from Stock
------------- -------------- Paid in Stock- Compen- Accumulated
Shares Amount Shares Amount Capital holders sation Deficit Total
------ ------ ------ ------ ---------- ---------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996................... 2,250 $ -- 7,083 $ 1 $ 538 $ -- $ -- $ (199) $ 340
Exercise of common stock
options................ -- -- 847 -- 23 -- -- -- 23
Issuance of Series B
preferred stock and
warrants, net of
issuance costs of $7... 1,050 -- -- -- 746 (50) -- -- 696
Net loss................ -- -- -- -- -- -- -- (584) (584)
----- ----- ----- --- ------- ----- -------- -------- -------
Balance, December 31,
1997................... 3,300 -- 7,930 1 1,307 (50) -- (783) 475
Exercise of common stock
options................ -- -- 825 -- 61 (5) -- -- 56
Return of common stock.. -- -- (525) -- -- -- -- -- --
Repurchase of common
stock.................. -- -- (503) -- (2) -- -- -- (2)
Issuance of Series C
preferred stock and
warrants, net of
issuance costs of $47.. 2,445 1 -- -- 7,924 -- -- -- 7,925
Repayment of note
receivable............. -- -- -- -- -- 50 -- -- 50
Deferred stock
compensation related to
grants of stock options
and issuance of common
stock.................. -- -- -- -- 2,800 -- (2,800) -- --
Amortization of deferred
stock compensation..... -- -- -- -- -- -- 862 -- 862
Net loss................ -- -- -- -- -- -- -- (6,551) (6,551)
----- ----- ----- --- ------- ----- -------- -------- -------
Balance, December 31,
1998................... 5,745 1 7,727 1 12,090 (5) (1,938) (7,334) 2,815
Exercise of common stock
options................ -- -- 2,001 -- 1,333 (315) -- -- 1,018
Repurchase of common
stock.................. -- -- (158) -- (20) -- -- -- (20)
Issuance of Series D
preferred stock, net of
issuance
costs of $455.......... 2,358 -- -- -- 13,425 -- -- -- 13,425
Repayment of note
receivable............. -- -- -- -- -- 5 -- -- 5
Deferred stock
compensation related to
grants of stock options
and issuance of common
stock.................. -- -- -- -- 23,272 -- (23,272) -- --
Amortization of deferred
stock compensation..... -- -- -- -- -- -- 3,990 -- 3,990
Net loss................ -- -- -- -- -- -- -- (8,828) (8,828)
----- ----- ----- --- ------- ----- -------- -------- -------
Balance, December 31,
1999................... 8,103 $ 1 9,570 $ 1 $50,100 $(315) $(21,220) $(16,162) $12,405
===== ===== ===== === ======= ===== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------
1997 1998 1999
----- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(584) $(6,551) $(8,828)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................ 24 99 340
Amortization of deferred stock compensation......... 862 3,990
Changes in assets and liabilities:
Accounts receivable............................... (323) (758) (736)
Prepaid and other................................. (4) (67) (334)
Other assets...................................... (7) (31) (254)
Accounts payable.................................. 92 111 374
Accrued expenses.................................. 81 1,244 604
Deferred revenue.................................. 127 1,834 426
----- ------- -------
Net cash used in operating activities........... (596) (3,257) (4,418)
----- ------- -------
Cash flows from investing activities:
Purchases of property and equipment................... (82) (455) (1,497)
----- ------- -------
Net cash used in investing activities........... (82) (455) (1,497)
----- ------- -------
Cash flows from financing activities:
Proceeds from exercise of common stock options........ 23 56 1,018
Proceeds from issuance of preferred stock............. 696 7,925 13,425
Repurchase of common stock............................ -- (2) (20)
Repayment of notes receivable for preferred and common
stock................................................ -- 50 5
Proceeds from related party loan...................... -- 250 --
Repayment of related party loan....................... -- (250) --
----- ------- -------
Net cash provided by financing activities....... 719 8,029 14,428
----- ------- -------
Net increase in cash and cash equivalents............. 41 4,317 8,513
Cash and cash equivalents at beginning of year........ 615 656 4,973
----- ------- -------
Cash and cash equivalents at end of year.............. $ 656 $ 4,973 $13,486
===== ======= =======
Supplemental disclosures noncash financing activities:
Stockholder notes receivable exchanged for common
stock or preferred stock........................... $ 50 $ 5 $ 315
===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Numerical Technologies, Inc. (the "Company") designs and develops
proprietary technologies and software products that enable the design and
manufacture of integrated circuits with subwavelength feature sizes. The
Company markets and sells its products and services to semiconductor
manufacturers, resellers and original equipment manufacturers primarily in
North America, Europe, Japan and the Pacific Rim.
Reincorporation and stock split
In January 2000, the Company's Board of Directors authorized the
reincorporation of the Company in the State of Delaware. As a result of the
reincorporation, the Company is authorized to issue 100,000,000 shares of
$0.0001 par value Common Stock and 5,000,000 shares of $0.0001 par value
Preferred Stock. In January 2000, the Company's Board of Directors approved a
three-for-two share split of the Company's Preferred and Common Stock. The
share split will take effect immediately prior to the closing of the initial
public offering. All share and per share information have been adjusted to
reflect the reincorporation and the share split.
Certain risks and concentrations
At December 31, 1999, substantially all of the Company's cash and cash
equivalents were invested with two financial institutions.
The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. The
Company had amounts receivable from one customer representing 86% and four
customers representing 84% of accounts receivable at December 31, 1998 and
1999, respectively. The Company has experienced no losses and does not consider
allowance for doubtful accounts necessary at December 31, 1998 and 1999.
In 1997, four customers accounted for 40%, 29%, 19% and 12% of total
revenues. In 1998, three customers accounted for 37%, 30% and 25% of total
revenues. In 1999, three customers accounted for 23%, 17%, and 16% of total
revenues.
Financial instruments
The carrying amount of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable and accrued
expenses, approximate fair value due to their short maturities.
Cash and cash equivalents
The Company considers all highly liquid investments with maturities of three
months or less at the time of purchase and money market funds to be cash
equivalents. At December 31, 1999, cash and cash equivalents included
restricted cash of $204,000 related to a certificate of deposit issued as
collateral for a Letter of Credit.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Property and equipment are depreciated on a straight-line basis over their
estimated useful lives of 2 to 3 years. When assets are sold or retired, the
cost and related accumulated depreciation is removed from the accounts and the
resulting gains or losses are included in the statement of operations.
F-7
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Software development costs
Software development costs incurred in the research and development of new
products and enhancements to existing products are charged to expense as
incurred. Software development costs are capitalized after technological
feasibility has been established. The period between achievement of
technological feasibility, which the Company defines as the establishment of a
working model, until the general availability of such software to customers,
has been short, and software development costs qualifying for capitalization
have been insignificant. Accordingly, the Company has not capitalized any
software development costs since its inception.
Income taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue recognition
The Company recognizes revenues in accordance with the provisions of
Statement of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition", as
amended by SOP 98-4 and 98-9. The Company's revenues are derived from
intellectual property and software licenses and maintenance and technical
services. Revenues are recognized for the various contract elements based upon
vendor-specific objective evidence ("VSOE") of fair value of each element. If
VSOE of fair value does not exist but postcontract customer services ("PCS") is
the only undelivered element, the Company recognized the fee under the
arrangement ratably over the contractual PCS period. License revenues are
recognized when persuasive evidence of an agreement exists, the product has
been delivered, no significant post-delivery obligations remain, the license
fee is fixed or determinable and collection of the fee is probable. Revenue for
technical services is recognized as the services are performed. Maintenance
services are typically priced based on a percentage of the license fee and have
a one-year term, renewable annually. Services provided to customers under
maintenance agreements include technical product support and unspecified
product upgrades. Deferred revenues include billings in excess of recognized
revenue and payments received in advance of revenue recognition.
Prior to the adoption of SOP 97-2, on January 1, 1998, the Company
recognized revenue for software and intellectual property upon delivery if
remaining obligations were insignificant and collection of the resulting
accounts receivable was probable. Revenue from software maintenance contracts,
including amounts unbundled from license, were deferred and recognized ratably
over the period of the contract. The adoption of SOP 97-2, SOP 98-4 and 98-9
have not had and are not expected to have a material impact on the Company's
results of operations, financial position or cash flows.
F-8
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock-based compensation
The Company accounts for its stock based compensation in accordance with the
provisions of Accounting Principles Board Opinion No. 25 ("APB No. 25"),
"Accounting for Stock Issued to Employees" and complies with the disclosure
provisions of Statement of Financial Accounting Standard No. 123 ("SFAS
No. 123"). Deferred compensation recognized under APB No. 25 is amortized over
the vesting period on an accelerated basis using the model presented in
Financial Accounting Standards Board Interpretation No. 28, "Accounting for
Stock Appreciation Rights and Other Variable Stock Option or Award Plans" ("FIN
No. 28"). Accordingly, the percentages of the deferred compensation amortized
in the first, second, third and fourth years following the option grant date
are 52%, 27%, 15% and 6%, respectively, for options with a four-year vesting
period.
Net loss per share
The basic net loss per share is computed by dividing the net loss
attributable to common stockholders for the period by the weighted average
number of the common shares outstanding during the period. The diluted net loss
per share is the same as the basic net loss per share for the periods presented
because common equivalent shares, composed of common shares subject to
repurchase and common shares issuable upon the exercise of stock options and
warrants and upon conversion of convertible preferred shares, are considered
when their effect would be dilutive. In 1997, 1998 and 1999, 4,337,000,
7,580,000 and 11,976,000, respectively, antidilutive securities including
options, warrants and convertible preferred stock were excluded from the net
loss per share computation.
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended December 31, 1999 is
computed using the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of convertible
preferred shares into common shares effective upon the closing of the Company's
initial public offering on an as-if-converted basis. Pro forma diluted net loss
per share is computed using the pro forma weighted average number of common and
common equivalent shares outstanding. Common equivalent shares, composed of
common shares subject to repurchase and common shares issuable upon the
exercise of stock options and warrants, are not included in pro forma diluted
net loss per share as such shares are antidilutive. Antidilutive securities
totaling 3,873,000 including options and warrants were excluded from the pro
forma net loss per share computation.
Pro forma December 31, 1999 balance sheet (unaudited)
Upon consummation of the offering, all shares of convertible preferred stock
outstanding will convert into an aggregate of 8,103,000 shares of common stock.
The effect of this conversion has been reflected in the accompanying unaudited
pro forma consolidated balance sheet as of December 31, 1999.
Comprehensive income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130"), FAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. There was no difference between the
Company's net loss and its total comprehensive loss for each of the periods
presented.
Recent accounting pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, or SFAS 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 133 establishes new standards of
F-9
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
accounting and reporting for derivative instruments and hedging activities.
SFAS 133 requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that
exists. SFAS 133 will be effective for fiscal years beginning after June 15,
2000. The Company does not currently hold derivative instruments or engage in
hedging activities.
NOTE 2--BALANCE SHEET DETAIL
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
------ ------
<S> <C> <C>
Property and equipment:
Computer equipment......................................... $ 393 $1,362
Furniture and equipment.................................... 133 490
Computer software.......................................... 63 234
------ ------
589 2,086
Less accumulated depreciation.............................. (133) (473)
------ ------
$ 456 $1,613
====== ======
Accrued expenses:
Payroll and related expenses............................... $1,259 $1,204
Other accrued expenses..................................... 82 741
------ ------
$1,341 $1,945
====== ======
</TABLE>
NOTE 3--COMMITMENTS
Operating leases
The Company leases its facility under a noncancelable operating lease which
expires in May 2004. The Company has the option to renew the lease for three
years. The lease requires a security deposit of $272,000 in the form of cash
and a letter of credit. The letter of credit is secured by a $204,000
certificate of deposit, which was considered restricted cash at December 31,
1999. The terms of the lease provide for rental payments on a graduated scale.
The Company recognized rent expense on a straight-line basis over the period,
and has accrued for rent expense incurred but not paid. The Company is
responsible for maintenance, insurance and taxes.
Minimum lease payments as of December 31, 1999 for noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
Lease
Year Payments
---- --------
<S> <C>
2000.............................................................. $ 723
2001.............................................................. 748
2002.............................................................. 770
2003.............................................................. 793
2004.............................................................. 478
------
$3,512
======
</TABLE>
Rent expense was $60,000, $229,000 and $474,000 for 1997, 1998 and 1999,
respectively.
F-10
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 4--CAPITAL STOCK
Convertible preferred stock
At December 31, 1999, the amounts, terms and liquidation values of Series A,
Series B, Series C, Series D and Series E convertible preferred stock are as
follows:
<TABLE>
<CAPTION>
Common
Shares
Reserved
Issued and for Liquidation
Series Amount Designated Outstanding Conversion Value
------ -------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
A.................. $ 538 2,250 2,250 2,250 $ 540
B.................. 693 1,050 1,050 1,050 700
C.................. 7,636 2,595 2,445 2,445 7,971
D.................. 13,425 2,548 2,358 2,358 13,880
E.................. -- 3,810 -- -- --
-------- ------ ----- ----- -------
$ 22,292 12,253 8,103 8,103 $23,091
======== ====== ===== ===== =======
</TABLE>
Each share of preferred stock is convertible into common stock on a one-for-
one basis subject to adjustment for certain changes in capitalization and
certain dilutive issuances. Conversion of preferred stock into common stock is
at the option of the holder, and is automatic upon the earlier of (1) for
Series A, Series B, Series C and Series D preferred stock the election of
holders of at least a majority of the outstanding shares of Series A, Series B,
Series C and Series D preferred stock voting as a class, and for Series E
preferred stock the election of holders of at least a majority of the
outstanding shares of Series E preferred stock voting as a class, or (2) the
closing of a public offering of the Company's common stock at a price per share
of not less than $10.67 and an aggregate offering price of not less than
$15,000,000. The holders of shares of preferred stock are entitled to the
number of votes equal to the number of shares of common stock into which the
preferred shares are convertible.
The holders of preferred stock may receive noncumulative dividends of $0.02,
$0.07, $0.33, $0.47 and $0.85, per share per annum for Series A, Series B,
Series C, Series D and Series E preferred stock, respectively, when and as
declared by the Board of Directors. No cash dividends may be paid to holders of
common stock during any year until dividends of $0.02, $0.07, $0.33, $0.47 and
$0.85 per share for Series A, Series B, Series C, Series D and Series E
preferred stock, respectively, have been paid in that year. No dividends have
been declared to date. The holders of preferred stock have certain registration
rights.
The holders of Series E preferred have preference of the holders of common
stock and all other series of preferred stock in liquidation to the extent of
$10.67 per share plus all declared but unpaid dividends. The holders of Series
D preferred stock have preference over the holders of common stock and Series
A, Series B and Series C preferred stock in liquidation to the extent of $5.89
per share plus all declared but unpaid dividends. The holders of Series C
preferred stock have preference over the holders of common stock and Series A
and Series B preferred stock in liquidation to the extent of $3.26 per share
plus all declared but unpaid dividends. Thereafter, Series A and Series B have
preference over common stock in liquidation to the extent of $0.24 and $0.67
per share, respectively, plus all declared but unpaid dividends. The holders of
common stock are then entitled to share ratably in the remaining assets, based
on the number of shares of common stock held by each stockholder.
Stock Option Plans
1997 Stock Option Plan
Under the Company's 1997 Stock Option Plan (the "Plan"), 6,197,000 shares of
the Company's common stock are reserved for issuance to employees, directors
and consultants. Options granted under the Plan may be incentive stock options
or non-statutory stock options. Stock purchase rights may also be granted under
the
F-11
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Plan. Incentive stock options may only be granted to employees. The Board of
Directors determines the period over which options become exercisable or the
Company's right of repurchase of stock purchased under options or stock
purchase rights subject to the Company's right of repurchase lapses. Options
granted or stock purchased under the Plan become exercisable or the Company's
right to repurchase lapse no less than 20% after one year and ratably over 4
years thereafter. Options granted under the Plan generally become exercisable
immediately; however, common stock purchased under the option is subject to
the Company's right to repurchase, which lapses over a maximum period of four
years at such times and under such conditions as determined by the Board of
Directors. To date, options granted generally vest over four years. The
exercise price of incentive stock options and non-statutory stock options
shall be no less than 100% and 85%, respectively, of the fair market value per
share of the Company's common stock on the grant date. The term of the options
is ten years.
Activity under this plan is as follows:
<TABLE>
<CAPTION>
Outstanding Shares
------------------- Weighted
Shares Number Average
Available of Price Per Exercise
for Grant Shares Share Price
--------- ------ ----------- --------
<S> <C> <C> <C> <C>
Options reserved upon adoption of the
plan.................................. 1,107
Options granted........................ (905) 905 $ 0.03-0.07 $0.03
Options exercised...................... (848) $ 0.03 $0.03
------ ------
Balances, December 31, 1997............ 202 57 $ 0.07 $0.07
Options reserved upon amendment of the
plan.................................. 1,591
Options granted........................ (1,236) 1,236 $0.03-$0.17 $0.17
Options exercised...................... (825) $0.03-$0.17 $0.33
Shares repurchased..................... 35
Options cancelled...................... 47 (47) $ 0.33 $0.08
------ ------
Balances, December 31, 1998............ 639 421 $ 0.33 $0.33
Options reserved upon amendment of the
plan.................................. 3,498
Options granted........................ (3,019) 3,019 $0.33-$1.00 $0.81
Options exercised...................... (2,001) $0.03-$1.00 $0.67
Shares repurchased..................... 158
Options cancelled...................... 31 (31) $ 0.33
------ ------
Balances, December 31, 1999............ 1,307 1,408 $ 0.88 $0.88
====== ======
</TABLE>
The weighted average grant date fair value of options granted during 1997,
1998 and 1999 was $0.08, $3.45, and $11.85, respectively.
The options outstanding and currently exercisable by exercise price at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Options Upon Exercise
Options Outstanding Subject to Repurchase
------------------------------------------------------------------------------------
Weighted
Average
Remaining Weighted Weighted
Number Contractual Average Number Average
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
--------------- ----------- ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.33-
$1.00 1,408 9.73 $0.88 1,303 $0.88
</TABLE>
On December 31, 1999, a total of 2,315,000 shares of common stock purchased
under options, were subject to the Company's right of repurchase.
F-12
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Deferred Stock Compensation
During 1999 and 1998, the Company issued stock purchase rights and options
to certain employees under the 1997 Stock Plan with exercise prices below the
deferred fair market value of the Company's common stock at the date of grant.
In accordance with the requirements of APB 25, the Company has recorded
deferred compensation for the difference between the purchase price of stock
issued to employees under stock purchase rights or the exercise price of the
stock options and the fair market value of the Company's stock at the date of
grant. This deferred compensation is amortized to expense over the period
during which the Company's right to repurchase the stock lapses or options
become exercisable, generally four years. At December 31, 1999, the Company had
recorded deferred compensation related to these options in the total amount of
$26.0 million of which $862,000 and $3,990,000 had been amortized to expense
during 1998 and 1999, respectively. Future compensation expense from options
granted through December 31, 1999 is estimated to be $11.2 million,
$5.9 million, $3.0 million and $1.1 million for 2000, 2001, 2002 and 2003,
respectively.
The stock-based compensation for the three years in the period ended
December 31, 1999 has been allocated across the relevant functional expense
categories in the statement of operations as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1997 1998 1999
---- ---- ------
(in thousands)
<S> <C> <C> <C>
Cost of revenue............................................ $ -- $ 22 $ 117
Research and development................................... -- 465 1,836
Sales and marketing........................................ -- 361 1,444
General and administrative................................. -- 14 593
---- ---- ------
$ -- $862 $3,990
==== ==== ======
</TABLE>
Pro forma stock-based compensation
Had compensation expense for the Plan been determined based on the fair
value at the grant date for options granted in 1999, 1998 and 1997 consistent
with the provisions of SFAS No. 123, the Company's net loss and net loss per
share would have been further adjusted to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
Year Ended December
31,
------------------------
1997 1998 1999
------ ------- -------
(in thousands, except
per share data)
<S> <C> <C> <C>
Net loss
As reported...................................... $ (584) $(6,551) $(8,828)
====== ======= =======
Pro forma........................................ $ (585) $(6,558) $(8,946)
====== ======= =======
Net loss per common share, basic and diluted
As reported...................................... $(0.08) $ (0.89) $ (1.21)
====== ======= =======
Pro forma........................................ $(0.08) $ (0.89) $ (1.23)
====== ======= =======
</TABLE>
F-13
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The fair value of each option grant is estimated on the date of grant using
the minimum value method under the Black-Scholes pricing model with the
following assumptions:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate........................ 5.3%-6.3% 5.3%-5.6% 4.8%-6.1%
Expected life (years).......................... 5 5 5
Expected dividend yield........................ -- -- --
Volatility..................................... -- -- --
</TABLE>
Warrants
In June 1997, the Company issued immediately exercisable warrants to
purchase 195,000 shares of the Company's Series B preferred Stock at an
exercise price of $0.67 per share. These warrants were issued to a customer of
the Company in connection with the issuance of Series B preferred stock and
entering into a licensing and services contract (see Note 6). The Company
determined the fair value of such warrants to be approximately $53,000 using
the Black-Scholes model and the following assumptions: no future dividends,
volatility of 60%, a weighted average risk-free interest rate of 5.88% and a
term of 2 years. The warrants expired in June 1999.
In June 1998, in connection with the issuance of Series C preferred stock,
the Company issued immediately exercisable warrants to purchase 150,000 shares
of the Company's Series C preferred stock at an exercise price of $3.26 per
share. The Company determined the fair value of such warrants to be
approximately $289,000 using the Black-Scholes model and the following
assumptions: no future dividends, volatility of 60%, a weighted average risk-
free interest rate of 4.73% and a term of 5 years. The warrants will expire
upon the earlier of June 2003 or the closing of a public offering of the
Company's common stock at a price per share of not less than $6.40 and an
aggregate offering price of not less than $15,000,000. At December 31, 1999,
150,000 shares of Series C preferred stock are reserved for the exercise of the
warrants. The Company expects these warrants will be exercised upon the initial
public offering and will recognize a charge related to the beneficial
conversion feature of these warrants.
Notes receivable from Stockholders
During 1999, an officer of the Company exercised stock options in exchange
for notes receivable totaling $315,000, which are secured by the underlying
shares of common stock. The notes accrue interest at rates ranging from 4.9% to
5.7% per annum, and are payable, with principal, in 2001.
NOTE 5--INCOME TAXES
The components of the net deferred tax asset comprise:
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998 1999
(in thousands) ----- ------- -------
<S> <C> <C> <C>
Net operating loss carryforward..................... $240 $ 1,323 $ 2,675
Research and development credit carryforward........ 50 222 382
Accrued liabilities................................. 65 450 1,444
Valuation allowance................................. (355) (1,995) (4,501)
----- ------- -------
$ -- $ -- $ --
===== ======= =======
</TABLE>
The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
Annually, management evaluates the recoverability of the deferred tax assets
and the level of the valuation allowance. At such time as it is determined that
it is more likely than not that deferred tax assets are realizable the
valuation allowance will be reduced.
F-14
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company had the following carryforwards and credits at December 31,
1999:
<TABLE>
<CAPTION>
Expiration
Date Amount
(in thousands) ---------- ------
<S> <C> <C>
Net operating loss carryforwards
Federal................................................. 2010-2019 $6,904
State................................................... 2002-2004 5,611
Research and development credits
Federal................................................. Indefinite $ 217
State................................................... Indefinite 165
</TABLE>
For federal and state tax purposes, a portion of the Company's net operating
loss and tax credit carryforwards may be subject to certain limitations on
annual utilization due to an "Ownership Change," as defined by federal and
state tax law.
NOTE 6--RELATED PARTY TRANSACTIONS
During 1997, the Company received $120,000 from a Series B preferred
stockholder under a licensing and service contract negotiated concurrently with
the purchase of Series B preferred stock and warrants to purchase Series B
preferred stock. As the fair value of these warrants was determined to be
approximately $53,000, such amount was allocated to the warrants. The warrants
expired unexercised in June 1999.
During 1998, the chairman loaned the Company $250,000 for a period of 2
months at an annual interest rate of 8%. The loan was repaid in 1998.
NOTE 7--EMPLOYEE BENEFIT PLAN
The Company sponsors the Numerical Technologies, Inc. 401(k) Retirement Plan
(the "401(k) Plan"). The 401(k) Plan provides for tax deferred automatic salary
deductions. Under the terms of the 401(k) Plan, employees over the age of 21
are eligible to participate after completing three months of employment. The
Company is permitted to make contributions to the 401(k) Plan as determined by
the Board of Directors. No Company contributions were made to the 401(k) Plan
in 1999, 1998 or 1997.
NOTE 8--OPERATING SEGMENTS
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement requires enterprises to
report information about operating segments in annual financial statements and
selected information about reportable segments in interim financial reports. It
also establishes standards for related disclosures about products, geographic
areas and major customers. The Company operates in one industry segment.
The following is a summary of the Company's revenue attributed to the
geographic regions in which the technology and services are delivered:
<TABLE>
<CAPTION>
U.S. Japan Pac Rim Europe Total
------ ----- ------- ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C>
1997...................................... $ 380 $ -- $ -- $240 $ 620
1998...................................... 626 105 -- 5 736
1999...................................... 4,300 516 675 1 5,492
</TABLE>
The Company has no long-lived assets outside the United States in any of the
years presented.
F-15
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 9--SUBSEQUENT EVENTS
Acquisition of Transcription
On January 1, 2000, the Company acquired Transcription Enterprises Limited
("Transcription"). Under the terms of the acquisition agreement, the Company
issued 3,810,000 shares of Series E Preferred Stock and $40 million in notes
payable in exchange for all the outstanding stock of Transcription. The total
estimated purchase price was $82 million, including acquisition costs of
$250,000. The transaction will be accounted for as a purchase.
The preliminary allocation of the estimated purchase price is as follows:
(in thousands)
<TABLE>
<S> <C>
Net tangible assets................................................. $ 530
In process technology............................................... 300
Developed technology................................................ 7,400
Customer base and trade name........................................ 14,500
Covenants not to compete............................................ 2,700
Work force.......................................................... 1,500
Goodwill............................................................ 55,070
-------
$82,000
=======
</TABLE>
The estimated purchase price was allocated to the identifiable assets
acquired and the liabilities assumed based upon the fair market value on the
acquisition date. The net tangible assets consist primarily of accounts
receivable, property and equipment, and other liabilities. Because the in-
process technology had not reached the stage of technological feasibility at
the acquisition date and had no alternative future use, the amount was
immediately charged to operations. The amounts allocated to developed
technology and customer base and trade name are amortized over the estimated
useful life of five years. The amounts allocated to covenants not to compete
and work force are being amortized over the estimated useful lives of two and
four years, respectively. The excess amount of the purchase price over the fair
market value of the identifiable assets acquired is accounted for as goodwill
and is being amortized over its estimated useful life of five years. The
valuation for the intangible assets has been determined using management's
assumptions and the report from an independent appraiser.
The following unaudited pro forma consolidated financial information
reflects the results of operations for the years ended December 31, 1999, as if
the acquisition had occurred on January 1, 1999, and after giving effect to
purchase accounting adjustments. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what operating
results would have been had the acquisition actually taken place on January 1,
1999, and may not be indicative of future operating results.
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
---------------------
(unaudited)
(in thousands, except
per share data)
<S> <C>
Revenues............................................... $ 19,159
Loss from operations................................... (17,138)
Net loss............................................... (19,368)
Basic and diluted net loss per share................... $ (2.66)
</TABLE>
Under the terms of the acquisition agreement, the $40 million note is
secured by substantially all the assets of Transcription. The note bears
interest at the rate of 8% per annum. $5 million was due and paid upon
F-16
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
issuance of the note, with the remaining principal amount due and payable in 16
equal quarterly installments of $2.2 million, commencing on April 1, 2000 and
thereafter on each of calendar quarter with the final installment being due on
January 1, 2004. All interest accrued to each payment is due and payable on
such payment date. As described below, the major stockholders of Transcription
have the right to setoff certain indemnification claims against the interest
and principal of the note otherwise due.
2000 Stock Option Plan
On January 24, 2000, the Company approved the 2000 Stock Option/Stock
Issuance Plan (the "2000 Plan"), under which all remaining shares available for
grant under the Company's 1997 Stock Option Plan and 3,000,000 additional
shares of the Company's common stock has been authorized for issuance. The 2000
Plan is intended to serve as a successor to the 1997 Stock Option Plan and has
term similar to those of the 1997 Plan. Under the 2000 Plan, the term of the
options is generally ten years with a vesting requirement of 25% after one year
of service and monthly, thereafter, fully vesting upon completion of the fourth
year of service. Pursuant to the 2000 Plan, the board of directors has the
discretion to grant options to non-employee directors. The director option
component will not become effective until the date of this offering. Each
nonemployee director who first becomes a board member after the date of this
offering may be granted options for up to 30,000 shares. In addition, each non-
employee director may be granted options for up to 7,500 shares annually.
2000 Employee Stock Purchase Plan
On January 24, 2000, the Company approved the Company's 2000 Employee Stock
Purchase Plan (the "ESPP") and authorized 300,000 shares to be issued under the
ESPP. Under the ESPP, employees are granted the right to purchase shares of
common stock at a price per share that is 85% of the lesser of: the fair market
value of the shares at (i) the beginning of a rolling twenty-four-month
offering period, or (ii) the end of each semi-annual purchase period. The ESPP
will become effective on the effective date of this offering.
F-17
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OVERVIEW
On January 1, 2000, Numerical Technologies, Inc. ("the Company") acquired
Transcription Enterprises Limited ("Transcription"). Under the terms of the
acquisition agreement, the Company issued 3,810,000 shares of Series E
Preferred Stock and $40 million in notes payable in exchange for all the
outstanding stock of Transcription. The total estimated purchase price was $82
million, including acquisition costs of $250,000. The transaction will be
accounted for as a purchase.
The preliminary allocation of the estimated purchase price is as follows:
(in thousands)
<TABLE>
<S> <C>
Net tangible assets................................................. 530
In process technology............................................... 300
Developed technology................................................ 7,400
Customer base and trade name........................................ 14,500
Covenants not to compete............................................ 2,700
Work force.......................................................... 1,500
Goodwill............................................................ 55,070
-------
$82,000
=======
</TABLE>
The estimated purchase price was allocated to the identifiable assets
acquired and the liabilities assumed based upon the fair market value on the
acquisition date.The net tangible assets consist primarily of accounts
receivable, property and equipment and other liabilities. Because the in-
process technology has not reached the stage of technological feasibility at
the acquisition date and had no alternative future use, the amount was
immediately charged to operations. The amounts allocated to developed
technology, customer base and trade name are amortized over the estimated
useful life of five years. The amounts allocated to covenants not to compete
and work force are being amortized over the estimated useful lives of two and
four years, respectively. The excess amount of the purchase price over the fair
market value of the identifiable assets acquired is accounted for as goodwill
and is being amortized over its estimated useful life of five years. The
valuation for the intangible assets has been determined using management's
assumptions and the preliminary report from an independent appraiser.
The accompanying unaudited pro forma combined balance sheet gives effect to
the acquisition of Transcription as if such transaction had occurred on
December 31, 1999, by consolidating the balance sheet of Transcription at
December 31, 1999.
The accompanying unaudited pro forma combined statement of operations gives
effect to the acquisition of Transcription as if it had occurred on January 1,
1999, by consolidating the results of operations of Transcription for the year
ended December 31, 1999 with the results of operations of Numerical for the
year ended December 31, 1999.
The unaudited pro forma condensed combined information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the transaction had
been consummated at the dates indicated, nor is it necessarily indicative of
future operating results or the financial position of the combined companies.
F-18
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
Numerical Transcription Pro forma
------------ ------------- ----------------------
December 31, December 31,
1999 1999 Adjustments Combined
------------ ------------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............. $ 13,486 $ 132 $(5,132)(A) 8,486
Accounts receivable...... 1,819 2,424 (1,221)(A) 3,022
Prepaid and other........ 394 31 (31)(A) 394
-------- ------ ------- --------
Total current assets... 15,699 2,587 (6,384) 11,902
Property and equipment,
net....................... 1,613 211 -- 1,823
Intangible assets.......... 80,356 (A) 80,355
Other assets............... 293 42 (42)(A) 293
-------- ------ ------- --------
$ 17,605 $2,840 $73,930 $ 94,375
======== ====== ======= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......... $ 613 $ 75 $ (75)(A) $ 613
Accrued expenses......... 1,945 72 178 (A) 2,195
Deferred revenue......... 2,642 3,410 (2,530)(A) 3,522
Current portion note
payable................. -- -- 8,750 (A) 8,750
-------- ------ ------- --------
Total current
liabilities........... 5,200 3,557 6,323 15,080
Long term notes payable.... -- -- 26,250 (A) 26,250
-------- ------ ------- --------
Total liabilities.......... 5,200 3,557 32,573 41,330
-------- ------ ------- --------
Stockholders' equity:
Preferred Stock.......... 1 -- -- 1
Common Stock............. 1 43 (43)(B) 1
Additional paid-in
capital................. 50,100 -- 40,640 (A) 90,740
Receivable from
stockholders............ (315) -- -- (315)
Deferred stock
compensation............ (21,220) -- -- (21,220)
Accumulated deficit...... (16,162) (760) 760 (B) (16,162)
-------- ------ ------- --------
Total stockholders'
equity................ 12,405 (717) 41,357 53,045
-------- ------ ------- --------
$ 17,605 $2,840 $73,930 $ 94,375
======== ====== ======= ========
</TABLE>
F-19
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Numerical Transcription Pro forma
--------- ------------- ----------------------
For the Year Ended
December 31, 1999 Adjustment Combined
------------------------ ---------- --------
<S> <C> <C> <C> <C>
Revenue..................... $ 5,492 $13,667 $ -- $ 19,159
-------- ------- -------- --------
Costs and expenses:
Cost of revenue........... 307 1,050 1,480 (D) 2,837
Research and development.. 4,816 1,580 1,163 (D) 7,559
Sales and marketing....... 4,277 857 3,669 (D) 8,803
General and
administrative........... 1,303 920 94 (D) 2,317
Amortization of deferred
stock compensation....... 3,990 -- -- 3,990
Amortization of goodwill.. -- -- 10,791 (E) 10,791
-------- ------- -------- --------
Total costs and
expenses............... 14,693 4,407 17,197 36,297
-------- ------- -------- --------
Income (loss) from
operations................. (9,201) 9,260 (17,197) (17,138)
Interest income (expense),
net........................ 373 55 (2,538)(F) (2,110)
-------- ------- -------- --------
Income (loss) before
provision for income
taxes...................... (8,828) 9,315 (19,735) (19,248)
Provision for income taxes.. -- 120 -- 120
-------- ------- -------- --------
Net income (loss)........... $(8,828) $ 9,195 $(19,735) $(19,368)
======== ======= ======== ========
Net loss per common share,
basic and diluted, for pro
forma financial
statements................. $ (1.21) $ (1.07)(G)
======== ========
Weighted average common
shares, basic and diluted,
for pro forma financial
statements................. 7,290 18,116
======== ========
</TABLE>
F-20
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
(unaudited)
The following adjustments were applied to Numerical's historical financial
statements and those of Transcription to arrive at the pro forma combined
financial information.
(A) To reflect the acquisition of Transcription assuming the issuance of
3,810,000 shares of Numerical's Series E Preferred Stock and the issuance of
notes of $40.0 million, and allocate the purchase price as described in the
overview.
(B) To eliminate the historical equity accounts of Transcription.
(C) To reflect the principal payment of $5.0 million upon issuance of the
notes payable.
(D) To record the amortization of identifiable assets related to the
acquisition of Transcription as if the transaction occurred on January 1, 1999.
Identifiable intangible assets recorded in relation to the acquisition were
approximately $26.4 million and are being amortized on a straight-line basis
over two to five years.
(E) To record the amortization of goodwill related to the acquisition of
Transcription as if the transaction occurred on January 1, 1999. Goodwill
recorded in relation to the acquisition was approximately $54.0 million and is
being amortized on a straight-line basis over five years.
(F) To record interest expense on the notes payable.
(G) Pro forma basic and diluted net loss per share for the year ended
December 31, 1999 is computed using the weighted average number of common
shares outstanding, including the pro forma effects of the automatic conversion
of Numerical's convertible preferred stock effective upon the closing of the
offering as if such conversion occurred on January 1, 1999 or at date of
original issuance, if later, and the share issued in conjunction with the
acquisition of Transcription as if such shares were outstanding from January 1,
1999, for the year ended December 31, 1999.
F-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of
Transcription Enterprises Limited
In our opinion, the accompanying balance sheets and the related statements
of operations, of shareholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of Transcription
Enterprises Limited at December 31, 1998 and 1999, and the results of its
operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
January 21, 2000
F-22
<PAGE>
TRANSCRIPTION ENTERPRISES LIMITED
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
-------------
1998 1999
------ ------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash
equivalents.............. $1,497 $ 132
Accounts receivable....... 2,147 2,424
Prepaid and other......... 90 31
------ ------
Total current assets.... 3,734 2,587
Property and equipment,
net........................ 197 211
Other assets................ 3 42
------ ------
$3,934 $2,840
====== ======
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
(DEFICIT)
<S> <C> <C>
Current liabilities:
Accounts payable.......... $ 23 $ 75
Accrued expenses.......... 273 72
Deferred revenue.......... 2,584 3,410
------ ------
Total current
liabilities............ 2,880 3,557
------ ------
Shareholders' equity:
Common stock, no par value:
Authorized: 10,000 shares;
Issued and outstanding:
798 shares............... 43 43
Retained earnings
(deficit)................ 1,011 (760)
------ ------
Total shareholders'
equity (deficit)....... 1,054 (717)
------ ------
$3,934 $2,840
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
TRANSCRIPTION ENTERPRISES LIMITED
STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-------------------
1998 1999
--------- ---------
<S> <C> <C>
Revenue:
License.................................................. $ 7,162 $ 5,708
Service.................................................. 7,396 7,959
--------- ---------
Total revenue.......................................... 14,558 13,667
--------- ---------
Costs and expenses:
Cost of revenue.......................................... 789 1,050
Research and development................................. 1,704 1,580
Sales and marketing...................................... 779 857
General and administrative............................... 885 920
--------- ---------
Total costs and expenses............................... 4,157 4,407
--------- ---------
Income from operations..................................... 10,401 9,260
Interest income............................................ 78 55
--------- ---------
Income before provision for income taxes................... 10,479 9,315
Provision for income taxes................................. 118 120
--------- ---------
Net income................................................. $ 10,361 $ 9,195
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
TRANSCRIPTION ENTERPRISES LIMITED
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Common Stock Retained
------------- Earnings
Shares Amount (Deficit) Total
------ ------ --------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1997.................. 798 $43 $ 1,376 $ 1,419
Net income................................ -- -- 10,361 10,361
Distributions to shareholders............. -- -- (10,726) (10,726)
--- --- -------- --------
Balance, December 31, 1998.................. 798 43 1,011 1,054
Net income................................ -- -- 9,195 9,195
Distributions to shareholders............. -- -- (10,966) (10,966)
--- --- -------- --------
Balance, December 31, 1999.................. 798 $43 $ (760) $ (717)
=== === ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
TRANSCRIPTION ENTERPRISES LIMITED
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Years
Ended
December 31,
------------------
1998 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 10,361 $ 9,195
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation............................................ 91 129
Changes in assets and liabilities:
Accounts receivable................................... 72 (277)
Prepaid and other..................................... (38) 59
Other assets.......................................... (1) (39)
Accounts payable...................................... 8 52
Accrued expenses...................................... (40) (201)
Deferred revenue...................................... 511 826
-------- --------
Net cash provided by operating activities........... 10,964 9,744
-------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (152) (143)
-------- --------
Net cash used in investing activities............... (152) (143)
-------- --------
Cash flows from financing activities:
Distrubutions to shareholders............................. (10,726) (10,966)
-------- --------
Net cash used in financing activities............... (10,726) (10,966)
-------- --------
Net increase (decrease) in cash and cash equivalents...... 86 (1,365)
Cash and cash equivalents at beginning of year............ 1,411 1,497
-------- --------
Cash and cash equivalents at end of year.................. $ 1,497 $ 132
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
TRANSCRIPTION ENTERPRISES LIMITED
NOTES TO FINANCIAL STATEMENTS
NOTE 1--BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Transcription Enterprises Limited (the "Company") was incorporated in
California in May 1986 as an S Corporation to develop and market integrated
software products and services that provide semiconductor manufacturers with an
interactive graphics system for fracturing and verifying photomask pattern
data.
Certain risks and concentrations
At December 31, 1998 and 1999, substantially all of the Company's cash and
cash equivalents were invested with four major financial institutions.
The Company markets and sells its products and services to end users and
original equipment manufacturers primarily in North America, Europe and Japan.
The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. The
Company had accounts receivable from one customer representing 10% and one
customer representing 27% of accounts receivable at December 31, 1998 and 1999,
respectively.
In 1998 and 1999, the Company had one customer who accounted for 12%, and
15% of sales, respectively.
The Company operates in one industry segment. The following is a summary of
the Company's revenue by geographic operations. Revenues are attributed to the
countries in which the products and services are delivered:
<TABLE>
<CAPTION>
U.S. Japan Pac Rim Europe Other Total
------ ------ ------- ------ ----- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
1998.............................. $6,846 $2,814 $2,383 $2,131 $384 $14,558
1999.............................. 6,400 3,101 1,654 2,005 507 13,667
</TABLE>
The Company had no material long-lived assets outside of the United States.
Financial instruments
The carrying amount of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses approximate fair value due to their short maturities.
Cash and cash equivalents
The Company considers all highly liquid investments with maturities of three
months or less at the time of purchase and money market funds to be cash
equivalents.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Property and equipment are depreciated on a straight-line basis over their
estimated useful lives of 3 years.
F-27
<PAGE>
TRANSCRIPTION ENTERPRISES LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Research and development costs
Costs related to research, design and development of products are charged to
research and development expenses as incurred. Software development costs are
capitalized beginning when a product's technological feasibility has been
established and ending when a product is available for general release to
customers. The Company has not capitalized any software development costs to
date, as such costs have not been significant.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue recognition
The Company recognizes revenues in accordance with the provisions of
Statement of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition", as
amended by SOP 98-4 and 98-9. The Company's revenues are derived from licenses
of its software and technology and from services the Company provides to its
customers. Revenues are recognized for the various contract elements based upon
vendor-specific objective evidence ("VSOE") of fair value of each element. If
VSOE of fair value exists only for undelivered elements, the Company recognizes
fees assigned to the delivered element(s) as the difference between the total
arrangement fee and the VSOE of the undelivered element.
License revenues are recognized when persuasive evidence of an agreement
exists, the software and technology has been delivered, no significant post-
delivery obligations remain, the license fee is fixed or determinable and
collection of the fee is probable.
Services revenues consist of maintenance fees. Maintenance agreements are
typically priced based on a percentage of the product license fee and have a
one-year term, renewable annually. Services provided to customers under
maintenance agreements include technical product support and unspecified
product upgrades. Deferred revenues from advanced payments for maintenance
agreements are recognized ratably over the term of the contract, which is
typically one year.
Comprehensive income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130"). FAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. There was no difference between the
Company's net income and its total comprehensive income for 1999, 1998, and
1997.
Recent accounting pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, or SFAS 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 133 establishes new standards of accounting and reporting for
derivative instruments and hedging activities. SFAS 133 requires that all
derivatives be recognized at fair value in the statement of financial position,
and that the corresponding gains or losses be reported either in the statement
of operations or as a component of comprehensive income, depending on the type
of hedging relationship that exists. SFAS 133 will be effective for fiscal
years beginning after June 15, 2000. The Company does not currently hold
derivative instruments or engage in hedging activities.
F-28
<PAGE>
TRANSCRIPTION ENTERPRISES LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 2--BALANCE SHEET DETAIL
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
------ ------
(in
thousands)
<S> <C> <C>
Property and equipment:
Computer equipment......................................... $ 753 $ 895
Furniture and equipment.................................... 14 15
------ ------
767 910
Less accumulated depreciation.............................. (570) (699)
------ ------
$ 197 $ 211
====== ======
Accrued expenses:
Payroll and related expenses............................... $ 248 $ 65
Other accrued expenses..................................... 25 7
------ ------
$ 273 $ 72
====== ======
</TABLE>
NOTE 3--COMMITMENTS
Operating leases
The Company leases its facility under a noncancelable operating lease, which
expires in January 2001. The Company has the option to renew the lease for five
years. The Company is responsible for maintenance, insurance and taxes.
Minimum lease payments as of December 31, 1999 for noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
Year Lease Payments
---- --------------
<S> <C>
2000.......................................................... $73
2001.......................................................... 6
---
$79
===
</TABLE>
Rent expense was $70,000, $67,000 and $61,000 for 1999, 1998 and 1997,
respectively.
NOTE 4--INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, the Company is not subject
to federal corporate income taxation. Rather, the Company's shareholders
include their respective portions of taxable income in their individual income
tax returns. Therefore, no provision or liability for federal income taxes has
been included in these financial statements.
The state of California generally conforms to the federal provisions
recognizing S corporations as pass-through entities. However, California
imposes a 1.5% tax at the entity level. The income tax provisions for 1998 and
1999 consist of current state tax expense.
F-29
<PAGE>
TRANSCRIPTION ENTERPRISES LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5--PROFIT SHARING PLAN
For the years ended December 31, 1998 and 1999, the company had a
discretionary profit sharing plan under which ten percent of the Company's
profits were redistributed to the employees, a portion of which is invested in
a retirement fund (up to a maximum allowable by the IRS) and the balance is
paid to the employee. The plan was terminated upon the effective date of the
merger described in Note 6.
NOTE 6--SUBSEQUENT EVENT
On January 1, 2000, the Company was acquired by and became a wholly-owned
subsidiary of Numerical Technologies, Inc. (the Parent). Under the terms of the
acquisition Agreement, each share of the common stock of the Company was
converted to 4.778 shares of Series E Preferred Stock and $50.1575 in principal
amount of a Promissory Note. The maximum consideration to be paid by the
Company pursuant to the Merger is 3,810,000 shares of Series E preferred stock
plus $40.0 million in aggregate principal amount of Notes. The Promissory Notes
are secured by the assets of the Company.
F-30
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of common stock being registered. All amounts are estimates,
except the registration fee, the NASD filing fee and the Nasdaq listing fee.
<TABLE>
<CAPTION>
Amount
To Be
Paid
------
<S> <C>
Registration Fee.................................................... $ *
NASD Fee............................................................ *
Nasdaq Listing Fee.................................................. *
Legal Fees and Expenses............................................. *
Accounting Fees and Expenses........................................ *
Printing and Engraving Expenses..................................... *
Blue Sky Fees and Expenses.......................................... *
Transfer Agent Fees................................................. *
Miscellaneous....................................................... *
-----
Total............................................................. *
=====
</TABLE>
- --------
* To be filed by amendment.
Item 14. Indemnification of Directors and Officers
As permitted by Section 145 of the Delaware General Corporation Law, the
registrant's amended and restated certificate of incorporation includes a
provision that eliminates the personal liability of its directors for monetary
damages for breach or alleged breach of their duty of care. In addition, as
permitted by Section 145 of the Delaware General Corporation Law, the bylaws of
the registrant provide that: (1) the registrant is required to indemnify its
directors and executive officers and persons serving in such capacities in
other business enterprises at the registrant's request, to the fullest extent
permitted by Delaware law, including in those circumstances in which
indemnification would otherwise be discretionary; (2) the registrant may, in
its discretion, indemnify employees and agents in those circumstances where
indemnification is not required by law; (3) the registrant is required to
advance expenses, as incurred, to its directors and executive officers in
connection with defending a proceeding, except that it is not required to
advance expenses to a person against whom the registrant brings a claim for
breach of the duty of loyalty, failure to act in good faith, intentional
misconduct, knowing violation of law or deriving an improper personal benefit;
(4) the rights conferred in the bylaws are not exclusive, and the registrant is
authorized to enter into indemnification agreements with its directors,
executive officers and employees; and (5) the registrant may not retroactively
amend the bylaw provisions in a way that is adverse to such directors,
executive officers and employees in these matters.
The registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers that provide the maximum indemnity
allowed to directors and executive officers by Section 145 of the Delaware
General Corporation Law and the bylaws, as well as certain additional
procedural protections. In addition, such indemnification agreements provide
that the registrant's directors and executive officers will be indemnified to
the fullest possible extent not prohibited by law against all expenses,
including attorney's fees, and settlement amounts paid or incurred by them in
any action or proceeding, including any derivative action by or in the right of
the registrant, on account of their services as directors or executive officers
of the registrant or as directors or officers of any other company or
enterprise when they are serving in such capacities at the request of the
registrant. The registrant will not be obligated pursuant to the
indemnification agreements to indemnify or advance expenses to an indemnified
party with respect to proceedings or claims initiated by the
II-1
<PAGE>
indemnified party and not by way of defense, except with respect to proceedings
specifically authorized by the registrant's board of directors or brought to
enforce a right to indemnification under the indemnification agreement, the
registrant's bylaws or any statute or law. Under the agreements, the registrant
is not obligated to indemnify the indemnified party (1) for any expenses
incurred by the indemnified party with respect to any proceeding instituted by
the indemnified party to enforce or interpret the agreement, if a court of
competent jurisdiction determines that each of the material assertions made by
the indemnified party in such proceeding was not made in good faith or was
frivolous; (2) for any amounts paid in settlement of a proceeding unless the
registrant consents to such settlement; (3) with respect to any proceeding
brought by the registrant against the indemnified party for willful misconduct,
unless a court determines that each of such claims was not made in good faith
or was frivolous; (4) on account of any suit in which judgment is rendered
against the indemnified party for an accounting of profits made from the
purchase or sale by the indemnified party of securities of the registrant
pursuant to the provisions of (S)16(b) of the Securities Exchange Act of 1934,
and related laws; (5) on account of the indemnified party's conduct which is
finally adjudged to have been knowingly fraudulent or deliberately dishonest,
or to constitute willful misconduct or a knowing violation of the law; (6) an
account of any conduct from which the indemnified party derived an improper
personal benefit; (7) on account of conduct the indemnified party believed to
be contrary to the best interests of the registrant or its stockholders; (8) on
account of conduct that constituted a breach of the indemnified party's duty of
loyalty to the registrant or its stockholders; or (9) if a final decision by a
court having jurisdiction in the matter shall determine that such
indemnification is not lawful.
The indemnification provision in the bylaws and the indemnification
agreements entered into between the registrant and its directors and executive
officers may be sufficiently broad to permit indemnification of the
registrant's officers and directors for liabilities arising under the
Securities Act of 1933.
Reference is made to the following documents filed as exhibits to this
registration statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
Exhibit
Document Number
- -------- -------
<S> <C>
Form of Underwriting Agreement........................................ 1.1
Certificate of Incorporation of the registrant........................ 3.1
Form of Amended and Restated Certificate of Incorporation of the
registrant to be filed upon closing of the offering.................. 3.2
Bylaws of registrant.................................................. 3.3
Form of Indemnification Agreement entered into by the registrant with
each of its directors and executive officers......................... 10.1
</TABLE>
Item 15. Recent Sales of Unregistered Securities
Since January 1, 1997, the registrant has issued and sold the securities
described below.
(a) From January 1, 1997 to January 15, 2000, the registrant issued and sold
an aggregate of 3,718,078 shares of unregistered common stock to 79 directors,
officers, employees, former employees and consultants at prices ranging from
$0.03 to $1.00 per share, for aggregate cash consideration of approximately
$1,461,677, of which approximately $315,000 is subject to outstanding
promissory notes payable to the registrant. These shares were sold pursuant to
the exercise of options granted by the board. As to each director, officer,
employee, former employee and consultant of the registrant who was issued such
securities, the registrant relied upon Rule 701 of the Securities Act of 1933.
Each such person purchased securities of the registrant pursuant to a written
contract between such person and the registrant. In addition, the registrant
met the conditions imposed under Rule 701(b).
II-2
<PAGE>
(b) On June 27, 1997 and August 26, 1997, the registrant issued and sold (1)
in the aggregate 1,050,000 shares of unregistered Series B preferred stock at a
price per share of $0.67, and (2) an unregistered warrant to purchase 195,000
shares of unregistered Series B preferred stock, with an exercise price per
share of $0.67, to certain investors for an aggregate cash consideration of
$700,000. These shares and warrant were sold pursuant to a Series B preferred
stock and warrant purchase agreement between the registrant and such investors.
The warrant expired, unexercised, on June 27, 1999. The registrant relied upon
Section 4(2) of the Securities Act of 1933 and Regulation D, Rule 506, in
connection with the sale of these securities. The sale of Series B preferred
stock and warrant were made in compliance with all of the terms of Rules 501
and 502 of Regulation D, there were no more than 35 investors, as calculated
pursuant to Rule 501(e) of Regulation D, and each investor who was not an
accredited investor represented to the registrant that it had such knowledge
and experience in financial and business matters that it was capable of
evaluating the merits and risks of the investment.
(c) On June 5, 1998 and August 4, 1998, the registrant issued and sold (1)
in the aggregate 2,445,089 shares of unregistered Series C preferred stock at a
price per share of $3.26, and (2) unregistered warrants to purchase 150,000
shares of unregistered Series C preferred stock, with an exercise price per
share of $3.26, to certain investors for aggregate cash consideration of
approximately $7,970,998. The shares and warrants were sold pursuant to a
Series C preferred stock and warrant purchase agreement between the registrant
and such investors. The warrants may be exercised in whole or in part at any
time prior to the completion of this offering, at which time they expire. The
warrants may be exercised for cash or pursuant to a net exercise provision
contained therein. The registrant relied upon Section 4(2) of the Securities
Act of 1933 and Regulation D, Rule 506, in connection with the sale of these
securities. The sale of Series C preferred stock and warrants were made in
compliance with all of the terms of Rules 501 and 502 of Regulation D, there
were no more than 35 investors, as calculated pursuant to Rule 501(e) of
Regulation D, and each investor who was not an accredited investor represented
to the registrant that it had such knowledge and experience in financial and
business matters that it was capable of evaluating the merits and risks of the
investment.
(d) On June 24, 1999 and August 31, 1999, the registrant sold in the
aggregate 2,357,906 shares of unregistered Series D preferred stock at a price
per share of $5.89 to certain investors for aggregate cash consideration of
approximately $13,880,230. The shares were sold pursuant to a Series D
preferred stock purchase agreement between the registrant and such investors.
The registrant relied upon Section 4(2) of the Securities Act of 1933 and
Regulation D, Rule 506, in connection with the sale of these shares. The sale
of Series D preferred stock was made in compliance with all of the terms of
Rules 501 and 502 of Regulation D, there were no more than 35 investors, as
calculated pursuant to Rule 501(e) of Regulation D, and each investor who was
not an accredited investor represented to the registrant that it had such
knowledge and experience in financial and business matters that it was capable
of evaluating the merits and risks of the investment.
(e) On January 1, 2000, the registrant issued and sold to the shareholders
of Transcription Enterprises Limited (1) 3,809,994 shares of unregistered
Series E preferred stock valued at $10.67 per share, and (2) unregistered
promissory notes in the aggregate principal amount of $40,000,000, in exchange
for all outstanding stock of Transcription Enterprises Limited. These
securities were issued pursuant to an agreement and plan of reorganization. The
registrant relied upon Section 3(a)(11) of the Securities Act of 1933 and Rule
147 in connection with the sale and issuance of these securities.
Appropriate legends were affixed to the share certificates issued in the
transactions described above. All recipients had adequate access, through their
relationships with the registrant, to information about the registrant.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.*
2.1 Agreement and Plan of Reorganization, dated as of December 21, 1999,
between the registrant, Transcription Enterprises Limited, Transcription
Enterprises, Inc., Kevin MacLean and Roger Sturgeon.
2.2 Agreement and Plan of Merger between the registrant and Numerical
Technologies, Inc., a Delaware corporation.*
3.1 Certificate of Incorporation of registrant.
3.2 Form of Amended and Restated Certificate of Incorporation of registrant
to be filed upon the closing of the offering made under the registration
statement.*
3.3 Bylaws of registrant.*
4.1 Form of registrant's common stock certificate.*
4.2 1999 Second Amended and Restated Shareholders Rights Agreement, dated
January 1, 2000, between the registrant and the parties named therein,
as amended on January 14, 2000.*
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.*
10.1 Form of Indemnification Agreement entered into by registrant with each
of its directors and executive officers.*
10.2 2000 Stock Plan and related agreements.
10.3 1997 Stock Plan and related agreements.
10.4 2000 Employee Stock Purchase Plan and related agreements.
10.7 Lease Agreement, dated June 15, 1999, by and between the registrant and
CarrAmerica Realty Corporation.
10.6 Lease Agreement, dated May 10, 1990, between Transcription Enterprises,
Inc. and Los Gatos Business Park.
10.7 Employment Agreement, dated January 1, 2000, by and between
Transcription Enterprises, Inc. and Roger Sturgeon.
10.8 Employment Agreement, dated January 1, 2000, by and between
Transcription Enterprises, Inc. and Kevin MacLean.
10.9 Non-Competition Agreement, dated January 1, 2000, by and between
Numerical Technologies, Inc., Transcription Enterprises, Inc.,
Transcription Enterprises Limited and Roger Sturgeon.
10.10 Non-Competition Agreement, dated January 1, 2000, by and between
Numerical Technologies, Inc., Transcription Enterprises, Inc.,
Transcription Enterprises Limited and Kevin MacLean.
10.11 Stock Option Agreement--Early Exercise, dated November 2, 1999, by and
between the registrant and William Davidow.
10.12 Stock Option Agreement--Early Exercise, dated May 26, 1999, by and
between the registrant and Richard Mora.
10.13 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and
between the registrant and Richard Mora.
10.14 Stock Option Agreement--Early Exercise, dated March 31, 1999, by and
between the registrant and Atul Sharan.
10.15 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and
between the registrant and Atul Sharan.
10.16 Stock Option Agreement--Early Exercise, dated February 3, 1999, by and
between the registrant and Lars Herlitz.
10.17 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and
between the registrant and Lars Herlitz.
10.18 Stock Option Agreement--Early Exercise, dated November 17, 1999, by and
between the registrant and John Traub.*
10.19 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and
between the registrant and John Traub.
10.20 Stock Option Agreement--Early Exercise, dated July 15, 1998, between the
registrant and Harvey Jones.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.21 OEM Software License Agreement, dated December 31, 1997, between
registrant and Zygo Corporation (fka Technical Instrument Company).*
10.22 Addendum to OEM Software License Agreement, dated March 25, 1999,
between registrant and Zygo Corporation.*
10.23 OEM Software License Agreement, dated March 19, 1998, between registrant
and Applied Materials, Inc.*
10.24 Addendum A to OEM Software License Agreement, dated December 31, 1999,
between registrant and Applied Materials, Inc.*
10.25 Software Production and Distribution Agreement, dated January 9, 1998,
between registrant and KLA-Tencor Corporation.*
10.26 License Agreement, dated December 23, 1999, between registrant and Seiko
Instruments, Inc.
21.1 Subsidiaries of the registrant.*
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1 Power of Attorney (See page II-6).
27.1 Financial Data Schedule
</TABLE>
- --------
* To be supplied by amendment.
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings
The undersigned hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions referenced in Item 14 of this
registration statement or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities, other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding, is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Jose,
State of California, on this 28th day of January 2000.
NUMERICAL TECHNOLOGIES, INC.
/s/ Yagyensh C. Pati
By: _________________________________
Yagyensh C. Pati
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints, jointly and severally, Yagyensh C. Pati and
Richard Mora and each one of them, his true and lawful attorney-in-fact and
agents, each with full power of substitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments, including
post-effective amendments, to this registration statement, and any registration
statement related to the offering contemplated by this registration statement
that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933 and to file the same, with all exhibits thereto and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents or any of them,
or his or their substitute or substitutes, may lawfully do or cause to be done
or by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Yagyensh C. Pati President and Chief January 28, 2000
______________________________________ Executive Officer and
Yagyensh C. Pati Director (Principal
Executive Officer)
/s/ Richard Mora Chief Financial Officer January 28, 2000
______________________________________ and Vice President,
Richard Mora Operations (Principal
Financial and Accounting
Officer)
/s/ William Davidow Chairman of the Board January 28, 2000
______________________________________
William Davidow
/s/ Yao-Ting Wang Director and Chief January 28, 2000
______________________________________ Technology Officer
Yao-Ting Wang
/s/ Thomas Kailath Director January 28, 2000
______________________________________
Thomas Kailath
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Narendra Gupta Director January 28, 2000
______________________________________
Narendra Gupta
/s/ Abbas El Gamal Director January 28, 2000
______________________________________
Abbas El Gamal
/s/ Harvey Jones Director January 28, 2000
______________________________________
Harvey Jones
/s/ Roger Sturgeon Director and Fellow January 28, 2000
______________________________________
Roger Sturgeon
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.*
2.1 Agreement and Plan of Reorganization, dated as of December 21, 1999,
between the registrant, Transcription Enterprises Limited, Transcription
Enterprises, Inc., Kevin MacLean and Roger Sturgeon.
2.2 Agreement and Plan of Merger between the registrant and Numerical
Technologies, Inc., a Delaware corporation.*
3.1 Certificate of Incorporation of registrant.
3.2 Form of Amended and Restated Certificate of Incorporation of registrant
to be filed upon the closing of the offering made under the registration
statement.*
3.3 Bylaws of registrant.
4.1 Form of registrant's common stock certificate.*
4.2 1999 Second Amended and Restated Shareholders Rights Agreement, dated
January 1, 2000, between the registrant and the parties named therein,
as amended on January 14, 2000.*
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.*
10.1 Form of Indemnification Agreement entered into by registrant with each
of its directors and executive officers.*
10.2 2000 Stock Plan and related agreements.
10.3 1997 Stock Plan and related agreements.
10.4 2000 Employee Stock Purchase Plan and related agreements.
10.5 Lease Agreement, dated June 15, 1999, by and between the registrant and
CarrAmerica Realty Corporation.
10.6 Lease Agreement, dated May 10, 1999, between Transcription Enterprises,
Inc. and Los Gatos Business Park.
10.7 Employment Agreement, dated January 1, 2000, by and between
Transcription Enterprises, Inc. and Roger Sturgeon.
10.8 Employment Agreement, dated January 1, 2000, by and between
Transcription Enterprises, Inc. and Kevin MacLean.
10.9 Non-Competition Agreement, dated January 1, 2000, by and between
Numerical Technologies, Inc., Transcription Enterprises, Inc.,
Transcription Enterprises Limited and Roger Sturgeon.
10.10 Non-Competition Agreement, dated January 1, 2000, by and between
Numerical Technologies, Inc., Transcription Enterprises, Inc.,
Transcription Enterprises Limited and Kevin MacLean.
10.11 Stock Option Agreement--Early Exercise, dated November 2, 1999, by and
between the registrant and William Davidow.
10.12 Stock Option Agreement--Early Exercise, dated May 26, 1999, by and
between the registrant and Richard Mora.
10.13 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and
between the registrant and Richard Mora.
10.14 Stock Option Agreement--Early Exercise, dated March 31, 1999, by and
between the registrant and Atul Sharan.
10.15 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and
between the registrant and Atul Sharan.
10.16 Stock Option Agreement--Early Exercise, dated February 3, 1999, by and
between the registrant and Lars Herlitz.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.17 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and
between the registrant and Lars Herlitz.
10.18 Stock Option Agreement--Early Exercise, dated November 17, 1999, by and
between the registrant and John Traub.*
10.19 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and
between the registrant and John Traub.
10.20 Stock Option Agreement--Early Exercise, dated July 15, 1998, between the
registrant and Harvey Jones.
10.21 OEM Software License Agreement, dated December 31, 1997, between
registrant and Zygo Corporation (fka Technical Instrument Company).*
10.22 Addendum to OEM Software License Agreement, dated March 25, 1999,
between registrant and Zygo Corporation.*
10.23 OEM Software License Agreement, dated March 19, 1998, between registrant
and Applied Materials, Inc.*
10.24 Addendum A to OEM Software License Agreement, dated December 31, 1999,
between registrant and Applied Materials, Inc.*
10.25 Software Production and Distribution Agreement, dated January 9, 1998,
between registrant and KLA-Tencor Corporation.*
10.26 License Agreement, dated December 23, 1999, between registrant and Seiko
Instruments, Inc.*
21.1 Subsidiaries of the registrant.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1 Power of Attorney (See page II-6).
27.1 Financial Data Schedule
</TABLE>
- --------
* To be supplied by amendment.
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
Dated as of December 21, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1 THE MERGER............................................................................................... 1
1.1 Merger; Effective Time............................................................................... 1
1.2 Closing.............................................................................................. 2
1.3 Effects of the Merger................................................................................ 2
1.4 Certificate of Incorporation; Bylaws; Directors; Officers............................................ 2
1.5 Tax-Free Reorganization.............................................................................. 2
SECTION 2 EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES...... 2
2.1 Effect on Capital Stock.............................................................................. 2
2.2 Exchange of Certificates; Issuance of Note........................................................... 6
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL SHAREHOLDER.............................. 7
3.1 Organization, Standing and Corporate Power........................................................... 7
3.2 Company Capital Structure............................................................................ 7
3.3 Subsidiaries......................................................................................... 8
3.4 Authority/Noncontravention........................................................................... 8
3.5 Financial Statements; No Undisclosed Liabilities..................................................... 9
3.6 Absence of Certain Changes or Events................................................................. 10
3.7 Litigation........................................................................................... 10
3.8 Contracts............................................................................................ 10
3.9 Compliance With Laws................................................................................. 11
3.10 Employee Matters and Benefit Plans................................................................... 12
3.11 Intentionally Omitted................................................................................ 16
3.12 Taxes................................................................................................ 16
3.13 Intentionally Omitted................................................................................ 17
3.14 Title to Properties.................................................................................. 17
3.15 Intellectual Property................................................................................ 17
3.16 Year 2000 Compliance................................................................................. 18
3.17 Voting Requirements.................................................................................. 18
3.18 Payments............................................................................................. 18
3.19 Transactions with Related Parties.................................................................... 19
3.20 Restrictions on Business Activities.................................................................. 19
3.21 Accounts Receivable; Inventory....................................................................... 19
3.22 Minute Books......................................................................................... 19
3.23 Environmental Matters................................................................................ 20
3.24 Insurance............................................................................................ 20
3.25 Warranties; Indemnities.............................................................................. 21
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
3.26 Representations Complete............................................................................ 21
3.27 HSR Act............................................................................................. 21
SECTION 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB........................................................ 21
4.1 Organization, Standing and Corporate Power.......................................................... 22
4.2 Authority........................................................................................... 22
4.3 Capitalization...................................................................................... 22
4.4 Financial Statements................................................................................ 23
4.5 Changes............................................................................................. 23
4.6 Material Obligations................................................................................ 24
4.7 Title to Properties and Assets; Liens, etc.......................................................... 25
4.8 Compliance with Other Instruments, None Burdensome, etc............................................. 25
4.9 Litigation, etc..................................................................................... 25
4.10 Registration Rights................................................................................. 26
4.11 Governmental Consent, etc........................................................................... 26
4.12 Tax Returns and Payments............................................................................ 26
4.13 Employee Matters.................................................................................... 26
4.14 Insurance........................................................................................... 26
4.15 Disclosure.......................................................................................... 26
4.16 Status of Shares.................................................................................... 27
4.17 Experience; Access to Data.......................................................................... 27
SECTION 5 COVENANTS............................................................................................... 27
5.1 Conduct of Business of the Company.................................................................. 27
5.2 No Solicitation..................................................................................... 29
5.3 Access to Information............................................................................... 30
5.4 Confidentiality..................................................................................... 30
5.5 Expenses............................................................................................ 30
5.6 Public Disclosure................................................................................... 30
5.7 Consents............................................................................................ 30
5.8 Tax Covenants of Shareholders....................................................................... 31
5.9 Reasonable Efforts.................................................................................. 31
5.10 Notification of Certain Matters..................................................................... 31
5.11 Blue Sky Laws....................................................................................... 31
5.12 Noncompetition Agreements........................................................................... 32
5.13 Employment Agreements............................................................................... 32
5.14 Investment Representation Agreements................................................................ 32
5.15 Cash Balances; Pre-Closing Liabilities.............................................................. 32
5.16 Certain Adjustments................................................................................. 32
5.17 Voting Agreement.................................................................................... 33
5.18 Section 338(h)(10) Election......................................................................... 33
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6 CONDITIONS TO THE MERGER................................................................................ 33
6.1 Conditions to Obligations of Each Party to Effect the Merger........................................ 33
6.2 Additional Conditions to the Obligations of Parent and Sub.......................................... 34
6.3 Additional Conditions to Obligations of Company..................................................... 35
SECTION 7 INDEMNIFICATION......................................................................................... 36
7.1 General Indemnification............................................................................. 36
7.2 Limitation and Expiration........................................................................... 38
7.3 Indemnification Procedures.......................................................................... 39
7.4 Shareholders' Representative........................................................................ 42
7.5 Survival of Representations, Warranties and Covenants............................................... 42
SECTION 8 TERMINATION, AMENDMENT AND WAIVER....................................................................... 43
8.1 Termination......................................................................................... 43
8.2 Effect of Termination............................................................................... 44
8.3 Amendment........................................................................................... 44
8.4 Extension; Waiver................................................................................... 44
8.5 Notice of Termination............................................................................... 44
SECTION 9 MISCELLANEOUS........................................................................................... 44
9.1 Notices............................................................................................. 44
9.2 Interpretation...................................................................................... 46
9.3 Counterparts........................................................................................ 46
9.4 Entire Agreement; Assignment........................................................................ 47
9.5 Severability........................................................................................ 47
9.6 Other Remedies...................................................................................... 47
9.7 Governing Law....................................................................................... 47
9.8 Further Assurances.................................................................................. 47
9.9 Absence of Third Party Beneficiary Rights........................................................... 47
9.10 Mutual Drafting..................................................................................... 48
9.11 Further Representations............................................................................. 48
</TABLE>
-iii-
<PAGE>
INDEX OF EXHIBITS
Exhibit A Agreement of Merger
Exhibit B Forms of Promissory Note
Exhibit C Form of Security Agreement
Exhibit D Form of Restated Articles
Exhibit E-1 Form of Joint Escrow Instructions
Exhibit E-2 Consent of Spouse
Exhibit F Form of Noncompetition Agreement
Exhibit G Form of Employment Agreement
Exhibit H Form of Investment Representation Agreement
Exhibit I Form of Legal Opinion of Counsel to the Company
Exhibit J Form of 1999 Second Amended and Restated Stockholder Rights
Agreement
Appendix A Allocation of Merger Consideration
-iv-
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of December 21, 1999 among Numerical Technologies, Inc., a
California corporation ("Parent"), Transcription Enterprises, Inc., a Delaware
corporation and a wholly-owned subsidiary of Parent ("Sub"), Transcription
Enterprises Limited, a California corporation (the "Company"), and Messrs. Roger
Sturgeon and Kevin MacLean, individuals and principal shareholders of the
Company (the "Principal Shareholders").
RECITAL
WHEREAS, the Boards of Directors of each of the Company, Parent and Sub
believe it is in the best interests of each company and their respective
shareholders that the Company merges with and into Sub, with Sub as the
surviving corporation (the "Merger"), upon the terms and subject to the
conditions of this Agreement and, in furtherance thereof, have approved the
Merger.
WHEREAS, the parties intend, that the Merger constitute a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
SECTION 1
THE MERGER
1.1 Merger; Effective Time. Subject to the terms and conditions of this
----------------------
Agreement and the Agreement of Merger attached as Exhibit A (the "Merger
---------
Agreement"), at the Effective Time (as defined below), the Company shall be
merged with and into Sub in accordance with the California Corporation Code (the
"California Code") and the General Corporation Law of the State of Delaware (the
"DGCL", and together the California Code, the "State Corporation Law"). The
Merger Agreement provides, among other things, the mode of effecting the Merger
and the manner and basis of converting each issued and outstanding share of
capital stock of the Company into the Merger Consideration (as defined in
Section 2.1).
Subject to the provisions of this Agreement and the Merger Agreement, the
Merger Agreement, together with required officers' certificates, and/or
Certificate of Merger (the "Certificate of Merger") shall be filed in accordance
with the State Corporation Law on the Closing Date (as defined in Section 1.2).
The Merger shall become effective upon confirmation of such filing of the Merger
Agreement, officers' certificates and/or Certificate of Merger or at such later
time which the parties hereto shall have agreed upon and designated in such
filing as the effective date and time of the Merger (the date of confirmation of
such filing or such later time established by
<PAGE>
the Certificate of Merger is referred to as the "Effective Date" and the time of
confirmation of such filing or such later time established by the Certificate of
Merger is referred to as the "Effective Time").
1.2 Closing. The closing of the Merger and the transactions contemplated
-------
hereby (the "Closing") will take place as soon as practicable on the first
business day after satisfaction or waiver of the latest to occur of the
conditions set forth in Section 6 (the "Closing Date"), at the offices of Wilson
Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304-1050,
unless a different date or place is agreed to in writing by the parties hereto.
1.3 Effects of the Merger. At the Effective Time, the separate existence
---------------------
of the Company shall cease and the Company shall be merged with and into Sub,
and the effects of the Merger shall be as provided in this Agreement, the Merger
Agreement and the applicable provisions of the State Corporation Law. Sub after
the Merger is sometimes referred to as the "Surviving Corporation." Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the property, rights, privileges, powers and franchises of the Company
and Sub shall vest in the Surviving Corporation, and all debts, liabilities,
obligations and duties of the Company and Sub shall become the debts,
liabilities, obligations and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws; Directors; Officers. At the
---------------------------------------------------------
Effective Time, (i) the Certificate of Incorporation of Sub as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation; (ii) the Bylaws of Sub as in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation until altered, amended or repealed; (iii) the directors of Sub shall
be the initial directors of the Surviving Corporation and will hold office from
the Effective Time until their respective successors are duly elected or
appointed and qualified in the manner provided in the Certificate of
Incorporation and Bylaws of the Surviving Corporation, as the same may be
amended from time to time or otherwise as provided by law; and (iv) the officers
of Sub shall be the initial officers of the Surviving Corporation.
1.5 Tax-Free Reorganization. After consultation with their respective tax
-----------------------
advisors, the parties hereto agree to report the Merger as a reorganization
within the meaning of Section 368(a) of the Code. The parties have consulted
with their own tax advisors regarding the tax consequences of the Merger and no
party makes any representation or warranty with respect to such tax
consequences.
SECTION 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
-----------------------
Merger and without any action on the part of Parent, Sub or the Company or their
respective shareholders:
-2-
<PAGE>
(a) Capital Stock of Sub. Each issued and outstanding share of common
--------------------
stock, par value $0.01 per share, of Sub shall remain outstanding and shall
represent one validly issued, fully paid and nonassessed share of common stock,
par value $0.01 per share, of the Surviving Corporation.
(b) Cancellation of Certain Shares of Capital Stock of the Company.
--------------------------------------------------------------
All shares of capital stock of the Company that are owned directly or indirectly
by the Company shall be canceled and no stock of Parent or other consideration
shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of the Company. Subject to Sections
------------------------------------------
2.1(d), (e), (f), (h) and (i) below, each issued and outstanding share of common
stock of the Company ("Company Common Stock") (other than shares to be canceled
pursuant to Section 2.1(b)) shall automatically be canceled and extinguished and
converted, without any action on the part of the holder thereof, into the right
to receive 3.185 shares of Parent's Series E Preferred Stock which the parties
agree have a fair value of not less than $16.00 per share (The "Series E
Preferred") and $50.1575 in principal amount of a Promissory Note in the form of
Exhibit B hereto (the "Note", and together with the Series E Preferred, the
- ---------
"Merger Consideration"). The aggregate principal amount of the Notes issuable
hereunder shall be secured, pursuant to a Security Agreement in the form
attached hereto as Exhibit C, by all assets of the Surviving Corporation. The
---------
shares of Series E Preferred shall have the rights, privileges and preferences
as set forth in the Amended and Restated Articles of Incorporation of Parent in
the form attached hereto as Exhibit D ("Restated Articles"). All such shares of
---------
Company Common Stock, when so converted, shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration to be issued or paid in consideration therefor upon the surrender
of such certificate in accordance with Section 2.2 of this Agreement. The ratio
pursuant to which each share of Company Common Stock will be exchanged for
shares of Series E Preferred, determined in accordance with the foregoing
provisions, is referred to as the "Exchange Ratio." The number of shares of
Series E Preferred and the principal amount of Notes each shareholder of the
Company is entitled to receive pursuant to the Merger is set forth on Appendix A
hereto.
(d) Adjustment of Exchange Ratio. If, between the date of this
----------------------------
Agreement and the Effective Time, the outstanding shares of Parent Common Stock
shall have been changed into a different number of shares or a different class
by reason of any reclassification, split-up, stock dividend, stock combination
(collectively, "Recapitalization"), then the Exchange Ratio, or subject to
Section 5.1 below in the case of a Recapitalization of the Company, the Merger
Consideration, shall be correspondingly adjusted.
(e) Dissenters' Rights. Any shares of Company Common Stock held by a
------------------
holder who has properly exercised dissenters' rights for such shares in
accordance with the California Code and who, as of the Effective Time, has not
effectively withdrawn or lost such dissenters' rights ("Dissenting Shares")
shall not be converted into Merger Consideration but shall be converted into the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to the California Code. The Company shall
give Parent prompt notice of
-3-
<PAGE>
any demand received by the Company to require the Company to purchase shares of
Company Common Stock, and Parent shall have the right to participate in all
negotiations and proceedings with respect to such demand. The Company agrees
that, except with the prior written consent of Parent, or as required under the
California Code, it will not voluntarily make any payment with respect to, or
settle or offer to settle, any such purchase demand. Each holder of Dissenting
Shares (a "Dissenting Shareholder") who, pursuant to the provisions of the
California Code, becomes entitled to payment of the value of shares of Company
Common Stock shall receive payment therefor (but only after the value therefor
shall have been agreed upon or finally determined pursuant to such provisions).
In the event of legal obligation, after the Effective Time, to deliver the
Merger Consideration to any holder of shares of Company Common Stock who shall
have failed to make an effective purchase demand or shall have lost its status
as a Dissenting Shareholder, Parent shall issue and deliver, upon surrender by
such Dissenting Shareholder of such holder's certificate or certificates
representing shares of capital stock of the Company, the Merger Consideration to
which such Dissenting Shareholder is then entitled under this Section 2.1.
(f) Fractional Shares. No fractional shares of Series E Preferred
-----------------
shall be issued, but in lieu thereof each holder of shares of Company Common
Stock who would otherwise be entitled to receive a fraction of a share of Series
E Preferred shall receive from Parent an amount of cash (rounded up to the
nearest full cent) equal to $16.00 per share multiplied by the fraction of a
share of Series E Preferred to which such holder would otherwise be entitled.
The fractional share interests of each shareholder of the Company (the
"Shareholders") shall be aggregated, so that no Shareholder shall receive cash
in an amount greater than the value of one full share of Series E Preferred or
$16.00.
(g) Stock Options. After the Effective Time, Parent shall grant to
-------------
the employees of the Company stock options under the Parent's 1997 Stock Plan as
provided in the offer letter to be sent to each of the employees of the Company
(the "Employee Stock Options"). The Employee Stock Options (other than with
respect to the Principal Stockholders) shall vest quarterly at the rate of 1/16
per quarter over a four year period. The stock options to be issued to the
Principal Stockholders shall have terms as set forth in the Employment
Agreements (as defined in Section 5.13).
(h) Maximum Merger Consideration. The maximum Merger Consideration to
----------------------------
be paid by Parent pursuant to the Merger shall be equal to (i) 2,540,000 shares
of Series E Preferred plus (ii) $40,000,000 in aggregate principal amount of
Notes.
(i) Pledged Shares.
--------------
(i) As collateral security for the payment of any
indemnification obligations (the "Indemnification Collateral") of the
shareholders of the Company (the "Shareholders") pursuant to Section 7 of this
Agreement, at the Closing each Shareholder shall, and by execution hereof does
hereby, transfer, pledge and assign to Parent, for the benefit of Parent, a
security interest in the following assets and authorize Parent to deliver the
Pledged Shares to the Escrow Agent (as defined below) in accordance with this
Section 2.1(i)(iii):
-4-
<PAGE>
(1) 1,270,000 shares of Series E Preferred issuable by Parent in
the Merger pursuant to Section 2.1 (subject to adjustment for Recapitalizations
(as defined in the Restated Articles)) occurring after the date of this
Agreement (the "Pledged Shares"), as well as the certificates and instruments
representing or evidencing the Pledged Shares, and all non-cash dividends and
other property at any time received or otherwise distributed in respect of or in
exchange or substitution for any or all of the Pledged Shares; and in the event
the Company or any Shareholder receives any such property, the Company and such
Shareholder shall immediately deliver such property to Parent as part of the
Pledged Shares; and
(2) all rights, titles, interests, privileges and preferences
appertaining or incident to the foregoing property.
The Pledged Shares shall be withheld from the Shareholders in
relation to the prorated percentage of shares of Series E Preferred issuable to
such Shareholders in the Merger as set forth in Section 2.1 (c).
(ii) All of the Pledged Shares to be issued to the Shareholders other
than the Principal Shareholders (the "Minority Shareholders") except for the
amount of such Pledged Shares required to satisfy Pending Claims as of such date
(as defined in Section 7.2) shall be released from the Indemnification
Collateral upon the closing of an initial public offering of Parent (an "IPO"),
and in the event Parent shall not have consummated an IPO within one year
following the Closing Date, (1) fifty percent (50%) of the Pledged Shares issued
to the Minority Shareholders (other than the amount of such Pledged Shares
required to satisfy Pending Claims as of such date) shall be released from the
Indemnification Collateral as soon as practicable on the first anniversary of
the Closing Date and (2) the remaining fifty percent (50%) of such Pledged
Shares (other than the amount of such Pledged Shares required to satisfy Pending
Claims as of such date) issued to the Minority Shareholders shall be released
from the Indemnification Collateral as soon as practicable following the second
anniversary of the Closing Date.
Fifty percent (50%) of the Pledged Shares to be issued to the
Principal Shareholders (other than the amount of such Pledged Shares required to
satisfy Pending Claims as of such date) shall be released from the
Indemnification Collateral as soon as practicable after the first anniversary of
the Closing Date and the remaining fifty percent (50%) of such Pledged Shares
(other than the amount of such Pledged Shares required to satisfy Pending Claims
as of such date) shall be released as soon as practicable following the second
anniversary of the Closing Date.
(iii) Each certificate evidencing the Pledged Shares issued in the
names of the Shareholders in the Merger, shall, at the Closing, be delivered to
an escrow agent designated by Parent and the Company (the "Escrow Agent"),
together with an undated stock power duly signed in blank by each such
Shareholder. Such certificate shall bear no restrictive or cautionary legend
other than those imprinted at Parent's request. The Pledged Shares and stock
power shall be held by the Escrow Agent pursuant to the Joint Escrow
Instructions substantially in the form attached as Exhibit E-1, until such time
-----------
as Parent's rights to the Indemnification Collateral pursuant hereto are no
longer in effect. As a further condition to Parent's obligations under this
Agreement, the spouse
-5-
<PAGE>
of each Shareholder, if any, who resides in the State of California shall
execute and deliver to Parent the Consent of Spouse attached as Exhibit E-2.
-----------
(iv) The Escrow Agent shall not be liable for any act it may do
or omit to do with respect to holding the Pledged Shares in escrow and while
acting in good faith and in the exercise of its judgment, except for actions
taken with gross negligence or willful misconduct.
(v) If Parent demands the Escrow Agent to transfer the Pledged
Shares to Parent to satisfy the indemnification obligations of the Shareholders
pursuant to and in accordance with the procedures and other terms set forth in
Section 7 of this Agreement, the Escrow Agent shall take all steps necessary to
accomplish such transfer.
(vi) The Shareholders shall be entitled to exercise any voting
powers incident to the Pledged Shares until such time, if ever, that they are
demanded to be transferred to Parent to satisfy the indemnification obligations
of the Shareholders pursuant to Section 7 hereof.
2.2 Exchange of Certificates; Issuance of Note.
------------------------------------------
(a) Parent to Provide Note and Series E Preferred. Promptly after the
---------------------------------------------
Effective Time, Parent shall cause to be made available to each of the
Shareholders, in accordance with this Section 2, shares of Series E Preferred
(including cash in an amount sufficient for payment in lieu of fractional shares
pursuant to Section 2.1(f)) and Notes issuable pursuant to Section 2.1, in
exchange for outstanding shares of capital stock of the Company. The Notes and
the certificates evidencing the shares of Series E Preferred shall bear
appropriate legends pursuant to the terms of this Agreement, and Parent shall be
entitled to issue appropriate stop transfer instructions to its transfer agent
consistent with the terms of this Agreement.
(b) Exchange Procedures. At the Effective Time, the Shareholders
-------------------
shall deliver to Parent the certificates (the "Certificates") representing
Company Common Stock, duly endorsed in blank by the Shareholders, or accompanied
by blank stock powers duly executed by the Shareholders and with all necessary
transfer tax and other revenue stamps, acquired at the Shareholders' expense,
affixed and canceled. The Shareholders shall promptly cure any deficiencies with
respect to the endorsement of the Certificates or other documents of conveyance
with respect to the stock powers accompanying such Certificates. The
Certificates so delivered shall forthwith be canceled. Until delivered as
contemplated by this Section 2.2(b), each Certificate shall be deemed at any
time after the Effective Time to represent the right to receive upon such
surrender the Merger Consideration as provided by Section 2.1 and the applicable
provisions of the State Corporation Law.
(c) No Further Ownership Rights in Capital Stock of the Company. The
-----------------------------------------------------------
Merger Consideration to be delivered upon the surrender for exchange of shares
of Company Common Stock in accordance with the terms hereof shall be deemed to
have been delivered in full satisfaction of all rights pertaining to such shares
of Company Common Stock, and following the Effective Time, the Certificates
shall have no further rights to, or ownership in, shares of capital stock of the
Company. There shall be no further registration of transfers on the stock
transfer books of the
-6-
<PAGE>
Company of the shares of Company Common Stock which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this Section 2.
(d) Lost, Stolen or Destroyed Certificates. In the event any
--------------------------------------
certificates evidencing shares of Company Common Stock shall have been lost,
stolen or destroyed, Parent shall cause payment to be made in exchange for such
lost, stolen or destroyed certificates, upon the making of an affidavit of that
fact by the holder thereof, such Merger Consideration as provided in Section
2.1, and cash for fractional shares, if any, as may be required pursuant to
Section 2.1(f); provided, however, that Parent may, in its discretion and as a
-------- -------
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against Parent
with respect to the certificates alleged to have been lost, stolen or destroyed.
(e) No Liability. Notwithstanding anything to the contrary in this
------------
Section 2.2, the Surviving Corporation nor any party hereto shall be liable to a
holder of shares of Company Common Stock for any amount paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE PRINCIPAL SHAREHOLDER
Except as disclosed in writing in a disclosure letter referring
specifically to the representations and warranties in this Agreement that
specifically identifies the section and subsection to which such disclosure
relates and that is delivered to Parent by the Company and the Principal
Shareholders and certified by a duly authorized officer of the Company and the
Principal Shareholder prior to the date of this Agreement (the "Company
Schedules"), each of the Company and the Principal Shareholders represents and
warrants to Parent and Sub as set forth below.
3.1 Organization, Standing and Corporate Power. The Company is a
------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization and has all requisite corporate power
and authority to carry on its business as now being conducted. The Company is
duly qualified to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary. The Company has
delivered to the Parent complete and correct copies of its Articles of
Incorporation and Bylaws.
3.2 Company Capital Structure.
-------------------------
(a) The authorized capital stock of the Company consists of (i)
10,000,000 shares of Common Stock, of which 797,500 shares are issued and
outstanding. All of such outstanding shares have been duly authorized, validly
issued, fully paid and non-assessable and have been issued
-7-
<PAGE>
in compliance with all applicable federal and state securities laws. The
outstanding shares of capital stock of the Company are not subject to preemptive
rights created by statute, the Articles of Incorporation or Bylaws of the
Company, or any agreement to which the Company is a party or by which it may be
bound. There are no voting agreements or voting trusts with respect to any of
the outstanding shares of capital stock of the Company. The outstanding shares
of capital stock of the Company are held by the persons and in the amounts set
forth in Section 3.2 of the Company Schedules.
(b) The Company does not have and has never had any stock option
plans or any options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which the Company is a party or by which it is
bound obligating the Company to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of the Company or obligating the Company to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. As a result of
the Merger, Parent will be the record and beneficial owner of all outstanding
capital stock of the Company and rights to acquire capital stock of the Company.
3.3 Subsidiaries. The Company does not have and has never had any
------------
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
3.4 Authority/Noncontravention. The Company has the requisite corporate
--------------------------
power and authority to execute and deliver this Agreement and, subject to the
approval and adoption of this Agreement and approval of the Merger by the
Company's Shareholders, to consummate the transactions contemplated by this
Agreement. The execution, delivery and performance of this Agreement and the
Merger Agreement by the Company and the consummation by the Company of the
Merger and the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of the Company and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby,
subject, in each case, to the approval and adoption of this Agreement and
approval of the Merger by the Company's Shareholders. This Agreement has been
duly executed and delivered by the Company and constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms. The execution and delivery of this Agreement do not, and, subject to
the approval and adoption of this Agreement and approval of the Merger by the
Company's Shareholders as required in connection with this Agreement and the
transactions contemplated hereby, the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to loss
of a material benefit or require any consent, approval or authorization under,
or result in the creation of any pledges, claims, liens, charges, encumbrances
and security interests of any kind or nature whatsoever (collectively, "Liens")
in or upon any of the properties or assets of the Company under, any provision
of (a) the Articles of Incorporation or Bylaws of the Company, (b) any loan or
credit agreement, bond,
-8-
<PAGE>
debenture, note, mortgage, indenture, lease or other material contract,
commitment, agreement, arrangement, obligation, undertaking, instrument, permit,
concession, franchise or license applicable to the Company or its properties or
assets (including, without limitation, any of the contracts of the Company set
forth in the Company Schedules) or (c) subject to the governmental filings and
other matters referred to in the following sentence, any statute, law,
ordinance, rule or regulation or judgment, order or decree, in each case,
applicable to the Company or its properties or assets, other than, in the case
of clauses (b) and (c), any such conflicts, violations, defaults, rights, or
Liens or other occurrences that individually or in the aggregate would not have
a Material Adverse Effect on the Company. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Federal,
state or local, domestic or foreign, government or any court, administrative
agency or commission or other governmental authority or agency, domestic or
foreign (a "Governmental Entity"), is required by or with respect to the Company
in connection with the execution and delivery of this Agreement by the Company
or the consummation by the Company of the Merger or the other transactions
contemplated by this Agreement, except for (a) the receipt of a valid exemption
from the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act"), (b) the filing of the Agreement of Merger and/or
Certificate of Merger as required by the State Corporation law and appropriate
documents with the relevant authorities of other states in which the Company is
qualified to do business and (c) such other consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of which to
be obtained or made individually or in the aggregate would not have a Material
Adverse Effect on the Company or impair the ability of the Company to perform
its obligations under this Agreement.
3.5 Financial Statements; No Undisclosed Liabilities.
------------------------------------------------
(a) The unaudited balance sheet of the Company as of December 31,
1998 and the related profit and loss statement of the Company, for the year then
ended (the "1998 Financial Statements"), and the unaudited balance sheet (the
"Balance Sheet") of the Company as of September 30, 1999 (the "Balance Sheet
Date") and the related profit and loss statement for the periods then ended
(collectively, with the 1998 Financial Statements, the "Financial Statements")
are in accordance with the books and records of the Company and are complete and
correct in all material respects, have each been prepared in good faith on a
cash basis method of accounting in accordance with sound accounting principles
in conformity with the practices consistently applied by the Company throughout
the periods involved and present fairly the financial position, results of
operations and cash flows of the Company as of the dates and for the periods
specified. True and complete copies of the Company Financial Statements have
previously been supplied to Parent.
(b) As of the Balance Sheet Date, the Company did not have any
indebtedness, obligations or liabilities of any kind (whether accrued, absolute,
contingent or otherwise, and whether due or to become due or asserted or
unasserted), which were not fully reflected in, reserved against or otherwise
described in the Balance Sheet that would be required to be disclosed on a
balance sheet prepared in good faith as of the Balance Sheet Date in conformity
with practices consistently applied by the Company with the Financial
Statements. Since the Balance Sheet Date, the Company has not incurred any
indebtedness, obligations or liabilities of any kind (whether accrued, absolute,
contingent or otherwise, and whether due or to become due or asserted or
-9-
<PAGE>
unasserted) that would be required to be disclosed on a balance sheet prepared
in good faith as of the date hereof in conformity with practices consistently
applied by the Company with the Financial Statements, other than those incurred
in the ordinary course of business consistent with past practice, none of which
would have a Material Adverse Effect on the Company.
3.6 Absence of Certain Changes or Events. Except as set forth in Section
------------------------------------
3.6 of the Company Schedules, since the Balance Sheet Date and until the date
hereof, the Company has conducted its businesses only in the ordinary course
consistent with past practice, and there has not been (a) any Material Adverse
Effect with respect to the Company, (b) any declaration, setting aside or
payment of any dividend on, or other distribution (whether in cash, stock or
property) with respect to any of the Company's capital stock, (c) any split,
combination, reclassification or repurchase of any of the Company's capital
stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of the
Company's capital stock, (d) (i) any granting by the Company to any officer of
the Company of any increase in compensation, except in the ordinary course of
business consistent with past practice or as required under employment
agreements in effect as of the date hereof, (ii) any granting by the Company to
any officer of the Company of any increase in severance or termination pay,
except as was required under any employment, severance or termination agreement
in effect as of the date hereof, or (iii) any entry by the Company into (A) any
currently effective employment, severance, termination or indemnification
agreement, or consulting agreement (other than in the ordinary course of
business consistent with past practice), with any current or former officer,
director, employee or consultant or (B) any agreement with any current or former
officer, director, employee or consultant the benefits of which are contingent,
or the terms of which are materially altered, upon the occurrence of a
transaction involving the Company of the nature contemplated by this Agreement,
(e) any damage, destruction or loss, whether or not covered by insurance, that
individually or in the aggregate would have a Material Adverse Effect on the
Company, (f) any change in accounting methods, principles or practices by the
Company, or (g) any tax election that individually or in the aggregate would
have a Material Adverse Effect on the Company.
3.7 Litigation. There is no suit, claim, action, proceeding or, to the
----------
knowledge of the Company, investigation, pending or, to the knowledge of the
Company, threatened, against or affecting the Company, nor is there any
judgment, order, decree or injunction of any Governmental Entity or arbitrator
outstanding against, or, to the knowledge of the Company, investigation by any
Governmental Entity involving, the Company.
3.8 Contracts. Except as set forth in Section 3.8 of the Company
---------
Schedules, as of the date hereof, the Company is not a party to, nor are any of
their properties or assets bound by, any currently binding (i) contracts,
licenses or agreements, with respect to any intellectual property with a value
or cost in excess of $50,000, (ii) any employment or consulting agreement or
contract (or commitment to enter into any such agreement or contract) with an
employee or individual consultant or salesperson or consulting or sales
agreement or contract (or commitment to enter into any such agreement or
contract) with a firm or other organization in excess of $10,000 annually, (iii)
any agreement or plan, including, without limitation, any stock option plan,
stock appreciation rights plan or stock purchase plan, any of the benefits
-10-
<PAGE>
of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement, (iv) any
fidelity or surety bond or completion bond, (v) any lease of personal property
having a value individually in excess of $10,000, (vi) any agreement of
indemnification, agreement providing for reimbursement of payments or providing
a right of rescission, hold harmless or guaranty, or any obligation or liability
with respect to infringement of the intellectual property rights of another
person, in excess of, or entered into in connection with a transaction in excess
of, $10,000, (vii) any agreement, contract or commitment containing any covenant
limiting the freedom of such party, any of its subsidiaries or the Surviving
Corporation to engage in any line of business or to compete with any person,
(viii) any agreement, contract or commitment relating to capital expenditures
and involving future payments by such party or any of its subsidiaries in excess
of $10,000 in one or in a series of transactions, (ix) any agreement, contract
or commitment relating to the disposition or acquisition of assets or any
interest in any business enterprise outside the ordinary course of business, (x)
any mortgages, indentures, loans or credit agreements, security agreements or
other agreements or instruments relating to the borrowing of money or extension
of credit, (xi) any purchase order or contract for the purchase of materials
involving in excess of $10,000, (xii) any construction contracts, (xiii)
contracts that relate to corporate governance, the voting or transfer of any
equity securities of such party, the registration of any securities of such
party under the Securities Act or that grants any redemption or preemptive
rights or (xiv) any other agreement, contract or commitment that involves
$10,000 or more or is not cancelable without penalty within thirty (30) days
(collectively, the "Contracts"). The Company has delivered or otherwise made
available to Parent true, correct and complete copies of the Contracts listed in
Section 3.8 of the Company Schedules, together with all amendments,
modifications and supplements thereto and all side letters to which the Company
is a party affecting the obligations of any party thereunder. The Company has in
all material respects performed all the obligations required to be performed by
them to date, has received no notice of default and is not in violation of or in
default (with or without notice or lapse of time, or both) under any lease,
permit, concession, franchise, license or any other Contract, commitment,
agreement, arrangement, obligation or understanding to which it is a party or by
which it or any of its properties or assets is bound. Each of the Contracts is
in full force and effect with no default, anticipated or threatened default or
failure of performance or observance of any obligations or conditions contained
therein, and none of the foregoing parties nor the Company has provided any
notice of default or of its intention to terminate these agreements. As of the
Closing, after giving effect to the Merger and the transactions contemplated
hereby, the Surviving Corporation, shall be entitled to all of the benefits
under the agreements (as the same may be amended) set forth on Section 3.8 of
the Company Schedules to which the Company is entitled on the date hereof,
except as may be adversely affected by agreements (as the same may be amended)
to which Parent is a party on the date hereof.
3.9 Compliance With Laws. The Company is in compliance with all statutes,
--------------------
laws, ordinances, rules, regulations, judgments, orders and decrees of any
Governmental Entity applicable to its business or operations, except for
instances of possible noncompliance that individually or in the aggregate would
not have a Material Adverse Effect on the Company, impair in any material
respect the ability of the Company to perform its obligations under this
Agreement or prevent or materially delay the consummation of any of the
transactions contemplated by this Agreement. The
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<PAGE>
Company has in effect all Federal, state and local, domestic and foreign,
governmental consents, approvals, orders, authorizations, certificates, filings,
notices, permits, franchises, licenses and rights (collectively "Permits")
necessary for it to own, lease or operate its properties and assets and to carry
on its business as now conducted and there has occurred no violation of, or
default under, any such Permit, except for the lack of Permits and for
violations of, or defaults under, Permits which lack, violation or default
individually or in the aggregate would not have a Material Adverse Effect on the
Company.
3.10 Employee Matters and Benefit Plans.
----------------------------------
(a) Definitions. With the exception of the definition of "Affiliate"
-----------
set forth in Section 3.10(a)(i) below (which definition shall apply only to this
Section 3.10) for purposes of this Agreement, the following terms shall have the
meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under
---------
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations issued thereunder;
(ii) "Code" shall mean the Internal Revenue Code of 1986, as
----
amended;
(iii) "Company Employee Plan" shall mean any plan, program,
---------------------
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written or unwritten or otherwise,
funded or unfunded, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any Employee, or with respect to which the Company
or any Affiliate has or may have any liability or obligation;
(iv) "COBRA" shall mean the Consolidated Omnibus Budget
-----
Reconciliation Act of 1985, as amended;
(v) "DOL" shall mean the Department of Labor;
---
(vi) "Employee" shall mean any current or former employee,
--------
consultant or director of the Company or any Affiliate;
(vii) "Employee Agreement" shall mean each management,
------------------
employment, severance, consulting, relocation, repatriation, expatriation,
visas, work permit or other agreement, contract or understanding between the
Company or any Affiliate and any Employee, other than oral at will employment
arrangements to pay wages for time worked between the Company and any Employee;
(viii) "ERISA" shall mean the Employee Retirement Income Security
-----
Act of 1974, as amended;
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<PAGE>
(ix) "FMLA" shall mean the Family Medical Leave Act of 1993, as
----
amended;
(x) "International Employee Plan" shall mean each Company
---------------------------
Employee Plan that has been adopted or maintained by the Company or any
Affiliate, whether informally or formally, or with respect to which the Company
or any Affiliate will or may have any liability, for the benefit of Employees
who perform services outside the United States;
(xi) "IRS" shall mean the Internal Revenue Service;
---
(xii) "Multiemployer Plan" shall mean any "Pension Plan" (as
------------------
defined below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA;
(xiii) "PBGC" shall mean the Pension Benefit Guaranty
----
Corporation; and
(xiv) "Pension Plan" shall mean each Company Employee Plan which
------------
is an "employee pension benefit plan," within the meaning of Section 3(2) of
ERISA.
(b) Schedule. Schedule 3.10(b) contains an accurate and complete
--------
list of each Company Employee Plan and each Employee Agreement. The Company does
not have any plan or commitment to establish any new Company Employee Plan or
Employee Agreement, to modify any Company Employee Plan or Employee Agreement
(except to the extent required by law or to conform any such Company Employee
Plan or Employee Agreement to the requirements of any applicable law, in each
case as previously disclosed to Parent in writing, or as required by this
Agreement), or to enter into any Company Employee Plan or Employee Agreement.
(c) Documents. The Company has provided to Parent: (i) correct and
---------
complete copies of all documents embodying each Company Employee Plan and each
Employee Agreement including (without limitation) all amendments thereto and all
related trust documents; (ii) the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (iii) the three (3) most recent
annual reports (Form Series 5500 and all schedules and financial statements
attached thereto), if any, required under ERISA or the Code in connection with
each Company Employee Plan; (iv) if the Company Employee Plan is funded, the
most recent annual and periodic accounting of Company Employee Plan assets; (v)
the most recent summary plan description together with the summary(ies) of
material modifications thereto, if any, required under ERISA with respect to
each Company Employee Plan; (vi) all IRS determination, opinion, notification
and advisory letters, and all applications and correspondence to or from the IRS
or the DOL with respect to any such application or letter; (vii) all material
written agreements and contracts relating to each Company Employee Plan,
including, but not limited to, administrative service agreements, group annuity
contracts and group insurance contracts; (viii) all communications material to
any Employee or Employees relating to any Company Employee Plan and any proposed
Company Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any material liability
to the Company; (ix) all correspondence to or from any governmental agency
relating to any Company Employee Plan; (x) all COBRA forms and related notices
(or such forms
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<PAGE>
and notices as required under comparable law); (xi) all policies pertaining to
fiduciary liability insurance covering the fiduciaries for each Company Employee
Plan; (xii) the three (3) most recent plan years discrimination tests for each
Company Employee Plan; and (xiii) all registration statements, annual reports
(Form 11-K and all attachments thereto) and prospectuses prepared in connection
with each Company Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Schedule 3.10(d),
------------------------
(i) the Company has performed in all material respects all obligations required
to be performed by it under, is not in default or violation of, and has no
knowledge of any default or violation by any other party to each Company
Employee Plan, and each Company Employee Plan has been established and
maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) each Company Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code has either received a favorable
determination, opinion, notification or advisory letter from the IRS with
respect to each such Plan as to its qualified status under the Code, including
all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent
legislation, or has remaining a period of time under applicable Treasury
regulations or IRS pronouncements in which to apply for such a letter and make
any amendments necessary to obtain a favorable determination as to the qualified
status of each such Company Employee Plan; (iii) no "prohibited transaction,"
within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA,
and not otherwise exempt under Section 4975 or Section 408 of ERISA (or any
administrative class exemption issued thereunder), has occurred with respect to
any Company Employee Plan; (iv) there are no actions, suits or claims pending,
or, to the knowledge of the Company, threatened or reasonably anticipated (other
than routine claims for benefits) against any Company Employee Plan or against
the assets of any Company Employee Plan; (v) each Company Employee Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to the Parent, Company or any of
its Affiliates (other than ordinary administration expenses); (vi) there are no
audits, inquiries or proceedings pending or, to the knowledge of the Company or
any Affiliates, threatened by the IRS or DOL with respect to any Company
Employee Plan; and (vii) neither the Company nor any Affiliate is subject to any
penalty or tax with respect to any Company Employee Plan under Section 502(i) of
ERISA or Sections 4975 through 4980 of the Code.
(e) Pension Plan. Neither the Company nor any Affiliate has ever
------------
maintained established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code.
(f) Multiemployer and Multiple Employer Plans. At no time has the Company
-----------------------------------------
or any Affiliate contributed to or been obligated to contribute to any
Multiemployer Plan. Neither the Company, nor any Affiliate has at any time ever
maintained, established, sponsored, participated in, or contributed to any
multiple employer plan, as described in Section 413(c) of the Code.
(g) No Post-Employment Obligations. Except as set forth in Schedule
------------------------------
3.10(g), no Company Employee Plan provides, or reflects or represents any
liability to provide, retiree life
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<PAGE>
insurance, retiree health or other retiree Employee Welfare Benefit Plan to any
person for any reason, except as may be required by COBRA or other applicable
statute, and the Company has never represented, promised or contracted (whether
in oral or written form) to any Employee (either individually or to Employees as
a group) or any other person that such Employee(s) or other person would be
provided with retiree life insurance, retiree health or other retiree Employee
Welfare Benefit Plan, except to the extent required by statute.
(h) Health Care Compliance. Neither the Company nor any Affiliate has,
----------------------
prior to the Effective Time and in any material respect, violated any of the
health care continuation requirements of COBRA, the requirements of FMLA, the
requirements of the Health Insurance Portability and Accountability Act of 1996,
the requirements of the Women's Heath and Cancer Rights Act, the requirements of
the Newborns' and Mothers' Health Protection Act of 1996, or any amendment to
each such Act, or any similar provisions of state law applicable to its
Employees.
(i) Effect of Transaction.
---------------------
(i) Except as set forth on Schedule 3.10(i), the execution of this
Agreement and the consummation of the transactions contemplated hereby will not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Company Employee Plan, Employee Agreement, trust
or loan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
Employee.
(ii) Except as set forth on Schedule 3.10(i), no payment or benefit
which will or may be made by the Company or its Affiliates with respect to any
Employee will be characterized as a "parachute payment," within the meaning of
Section 280G(b)(2) of the Code.
(j) Employment Matters. The Company: (i) is in compliance in all respects
------------------
with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees; (ii)
has withheld and reported all amounts required by law or by agreement to be
withheld and reported with respect to wages, salaries and other payments to
Employees; (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing; and (iv) is not liable
for any payment to any trust or other fund governed by or maintained by or on
behalf of any governmental authority, with respect to unemployment compensation
benefits, social security or other benefits or obligations for Employees (other
than routine payments to be made in the normal course of business and consistent
with past practice). There are no pending, threatened or reasonably anticipated
claims or actions against the Company under any worker's compensation policy or
long-term disability policy. Each person who is acting or has acted as a
consultant to the Company is acting or acted as an "independent contractor" and
could not, based on the facts and circumstances of his or her consultancy
reasonably be deemed to have been "employed" by the Company.
(k) Labor. No work stoppage or labor strike against the Company is
-----
pending, threatened or reasonably anticipated. The Company does not know of any
activities or proceedings
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<PAGE>
of any labor union to organize any Employees. Except as set forth in Schedule
3.10(k), there are no actions, suits, claims, labor disputes or grievances
pending, or, to the knowledge of the Company, threatened or reasonably
anticipated relating to any labor, safety or discrimination matters involving
any Employee, including, without limitation, charges of unfair labor practices
or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in any material liability to the
Company. Neither the Company nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor Relations Act.
Except as set forth in Schedule 3.10(k), the Company is not presently, nor has
it been in the past, a party to, or bound by, any collective bargaining
agreement or union contract with respect to Employees and no collective
bargaining agreement is being negotiated by the Company.
(l) International Employee Plan. Each International Employee Plan has
---------------------------
been established, maintained and administered in material compliance with its
terms and conditions and with the requirements prescribed by any and all
statutory or regulatory laws that are applicable to such International Employee
Plan. Furthermore, no International Employee Plan has unfunded liabilities that,
as of the Effective Time, will not be offset by insurance or fully accrued.
Except as required by law, no condition exists that would prevent the Company,
Parent or the Surviving Corporation from terminating or amending any
International Employee Plan at any time for any reason without liability to the
Company, Parent, the Surviving Corporation or their respective Affiliates.
3.11 Intentionally Omitted.
---------------------
3.12 Taxes. The Company has filed all tax returns and reports required to
-----
be filed by it and all such returns and reports are true and correct. All taxes
that accrue or are payable by the Company in respect of taxable periods that end
on or before the Closing Date and for any taxable period that begins before the
Closing Date and ends thereafter to the extent such taxes are attributable to
the portion of such period ending on the Closing Date, as determined under the
closing of the books method of allocation, have been (or will have been, on or
before the Closing Date) timely paid or an adequate reserve has been established
on the Balance Sheet. The most recent Financial Statements, dated December 31,
1998, (a true, correct complete copy of which has been delivered to the Parent
by the Company) reflect an adequate reserve for all taxes payable by the Company
for all taxable periods and portions thereof through the date of such financial
statements and no liabilities for taxes have been incurred since the date of
such financial statements except in the ordinary course of business. No
deficiencies for any taxes have been proposed, asserted or assessed against the
Company, and no requests for waivers of the time to assess any such taxes are
pending. As used in this Agreement, "taxes" shall include all Federal, state,
local and foreign income, property, sales, excise and other taxes, tariffs or
governmental charges of any nature whatsoever, together with an interest and
penalties, whether as primary obligor or as a result of being a "transferor"
(within the meaning of section 6901 of the Code and any corresponding state and
local law) of another person or a member of an affiliated, consolidated or
combined group. The Company uses the cash method of accounting for income tax
purposes. The Company has at all times since June 1988 had in effect (and will
have in effect through the Closing Date) a valid election to be
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<PAGE>
treated as an S Corporation under Section 1361(a)(1) of the Code. The Company
has not made an election under Section 341(f) of the Code.
3.13 Intentionally Omitted.
---------------------
3.14 Title to Properties.
-------------------
(a) The Company has good and marketable title to, or valid leasehold
interests in, all of its properties and assets except for such as are no longer
used or useful in the conduct of its business or as have been disposed of in the
ordinary course of business and except for defects in title, easements,
restrictive covenants and similar encumbrances that individually or in the
aggregate would not have a Material Adverse Effect on the Company. All such
material assets and properties, other than assets and properties in which the
Company has a leasehold interest, are free and clear of all Liens (other than
Liens for current taxes not yet due and payable), except for Liens that
individually or in the aggregate would not have a Material Adverse Effect on the
Company.
(b) The Company has complied in all material respects with the terms
of all leases to which it is a party and under which it is in occupancy, all
such leases are in full force and effect and have been made available to the
Parent. The Company enjoys peaceful and undisturbed possession under all such
leases.
3.15 Intellectual Property.
---------------------
(a) The Company owns, or has the right to use, sell or license all
intellectual property necessary or required for the conduct of its business as
presently conducted and as presently contemplated (such intellectual property
and the rights thereto are collectively referred to as the "Company IP Rights").
(b) Section 3.15 of the Company Schedules sets forth with respect to
the intellectual property of the Company: (i) for each patent and patent
application, the number, normal expiration date, title and priority information
for each country in which such patent has been issued, or, the application
number, date of filing, title and priority information for each country, (ii)
for each trademark, trade name or service mark, whether or not registered, the
date first used, and, if registered, the application serial number or
registration number, the class of goods covered, the nature of the goods or
services, the countries in which the names or mark is used and the expiration
date for each country in which a trademark has been registered and (iii) for
each copyright for which registration has been sought, whether or not
registered, the date of creation and first publication of the work, the number
and date of registration for each country in which a copyright application has
been registered.
(c) The Company has taken all reasonable steps necessary or
appropriate (including, entering into appropriate confidentiality, nondisclosure
agreements with officers, directors, subcontractors, independent contractors,
full-time and part-time employees, licensees and customers) to safeguard and
maintain the secrecy and confidentiality of, and the proprietary rights in, the
Company IP Rights.
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<PAGE>
(d) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
breach of any instrument or agreement governing any Company IP Right (the
"Company IP Rights Agreements"), will not cause the forfeiture or termination or
give rise to a right of forfeiture or termination of any Company IP Right or
impair the right of the Company, the Surviving Corporation or the Parent to use,
sell or license any Company IP Right or portion thereof.
(e) (i) Neither the manufacture, marketing, license, sale or intended
use of any product or technology currently licensed or sold by the Company
violates any license or agreement between the Company and any third party or, to
the best knowledge of the Company, infringes any proprietary right of any other
party; and (ii) there is no pending or, to the knowledge of the Company,
threatened claim or litigation contesting the validity, ownership or right to
use, sell, license or dispose of any Company IP Right.
3.16 Year 2000 Compliance.
--------------------
(a) The Company has provided the information attached as Schedule
3.16 in response to customer inquiries regarding Year 2000 Compliance. To the
best of the Company's knowledge, such information is true and correct.
(b) For purposes of this Agreement, "Year 2000 Compliant" means that
(i) the products, services, or other items(s) at issue accurately process,
provide and/or receive all date/time data (including calculating, comparing, and
sequencing) within, from, into, and between centuries (including the twentieth
and twenty-first centuries and the years 1999 and 2000), including leap year
calculations, and (ii) neither the performance nor the functionality nor the
Company's provision of the products, services, and other item(s) at issue will
be affected by any dates/times prior to, on, after, or spanning January 1, 2000.
The design of the products, services, and other item(s) at issue includes proper
date/time data century recognition and recognition of 1999 and 2000,
calculations that accommodate single century and multi-century formulae and
date/time values before, on, after spanning January 1, 2000, and date/time data
interface values that reflect the century, 1999, and 2000.
3.17 Voting Requirements. The affirmative vote of the holders of a
-------------------
majority of the outstanding shares of Company Common Stock (the "Shareholder
Approval"), is the only vote of the holders of any capital stock of the Company
necessary to approve and adopt this Agreement and approve the Merger.
3.18 Payments. Neither the Company nor any of its representatives acting
--------
on its behalf have, directly or indirectly, paid or delivered any fee,
commission or other sum of money or property, however characterized, to any
finder, agent, government official or other party, in the U.S. or any other
country which the Company knows or has reason to believe to have been illegal
under any federal, state or local laws of the U.S. or any other country having
jurisdiction. Neither the Company nor any of its representatives acting on its
behalf, have accepted or received any unlawful contributions, payments, gifts or
expenditures.
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<PAGE>
3.19 Transactions with Related Parties. Except for compensation
---------------------------------
arrangements in the ordinary course of business, as disclosed on Section 3.19 of
the Company Schedules or for amounts less than $10,000, no Related Party (as
defined below) of the Company has (a) borrowed or loaned money or other property
to the Company which has not been repaid or returned, (b) any currently
enforceable contractual or other claims, express or implied, of any kind
whatsoever against the Company or (c) has or had any material economic interest
in any property currently used by the Company or any subsidiary thereof. For
purposes of this Agreement, (i) "Related Party" means as to any person, any of
such person's officers and directors, any Affiliate thereof or the respective
officers and directors of any such Affiliate, or any other person in which any
of the foregoing persons have any direct or material indirect interest, (ii)
"Affiliate" of a person means any other person which directly or indirectly
controls, is controlled by, or is under common control with, such person and
(iii) "control" (including, with correlative meaning, the terms "controlled by"
and "under common control with"), as used with respect to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities, by contract or otherwise.
3.20 Restrictions on Business Activities. There is no agreement
-----------------------------------
(noncompete, grant of exclusivity or otherwise), commitment, judgment,
injunction, order or decree to which the Company is a party or otherwise binding
upon the Company which has or reasonably could be expected to have the effect of
prohibiting or impairing any business practice of the Company, any acquisition
of property (tangible or intangible) by the Company or the conduct of business
by the Company.
3.21 Accounts Receivable; Inventory.
------------------------------
(a) The Company has made available to Parent a list of all accounts
receivable of the Company reflected on the Balance Sheet ("Accounts Receivable")
along with a range of days elapsed since invoice.
(b) To the best knowledge of the Company, all Accounts Receivable of
the Company are collectible except to the extent of reserves therefor set forth
in the Balance Sheet. No person has any Lien on any of such Accounts Receivable
and no request or agreement for deduction or discount has been made with respect
to any of such Accounts Receivable.
(c) All of the inventories of the Company reflected on the Balance
Sheet and the Company's books and records on the date of this Agreement were
purchased, acquired or produced in the ordinary and regular course of business
and in a manner consistent with the Company's regular inventory practices and
are set forth on the Company's books and records in accordance with the
practices and principles of the Company consistent with the method of treating
said items in prior periods.
3.22 Minute Books. The minute books of the Company made available to
------------
counsel for Parent are the only minute books of the Company and contain an
accurate summary of all meetings of directors (or committees thereof) and
shareholders or actions by written consent since the date of incorporation of
the Company.
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<PAGE>
3.23 Environmental Matters.
---------------------
(a) Except as set forth in Section 3.23 of the Company Schedules, to
the best knowledge of the Company, no underground storage tanks and no amount of
any substance that has been designated by any Governmental Entity or by
applicable federal, state, local or other applicable law to be radioactive,
toxic, hazardous or otherwise a danger to health or the environment, including,
without limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all
substances listed as hazardous substances pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, or
defined as a hazardous waste pursuant to the United States Resource Conservation
and Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said laws, but excluding office and janitorial supplies properly and safely
maintained (a "Hazardous Material"), are present in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that the Company has at any time owned, operated, occupied or leased.
(b) The Company has not transported, stored, used, manufactured,
disposed of, released or exposed its employees or others to Hazardous Materials
in violation of any law in effect on or before the Closing Date, nor has the
Company disposed of, transported, sold, or manufactured any product containing a
Hazardous Material (collectively, "Company Hazardous Materials Activities") in
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) The Company currently holds all environmental approvals, permits,
licenses, clearances and consents (the "Environmental Permits") necessary for
the conduct of the Company's Hazardous Material Activities and other business of
the Company as such activities and business are currently being conducted other
than any Environmental Permits, the lack of which would not, individually or in
the aggregate, have a Material Adverse Effect. All Environmental Permits are in
full force and effect. The Company (A) is in compliance with all material terms
and conditions of the Environmental Permits and (B) is in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the laws of all Governmental Entities relating to pollution or
protection of the environment or contained in any regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder.
(d) No action, proceeding, revocation proceeding, amendment
procedure, writ, injunction or claim is pending, or to the Company's best
knowledge, threatened, concerning any Environmental Permit, Hazardous Material
or any Company Hazardous Materials Activity. The Company is not aware of any
fact or circumstance which could involve the Company in any environmental
litigation or impose upon the Company any material environmental liability.
3.24 Insurance. Section 3.24 of the Company Schedules lists all insurance
---------
policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company. There
is no claim by the Company pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters
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of such policies or bonds. All premiums due and payable under all such policies
and bonds have been paid and the Company is otherwise in material compliance
with the terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage). The Company has not received any
notice that the insurers intend to terminate or materially increase the premiums
payable under any of such policies.
3.25 Warranties; Indemnities. Section 3.25 of the Company Schedules
-----------------------
indicates all warranty and indemnity claims in excess of $5,000 pending, or
threatened against the Company.
3.26 Representations Complete. None of the representations or warranties
------------------------
made by the Company, nor any document, written information, statement, financial
statement, certificate, schedule or exhibit prepared or furnished by the Company
or its representatives pursuant to this Agreement or in connection with the
transactions contemplated hereby, or furnished in or in connection with any
materials mailed or delivered to the shareholders of the Company (the
"Shareholder Materials") in connection with soliciting their consent to this
Agreement and the transactions contemplated hereby, contains or will contain at
the Effective Time, any untrue statement of a material fact, or omits or will
omit at the Effective Time to state any material fact necessary in order to make
the statements contained herein or therein, in the light of the circumstances
under which made, not misleading, except with respect to any statements made in
reliance upon and in conformity with written information concerning Parent or
Sub which has been furnished to the Company specifically for inclusion in the
Shareholder Materials. To the Company's best knowledge, there is no event, fact
or condition that has resulted in, or could reasonably be expected to result in,
a Material Adverse Effect that has not been set forth in this Agreement or in
the Company Schedules.
3.27 HSR Act. No shareholder of the Company, combined with his or her
-------
spouse and minor children, if any, and any entities controlled by any of them,
including but not limited to the Company, currently has total assets of $100
million or more, as defined under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act") and the regulations promulgated
thereunder, including 16 CFR 801.11. No shareholder of the Company, combined
with his or her spouse and minor children, if any, and any entities controlled
by any of them, including but not limited to the Company, had total net sales of
$100 million or more in the most recent fiscal year, as defined under the HSR
Act and the regulations promulgated thereunder, including 16 CFR 801.11.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Except as disclosed in writing in a disclosure letter referring
specifically to the representations and warranties in this Agreement that
specifically identifies the section and subsection to which such disclosure
relates and that is delivered to the Company by the Parent and certified by a
duly authorized officer of the Parent prior to the date of this Agreement,
Parent or Sub, as the case may be, represents and warrants to the Company as
follows:
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4.1 Organization, Standing and Corporate Power. Each of the Parent and
------------------------------------------
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization and has all requisite corporate
power and authority to carry on its business as now being conducted. Parent is
duly qualified to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed or be in good
standing individually or in the aggregate would not have a Material Adverse
Effect on Parent.
4.2 Authority. Each of the Parent and Sub has the requisite corporate
---------
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated by this Agreement. The execution, delivery and
performance of this Agreement by the Company and the consummation by each of
Parent and Sub of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of each of Parent and
Sub and no other corporate proceedings on the part of each of Parent and Sub are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
each of Parent and Sub and constitutes valid and binding obligations of Parent
and Sub, enforceable against the Parent and Sub in accordance with its terms.
4.3 Capitalization. The authorized capital stock of Parent consists or
--------------
will, upon the filing of the Restated Articles, consist of (i) 20,000,000 shares
of Common Stock, of which 5,830,625 shares are issued and outstanding as of the
date of this Agreement, and (ii) 8,298,820 shares of Preferred Stock, 1,500,005
of which have been designated "Series A Preferred," of which 1,500,005 are
issued and outstanding as of the date of this Agreement, 700,000 of which have
been designated "Series B Preferred," of which 700,000 are issued and
outstanding as of the date of this Agreement, 1,730,061 of which have been
designated "Series C Preferred, "of which 1,630,061 are issued and outstanding
as of the date of this Agreement, 1,698,754 of which have been designated
"Series D Preferred," of which 1,571,940 are issued and outstanding as of the
date of this Agreement, 2,540,000 of which have been designated "Series E
Preferred," all of which will be issued and outstanding upon the issuance of the
Series E Preferred as contemplated herein. The outstanding shares have been
duly authorized and validly issued in compliance with applicable laws, and are
fully paid and nonassessable. Parent has reserved (i) 2,540,000 shares of
Series E Preferred in connection with the Merger; (ii) 100,000 shares of Series
C Preferred for issuance upon exercise of warrants to purchase Series C
Preferred Stock (the "Series C Warrants"); (iii) 8,128,820 shares of Common
Stock for issuance upon conversion of the Preferred Stock (1,500,005 shares of
Common Stock reserved for conversion of Series A Preferred; 700,000 shares of
Common Stock reserved for conversion of Series B Preferred; 1,730,061 shares of
Common Stock reserved for conversion of Series C Preferred, 1,698,754 shares of
Common Shares reserved for conversion of Series D Preferred and 2,540,000 shares
of Common Shares reserved for conversion of Series E Preferred) and (iv)
2,599,321 shares of its Common Stock for issuance to employees, consultants
and/or directors pursuant to its 1997 Stock Plan, of which 1,892,050 have been
issued and exercised, of which 694,500 are subject to currently issued and
unexercised options (the "Unexercised Options"), and of which 133,916 are
reserved for issuance upon the exercise of unissued options (the "Unissued
Options"). The Common Stock, the Series A Preferred, the Series B Preferred,
the
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Series C Preferred, the Series D Preferred and the Series E Preferred have the
rights, preferences, privileges and restrictions set forth in the Restated
Articles.
(a) Except for (i) the Series C Warrants, (ii) the conversion
privileges of the Series A, Series B, Series C, Series D and Series E Preferred,
(iii) the Unexercised Options, (iv) the Unissued Options and (v) the rights
provided in the Rights Agreement, there are no outstanding options, warrants,
rights (including conversion or preemptive rights) or agreements for the
purchase or acquisition from Parent of any shares of its capital stock. Parent
is not a party or subject to any agreement or understanding, and, to Parent's
best knowledge, there are no agreements or understandings between any persons or
entities which affect or relate to the voting or giving of written consent with
respect to any security or by a director of Parent.
4.4 Financial Statements. Parent has delivered to the Company its audited
--------------------
balance sheet and statement of operations for the period ended December 31,
1998, and its unaudited balance sheet and statement of operations as for the
period ended September 30, 1999 (collectively, the "Parent Financial
Statements"). The Parent Financial Statements are complete and correct in all
material respects and accurately set out and describe the financial condition
and operating results of Parent as of the dates and during the periods indicated
therein. The Parent Financial Statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied and
present fairly the financial position of Parent as at their respective dates and
the profits and losses of Parent for the periods then ended; provided, however,
that the unaudited Parent Financial Statements do not contain additional
financial statements and footnotes required under GAAP and are subject to normal
year-end adjustments.
4.5 Changes. Since September 30, 1999, there has not been:
-------
(a) Any change in the assets, liabilities, financial condition, or
operations of Parent except changes in the ordinary course of business which
have not been in any case materially adverse;
(b) Any damage, destruction, or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties or business
of Parent (as such business is currently conducted);
(c) Any waiver or compromise by Parent of a valuable right or of a
material debt owed to it;
(d) Any loans made by Parent to its employees, officers or directors
other than travel advances made in the ordinary course of business;
(e) Any declaration or payment of any dividend or other distribution
by Parent;
(f) To the best of Parent's knowledge, any other event or condition
of any character which has materially and adversely affected the assets,
liabilities, financial condition,
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operating results or business (as such business is currently conducted and
proposed to be conducted) of Parent; or
(g) Any material change in any compensation arrangement or agreement
with any employee or officer of Parent.
4.6 Material Obligations. Except as otherwise disclosed in Section 4.6 of
--------------------
the Disclosure Letter of Parent, as of the date hereof, Parent is not a party to
any contracts, the backlog of which individually exceeds $500,000. Parent has
no material liabilities or obligations, absolute or contingent (individually or
in the aggregate), except (i) the liabilities and obligations set forth in the
Parent Financial Statements, (ii) liabilities and obligations which have been
incurred subsequent to December 31, 1998, in the ordinary course of business
which have not been, either in any case or in the aggregate, material and (iii)
as set forth in the Schedule of Exceptions. None of (i) Software Production and
Distribution Agreement, dated January 9, 1998, between Parent and KLA-Tencor
Corporation, (ii) Software Purchase Agreement, dated August 1, 1998, between
Parent and Motorola, Inc., (iii) Process Development License and Support
Agreement, dated May 1, 1999, between parent and TSMC, or (iv) License Agreement
effective October 1, 1999 between Parent and Cadence Design Systems, Inc.
provided to counsel of the Company has been amended since their respective
execution dates.
(a) Material Contracts and Commitments. (i) To the best of Parent's
----------------------------------
knowledge, all of the material contracts, agreements and instruments to which
Parent is a party are valid, binding and in full force and effect in all
material respects, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
(ii) Except for the agreements explicitly contemplated hereunder,
there are no agreements, understandings or proposed transactions between Parent
and any of its officers, directors, affiliates or any affiliate thereof. There
are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which Parent is a party or
by which it is bound which may involve (i) the license of any patent, copyright,
trade secret or other proprietary right to or from Parent, (ii) provisions
restricting or affecting the development, manufacture or distribution of
Parent's products or services or (iii) indemnification by Parent with respect to
infringements of proprietary rights.
(b) Intellectual Property, Trademarks, etc. Parent has the right to
--------------------------------------
use, free and clear of all liens, charges, claims and restrictions, all
intellectual property, patents, trademarks, service marks, trade names,
copyrights, licenses and rights necessary to the business of Parent as presently
conducted. To the best of Parent's knowledge, Parent is not infringing upon or
otherwise acting adversely to the right or claimed right of any other person
under or with respect to the foregoing, and Parent has not received any
communications alleging that Parent has violated or, by conducting its business
as currently conducted or as proposed to be conducted, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any person or entity.
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<PAGE>
(c) Each key employee (including independent contractors, if any) and
each officer of Parent has executed an employee confidential information and
invention agreement (the "Parent Proprietary Information Agreement"). Such
Parent Proprietary Information Agreements constitute valid and binding
obligations of Parent and such persons, enforceable in accordance with their
respective terms, subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunction relief or other equitable remedies. Parent is
not aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement or subject
to any judgement, decree or order of any court of administrative agency, that
would interfere with the use of his or her best efforts to promote the interests
of Parent or that would conflict with Parent's business as currently conducted.
Neither the execution or delivery of the Agreements nor the carrying out of
Parent's business by the employees of Parent, nor the conduct of Parent's
business as currently conducted and as proposed to be conducted will, to
Parent's knowledge without special investigation, conflict with or result in a
breach of the terms, conditions, or provisions of, or constitute a default
under, any contracts, covenants or instruments under which any of such employees
is now obligated. Parent does not believe it is or will be necessary to utilize
any inventions of any of its employees made prior to their employment by Parent
except for any such inventions that are in the public domain.
4.7 Title to Properties and Assets; Liens, etc. Parent has good and
------------------------------------------
marketable title to all properties and assets and has good title to all its
leasehold interests necessary for its business as currently conducted in all
material respects, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (i) the lien of current taxes not yet due and
payable, and (ii) possible minor liens and encumbrances which do not in any case
materially detract from the value of the property subject thereto or materially
impair the operations of Parent, and which have not arisen otherwise than in the
ordinary course of business.
4.8 Compliance with Other Instruments, None Burdensome, etc. Parent is
-------------------------------------------------------
not in violation of any term of its Restated Articles or Bylaws, as each are
amended to date, or in any material respect of any term or provision of any
material mortgage, indebtedness, indenture, contract, agreement, instrument,
judgment or decree, and to the best of Parent's knowledge, Parent is not in
violation of any order, statute, rule or regulation applicable to Parent. The
execution, delivery and performance of and compliance with this Agreement, and
the consummation of the transactions contemplated hereby, have not resulted and
will not result (i) in any violation of, or conflict with, or constitute a
default under, Parent's Restated Articles or Bylaws, as amended to date, or (ii)
in any material violation of, conflict with or default under any of its
agreements, nor result in the creation of, any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of Parent.
4.9 Litigation, etc. There are no actions, suits, proceedings or
---------------
investigations pending against Parent or its properties before any court or
governmental agency (nor, to the best of Parent's knowledge, is there any
reasonable basis therefor or threat thereof). Parent is not a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by Parent currently pending or which Parent intends
to initiate.
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4.10 Registration Rights. Except as set forth in the Rights Agreement
-------------------
attached hereto as Exhibit D, Parent is not under any contractual obligation to
register (as defined in Section 2.2 of the Rights Agreement) any of its
presently outstanding securities or any of its securities which may hereafter be
issued.
4.11 Governmental Consent, etc. No consent, approval or authorization of
-------------------------
or designation, declaration or filing with any governmental authority on the
part of Parent is required in connection with the valid execution and delivery
of this Agreement, or the consummation of the transactions contemplated hereby,
except (a) filing of the Restated Articles in the office of the California
Secretary of State, (b) qualification (or taking such action as may be necessary
to secure an exemption from qualification, if available) of the offer and sale
of shares of Series E Preferred (and the Parent Common Stock issuable upon
conversion of such shares) and the Notes under the California Corporate
Securities Law of 1968, as amended, which filings and qualifications, if
required, will be accomplished in a timely manner, (c) the receipt of a valid
exemption from the registration requirements of the Securities Act, (d) the
filing of the Agreement of Merger with the California Secretary of State and
appropriate documents with the relevant authorities of other states in which
Parent is qualified to do business, (e) approval and adoption of this Agreement
and approval of the Merger by Parent's shareholders and (f) such other consents,
approvals, orders, authorizations, registrations, declarations and filings the
failure of which to be obtained or made individually or in the aggregate would
not have a Material Adverse Effect on the Parent or impair the ability of Parent
or Sub to perform their obligations under this Agreement.
4.12 Tax Returns and Payments. Parent has timely filed all tax returns
------------------------
(federal, state and local) required to be filed by it. All such tax returns are
true and correct. All taxes shown to be due and payable on such returns, any
assessments imposed, and all other taxes due and payable by Parent on or before
the Closing have been paid or will be paid prior to the time they become
delinquent. Parent has not been advised (i) that any of its returns, federal,
state or other, have been or are being audited as of the date hereof, or (ii) of
any deficiency in assessment or proposed judgment to its federal, state or other
taxes. Parent has no knowledge of any liability of any tax to be imposed upon
its properties or assets as of the date of this Agreement that is not adequately
provided for.
4.13 Employee Matters. Except as provided in this Agreement or as
----------------
contemplated hereby, Parent has no employment contracts with any of its
employees not terminable at will. Parent does not have any collective bargaining
agreements with any of its employees and no labor union organizing activity is
pending or threatened with respect to Parent. Parent does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974
("ERISA").
4.14 Insurance. Parent has in full force and effect fire and casualty
---------
insurance policies, with extended coverage, sufficient in amount (subject to
reasonable deductibles) to allow it to replace any of its properties that might
be damaged or destroyed.
4.15 Disclosure. Parent has provided to the Company and each Shareholder
----------
all information requested by such party in writing in connection with the
transactions contemplated
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<PAGE>
hereunder. Neither this Agreement (including the Exhibits hereto) nor any other
written documents or certificates delivered in connection herewith contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading in
light of the circumstances under which they were made. The presentation to the
Principal Shareholders, dated August 31, 1999 (the "Presentation") was made in
good faith by Parent and with respect to any assumptions, projections and
expressions of opinion or predictions referred to in the Presentation
(collectively, "Projections"), such Projections were made in good faith based
upon assumptions Parent believed to be reasonable, provided, however, that
Parent makes no representation as to the accuracy of such Projections.
4.16 Status of Shares. The shares of (i) Series E Preferred, when issued
----------------
in the Merger in compliance with this Agreement, and (ii) common stock of Parent
issuable upon the conversion of the Series E Preferred, will be validly issued,
fully paid and nonassessable.
4.17 Experience; Access to Data. Parent has substantial experience in
--------------------------
evaluating and acquiring companies similar to the Company so that it is capable
of evaluating the merits and risks of the transactions contemplated hereby and
has the capacity to protect its own interests. Parent has had an opportunity to
discuss the Company's business, management and financial affairs with its
management. Parent has also had an opportunity to ask questions of officers of
the Company, which questions were answered to its satisfaction.
SECTION 5
COVENANTS
5.1 Conduct of Business of the Company. During the period from the date
----------------------------------
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company shall carry on its business in the
usual, regular and ordinary course in substantially the same manner as conducted
prior to the date of this Agreement and, to the extent consistent with such
business, use all commercially reasonable efforts consistent with past practice
and policies to preserve intact its present business organization, keep
available the services of its present officers and key employees and preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, with the objective that its
goodwill and ongoing business shall be unimpaired at the Effective Time. The
Company shall promptly notify Parent of any event or occurrence not in the
ordinary course of business of the Company. Except as expressly contemplated by
this Agreement or disclosed in the Company Schedules, the Company shall not,
without the prior written consent of Parent:
(a) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock, or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or repurchase or otherwise acquire, directly or
indirectly, any shares of its capital stock;
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(b) Issue, deliver or sell, authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities or
authorize or propose any change in its equity capitalization;
(c) Solicit approval for or effect any amendments to the Company's
Articles of Incorporation or Bylaws;
(d) Acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the Company;
(e) Sell, lease, license, pledge or otherwise dispose of or encumber
any of its properties or assets except in the ordinary course of business
consistent with past practice (including without limitation any indebtedness
owed to it or any claims held by it);
(f) Except in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee, endorse or
otherwise become responsible for the obligations of others, or make loans or
advances;
(g) Pay, discharge or satisfy in an amount in excess of $10,000 in
any one case any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business consistent with past practice of
liabilities reflected or reserved against in the Financial Statements or those
incurred after the Balance Sheet in the ordinary course of business;
(h) Adopt or amend any employee benefit or employee stock purchase or
employee option plan, or enter into any employment contract, pay any special
bonus or special remuneration to any director or employee, or increase the
salaries or wage rates of its officers or employees other than in the ordinary
course of business, consistent with past practice, or change in any material
respect any management policies or procedures;
(i) Commence a lawsuit other than for the routine collection of
bills;
(j) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the Company IP Rights or
enter into grants to future patent rights, other than in the ordinary course of
business;
(k) Except in the ordinary course of business with prior notice to
Parent, violate, amend or otherwise modify the terms of any of the Company's
contracts binding on the Company as set forth in Section 3.8 of the Company
Schedules;
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(l) Revalue any of its assets, including without limitation, writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business and consistent with past practice;
(m) Make any material tax election other than in the ordinary course
of business and consistent with past practice, change any material tax election,
adopt any material tax accounting method other than in the ordinary course of
business and consistent with past practice, change any material tax accounting
method, file any material tax return (other than any estimated tax returns,
payroll tax returns or sale tax returns) or any amendment to a material tax
return, enter into any closing agreement, settle any tax claim or assessment, or
consent to any tax claim or assessment, without the prior written consent of the
Parent, which consent will not be reasonably withheld;
(n) Engage in any activities or transactions that are outside the
ordinary course of its business consistent with past practice;
(o) Fail to pay or otherwise satisfy its monetary obligations as they
become due, except such as are being contested in good faith; or waive or commit
to waive any rights of substantial value; or cancel, materially amend or renew
any insurance policy; or
(p) Take, or agree (in writing or otherwise) to take, any of the
actions described in Sections 5.1(a) through (o) above, or any action which
would make any of the representations or warranties of the Company contained in
this Agreement untrue or incorrect or result in any of the conditions to the
Merger set forth in Section 6 not being satisfied.
5.2 No Solicitation. Until the earlier of the Effective Time or the
---------------
termination of this Agreement pursuant to the provisions of Section 8.1, neither
the Company nor the Principal Shareholders will (nor will the Company permit any
of the Company's officers, directors, agents, representatives or affiliates to)
directly or indirectly, take any of the following actions with any party other
than Parent and its designees: (a) solicit, conduct discussions with or engage
in negotiations with any person or take any other action intended or designed to
facilitate the efforts of any person, other than Parent, relating to the
possible acquisition of the Company (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any material portion of its
capital stock or assets, (b) provide information with respect to it to any
person, other than Parent, relating to the possible acquisition of the Company
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise) or any portion of its or their capital stock or assets, (c) enter
into an agreement with any person, other than Parent, providing for the
acquisition of the Company (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise) or any portion of its capital stock or assets
or (d) make or authorize any statement, recommendation or solicitation in
support of any possible acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) or any portion of
its capital stock or assets by any person, other than by Parent. In addition to
the foregoing, if the Company or the Principal Shareholder receives any
unsolicited bona fide offer or proposal relating to any of the above, the
---- ----
Company or the Principal Shareholder (as the case may be) shall immediately
notify Parent thereof, including information as to the identity of the offeror
or the party making any such offer or proposal and the specific terms of such
offer or proposal, as the case may be.
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5.3 Access to Information. Upon reasonable notice, the Company and Parent
---------------------
shall each afford the officers, accountants, counsel and other representatives
of the other party, reasonable access during normal business hours during the
period prior to the Effective Time to (a) all of its properties, books,
contracts, commitments and records, and (b) all other information concerning its
business, properties and personnel (subject to restrictions imposed by
applicable law) as the other may reasonably request, including without
limitation access upon reasonable request to such party's employees, customers
and vendors for due diligence inquiry. Each of Parent and the Company agrees to
provide to the other and its accountants, counsel and other representatives
copies of internal financial statements, business plans and projections promptly
upon request. No information or knowledge obtained in any investigation
pursuant to this Section 5.3 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
5.4 Confidentiality. Each of the parties agrees to keep such information
---------------
or knowledge obtained in any investigation pursuant to Section 5.3, or pursuant
to the negotiation and execution of this Agreement or the effectuation of the
transactions contemplated hereby, confidential unless (i) such information
becomes known to the public generally, (ii) disclosure is required by law or the
order of any governmental authority under color of law, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party, provided, that prior to
disclosing any information prior written notice thereof shall be given to the
other party and provide such other party with the opportunity to contest such
disclosure and the disclosing party shall cooperate with efforts to prevent such
disclosure.
5.5 Expenses. Whether or not the Merger is consummated, all reasonable
--------
and customary fees and expenses incurred in connection with the Merger
including, without limitation, all legal, accounting, financial advisory,
consulting and all other fees and expenses of third parties incurred by a party
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby, shall be the
obligation of the respective party incurring such fees and expenses. Such fees
and expenses of the Company and its Shareholders shall be paid entirely by the
Shareholders.
5.6 Public Disclosure. Unless otherwise required by law or otherwise
-----------------
disclosed to legal counsel or accountants of the Shareholders in connection with
evaluating the merits of the transactions contemplated hereof, prior to the
Effective Time, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by Parent and the Company prior to release, provided that such approval
shall not be unreasonably withheld, subject, in the case of Parent, to Parent's
obligation to comply with applicable securities laws.
5.7 Consents. Each of Parent and the Company shall promptly apply for or
--------
otherwise seek, and use its reasonable efforts to obtain, all consents and
approvals required to be obtained by it for the consummation of the Merger, and
the Company shall use all reasonable efforts to obtain all consents, waivers and
approvals under any of the Company's agreements, contracts, licenses or leases
in order to preserve the benefits thereunder for the Surviving Corporation and
otherwise in
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connection with the Merger. All of such Company consents and approvals are set
forth in Section 5.7 of the Company Schedules.
5.8 Tax Covenants of Shareholders.
-----------------------------
(a) Liability for Taxes. Shareholders shall be liable for all income
-------------------
taxes imposed on the Company for any taxable year or period ending on or prior
to the Closing Date (other than income taxes solely arising out of changes in
method of accounting of the Company from that of a cash basis method of
accounting to that of an accrual basis method of accounting and the Company
ceasing to be taxed as an "S" corporation after the Closing) and all income
taxes imposed with respect to the Shareholder Product Receivable (as defined in
Section 5.16). Shareholders shall pay all stamp, recordation, or similar
transfer taxes attributable to the transfer of the Shares from Shareholders to
Parent.
(b) Tax Returns. Shareholders shall have the responsibility for
-----------
preparing the final returns of the Company taking into account income from
operations prior to Closing. Such returns shall be prepared in accordance with
applicable law and past practices consistently applied and shall be subject to
prior review by Parent.
5.9 Reasonable Efforts. Subject to the terms and conditions provided in
------------------
this Agreement, each of the parties hereto shall use all reasonable efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby to obtain all necessary waivers, consents and approvals and to effect all
necessary registrations and filings and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or the Company or its affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
5.10 Notification of Certain Matters. The Company shall give prompt notice
-------------------------------
to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which may cause any representation or warranty of the Company and Parent,
respectively, contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time and (ii) any failure of the
Company or Parent, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 5.10
- -------- -------
shall not limit or otherwise affect any remedies available to the party
receiving such notice.
5.11 Blue Sky Laws. Parent shall take such steps as may be necessary to
-------------
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of Series E
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Preferred pursuant hereto. The Company shall use its best efforts to assist
Parent as may be necessary to comply with the securities and blue sky laws of
all jurisdictions which are applicable in connection with the issuance of Series
E Preferred pursuant hereto.
5.12 Noncompetition Agreements. At the Effective Time, Parent and each of
-------------------------
the Principal Shareholders shall enter into noncompetition agreements in the
form attached as Exhibit F (the "Noncompetition Agreements").
---------
5.13 Employment Agreements. At the Effective Time, Parent and the
---------------------
Principal Shareholders shall enter into employment agreements in substantially
the form attached as Exhibit G (the "Employment Agreements"). The Employment
---------
Agreements shall become effective as of the Effective Time.
5.14 Investment Representation Agreements. At the Effective Time, all of
------------------------------------
the holders of outstanding shares of capital stock of the Company shall execute
and deliver to Parent Investment Representation Agreements in the form attached
hereto as Exhibit H.
---------
5.15 Cash Balances; Pre-Closing Liabilities. Any available cash balances
--------------------------------------
and prepaid expenses and deposits as of the Closing ("Closing Cash Balances")
shall be held in trust by the Surviving Corporation for the benefit of the
Shareholders. The Surviving Corporation shall be authorized to make payments on
behalf of the Company and the Shareholders with respect to any Pre-Closing
Liabilities (as defined in Section 5.16) to the extent of the Closing Cash
Balances and subject to Section 5.16(c), to extent of the Shareholder Product
Receivable (as defined in Section 5.16). Notwithstanding the foregoing, the
Surviving Corporation shall not assume any Pre-Closing Liabilities and the
Shareholders shall remain liable with respect thereto.
5.16 Certain Adjustments.
-------------------
(a) On or after January 1, 2000 and immediately prior to the Merger,
the Company shall deliver to Parent a statement (the "Statement"), certified by
an officer of the Company, setting forth the accounts receivable with respect to
the Product Revenues (as defined below) of the Company (the "Product
Receivable") as of the close of business on the Closing Date (the "Closing
Product Receivable") and the Pre-Closing Liabilities (as defined below). The
Statement shall set forth in reasonable detail the date and the corresponding
amounts of each sales which relate to the Closing Product Receivable and the
description and the corresponding amounts of each item of the Pre-Closing
Liabilities.
(b) The Company shall distribute as a dividend fifty-five percent
(55%) of the Product Receivable immediately prior to the Closing (the "Closing
Product Receivable") to the Shareholders on the basis that the Closing Product
Receivable which relate to the most dated invoices shall be allocated to the
Shareholders first (the "Shareholder Product Receivable"). Subject to the set-
off described in Section 5.16(c), the Surviving Corporation, acting as an agent
for the Shareholders, shall collect the distributed Shareholder Product
Receivable and shall distribute to the Shareholders as soon as practicable
following the last business day of each month the Shareholder Product Receivable
as are collected by the Surviving Corporation. The Shareholder
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Product Receivable shall be allocated to each Shareholder on a prorated basis by
the Surviving Corporation in relation to their shares of capital stock of the
Company.
(c) Notwithstanding any other provisions to the contrary in this
Agreement, to the extent the Pre-Closing Liabilities shall exceed the Closing
Cash Balances, the Surviving Corporation shall be entitled to set-off the amount
of such excess against the Shareholder Product Receivable (the "Excess Pre-
Closing Liabilities"). To the extent the Closing Cash Balances shall exceed the
Pre-Closing Liabilities, the Surviving Corporation shall distribute such excess
on a prorated basis to the Shareholders in relation to their allocated portion
of the Merger Consideration, and the Merger Consideration shall be deemed to
include such excess.
(d) The term "Product Receivable" shall mean the accounts receivable
of the Company as of the Closing generated from license sales of the Company's
Computer Aided Transcription System software (the "Products"), excluding any
portion of such receivable generated as a result of any maintenance, support or
other services rendered by the Company. The term "Pre-Closing Liabilities" shall
mean all operating expenses incurred by the Company on or prior to the Closing
Date which were not paid as of the Closing Date, which expenses would be shown
by a trade account payable on the financial statements of the Company had the
Company operated under an accrual method of accounting, plus expenses relating
to employee salaries and bonuses and employee accrued vacations. Such expenses
shall include, without limitation, fees to accounting firms for services
rendered in connection with the preparation and filing of the final tax returns
of the Company and any outstanding legal fees for services rendered and other
expenses in connection with the Merger, the transactions contemplated hereby
incurred by the Company on or prior to the Closing Date and lease payments with
respect to the Company Lease (as defined in Section 6.2(k)) for periods prior to
the Closing Date (but excluding any commitments to maintain, support or service
the Company's Products and any taxes imposed relating to the conversion from
that of a cash method of accounting to that of an accrual method of accounting).
5.17 Voting Agreement. The Principal Shareholders shall vote in favor of
----------------
the Merger and the transactions contemplated hereby at the meeting of the
shareholders of the Company held for the purpose of approving the Merger and the
transactions contemplated hereby in accordance with the Articles of
Incorporation of the Company and the California Code.
5.18 Section 338(h)(10) Election. The parties agree that no Section
---------------------------
338(h)(10) election under the Code shall be made.
SECTION 6
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
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(a) Shareholder Approval. This Agreement, the agreements
--------------------
contemplated hereunder and the Merger and the other transactions contemplated
hereby and thereby shall have been approved and adopted by: (i) the affirmative
vote or consent of the holders of at least 75% of the outstanding shares
entitled to vote of each of Parent and the Company and no more than 10% of such
shares for each of Parent and the Company shall vote against this Agreement or
the transactions contemplated hereby, (ii) the affirmative vote or consent of at
least a majority of the outstanding shares of Common Stock of each of Parent and
the Company, (iii) the affirmative vote or consent of the holders of at least a
majority of the outstanding Preferred Stock of Parent, (iv) the affirmative vote
or consent of at least two-thirds of the outstanding shares of Series A and
Series B Preferred Stock of Parent, voting together as a single class, (v) the
affirmative vote or consent of at least a majority of the outstanding shares of
Series C Preferred Stock of Parent, (vi) the affirmative vote or consent of at
least two-thirds of the outstanding shares of Series D Preferred Stock of Parent
and (vii) the affirmative vote or consent of at least two-thirds of the
outstanding shares of Series A, Series B, Series C and Series D Preferred Stock,
voting together as a single class.
6.2 Additional Conditions to the Obligations of Parent and Sub. The
----------------------------------------------------------
obligations of Parent and Sub to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by Parent:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of the Company and the Principal Shareholders in this Agreement
shall be true and correct on and as of the date of this Agreement and as of the
Closing Date as though such representations and warranties were made on and as
of such time and the Company and the Principal Shareholders shall have performed
and complied with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by each of them as of the Closing
Date. Parent shall have been provided with a certificate dated as of the Closing
Date executed on behalf of the Company by its Chief Executive Officer and Chief
Financial Officer to such effect.
(b) Legal Opinion. Parent shall have received a legal opinion from
-------------
Rosenblum, Parish & Isaacs, legal counsel to the Company, substantially in the
form of Exhibit I.
---------
(c) No Injunctions or Restraints on Conduct of Business. No
---------------------------------------------------
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or provision challenging Parent's proposed acquisition of the Company,
or limiting or restricting Parent's conduct or operation of the business of the
Company (or its own business) following the Merger shall be in effect, nor shall
any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending.
(d) Litigation. There shall be no action, suit, claim or
----------
proceeding of any nature pending, or overtly threatened, against the Parent, Sub
or the Company, their respective properties or any of their officers or
directors, arising out of, or in any way connected with, the Merger or the other
transactions contemplated by the terms of this Agreement, or that could
materially and
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<PAGE>
adversely affect the business, assets, liabilities, financial condition or
results of operations of the Company.
(e) Due Diligence. The Parent shall be satisfied with the results
-------------
of its due diligence review of the Company.
(f) Investment Representations. Parent shall have received from
--------------------------
each of the shareholders of the Company an executed Investment Representation
Agreement which shall be in full force and effect.
(g) No Dissenters. No Shareholder(s) representing more than 2.5% of
-------------
the outstanding capital stock of the Company shall have exercised, nor shall
they continue to have the right to exercise, appraisal rights with respect to
the transactions contemplated by this Agreement.
(h) Noncompetition Agreements; Employment Agreements. Each of the
------------------------------------------------
Noncompetition Agreements and the Employment Agreements shall have been duly
executed and delivered by the parties thereto.
(i) Securities Law Compliance. Parent shall have received from the
-------------------------
Shareholders of the Company executed investment representation statements and
completed questionnaires in form and substance satisfactory to Parent that the
issuance of the shares of Series E Preferred and the Notes pursuant to the
Merger is exempt from the registration requirements of the Securities Act and is
exempt from registration under applicable state securities laws.
(j) Restated Articles; Stockholder Approval. The Restated Articles
---------------------------------------
shall have been duly authorized, executed and filed with the Secretary of State
of the State of California. The shareholders of each of Parent and the Company
shall have approved the Merger and the transactions contemplated hereby in
accordance with the Restated Articles and the California Code.
(k) Assignment of Contracts. Each of (i) the Development and
-----------------------
Distribution Agreement, dated October 1, 1991 between the Company and KLA
Instrument Corporation, (ii) Lease, dated May 10, 1990, between Los Gatos
Business Park and the Company relating to the premises located at 101 Albright
Way, Los Gatos, California ("Company Lease") and (iii) Quicklease Agreement,
dated May 5, 1999, between the Company and IBM Credit Corporation, shall have
been assigned to the Surviving Corporation.
(l) Employment Agreements. The Employment Agreements shall have
---------------------
been executed and delivered by the parties thereto.
6.3 Additional Conditions to Obligations of Company. The obligations of
-----------------------------------------------
the Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
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<PAGE>
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of Parent and Sub in this Agreement shall be true and correct
(such that a breach of such representations and warranties would not have a
Material Adverse Effect on Parent) on and as of the date of this Agreement and
as of the Closing Date as though such representations and warranties were made
on and as of such time and each of Parent and Sub shall have performed and
complied with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by it as of the Closing Date. The
Company shall have been provided with a certificate dated as of the Closing Date
and executed on behalf of Parent by an executive officer of Parent to such
effect.
(b) Stockholder Rights Agreement. The 1999 Second Amended and
----------------------------
Restated Shareholder Rights Agreement in the form of Exhibit J (the "Rights
---------
Agreement") shall have been executed and delivered by Parent.
(c) Restated Articles; Parent Stockholder Approval. The Restated
----------------------------------------------
Articles shall have been duly authorized, executed and filed with the Secretary
of State of the State of California. The shareholders of Parent shall have
approved the Merger and the transactions contemplated hereby in accordance with
the Restated Articles and the California Code.
(d) Litigation. There shall be no action, suit, claim or proceeding
----------
of any nature pending, or overtly threatened, against Parent or Sub, their
respective properties or any of their officers or directors, arising out of, or
in any way connected with, the Merger or the other transactions contemplated by
the terms of this Agreement, or that would materially and adversely affect the
business, assets, liabilities, financial condition or results of operations of
Parent.
(e) Employment Agreements. Each the Employment Agreements shall
---------------------
have been duly executed and delivered by Parent.
SECTION 7
INDEMNIFICATION
7.1 General Indemnification.
-----------------------
(a) The Shareholders covenant and agree to indemnify, defend, protect
and hold harmless Parent and the Surviving Corporation and their respective
officers, directors, employees, shareholders, assigns, successors and affiliates
from, against and in respect of:
(i) all liabilities, losses, claims, damages, punitive damages,
courses of actions, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments, adjustments,
judgments, settlement payments, deficiencies, penalties, fines, interest
(including interest from the date of such damages) and costs and expenses
(including without limitation reasonable attorneys' fees and disbursements of
every kind, nature and description) (collectively, "Damages") suffered,
sustained or incurred by the party or parties entitled
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<PAGE>
to indemnification under this Section 7.1 (individually, an "Indemnified Party"
and collectively, "Indemnified Parties") in connection with, resulting from or
arising out of, directly or indirectly:
(1) any breach of any representation or warranty of the
Company or the Principal Shareholders set forth in this Agreement or any
certificate, document or instrument delivered by or on behalf of the Company or
the Principal Shareholders in connection herewith;
(2) any non fulfillment of any covenant or agreement on the
part of the Company or the Principal Shareholders in this Agreement;
(3) the business, operations or assets of the Company prior
to the Closing Date, including without limitation, (i) the Pre-Closing
Liabilities, and (ii) all taxes of the Company attributable to any period (or
portion of any period) ending on or prior to the Closing Date, except as
otherwise disclosed in the Company Financial Statements or the Company Schedules
(other than taxes attributable to the changes in accounting methods on the
Closing Date from that of a cash method accounting to an accrual method of
accounting and the Company ceasing to be taxed as an "S" corporation after the
Closing);
(4) (i) any required pro rata refund to customers of annual
product maintenance fees previously paid to the Company pursuant to any CAT
Software License Agreements ("License Agreements") as a result of any customers
refusing to consent to the assignment of any such License Agreements to the
Surviving Corporation which consent was required pursuant to such Licensing
Agreements ("Required Assignment") and (ii) any Damages incurred by Parent or
the Surviving Corporation as a result of any third party to a non-disclosure
agreement to which the Company is a party refusing to consent to any Required
Assignment or waive any noncompliance of such nondisclosure agreements to the
extent such Damages arises from disclosure made on or prior to the Closing Date;
(5) any Claims arising out of the Shareholder Materials;
(6) the actions or omissions of the Company's directors,
officers, shareholders, employees or agents prior to the Closing Date; and
(ii) any and all Damages incident to any of the foregoing or to
the enforcement of this Section 7.1(a).
Notwithstanding any other provision in this Agreement, except as provided
in Section 7.1(a)(i)(4), the Shareholders shall not be liable to Parent or the
Surviving Corporation or have any indemnification duties to them for any Damages
incurred as a result of a third party to any contract refusing to consent to any
Required Assignment.
(b) Parent and Sub, jointly and severally, covenant and agree to
indemnify, defend, protect and hold harmless the Shareholders from, against and
in respect of:
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<PAGE>
(i) all Damages suffered, sustained or incurred by the
Indemnified Parties in connection with, resulting from or arising out of,
directly or indirectly:
(1) any breach of any representation or warranty of the
Parent set forth in this Agreement or any certificate, document or instrument
delivered by or on behalf of Parent in connection herewith;
(2) any nonfulfillment of any covenant or agreement on the
part of Parent in this Agreement;
(3) the business, operations or assets of the Surviving
Corporation after the Closing Date (except with respect to the Shareholder
Product Receivable), including without limitation, all taxes of the Surviving
Corporation attributable to any period (or portion of any period) ending after
the Closing Date and with respect to all taxes attributable to the changes in
accounting methods on or after the Closing Date from that of a cash method
accounting to an accrual method of accounting and the Company ceasing to be
taxed as an "S" corporation after the Closing; or
(4) the actions or omissions of the Surviving Corporation's
directors, officers, shareholders, employees or agents after the Closing Date;
and
(ii) any and all Damages incident to any of the foregoing or to
the enforcement of this Section 7.1(b).
7.2 Limitation and Expiration. Notwithstanding the above:
-------------------------
(a) There shall be no liability for indemnification under Section 7.1
unless the aggregate amount of Damages exceeds $100,000 (the "Indemnification
Threshold"), in which event the liability for indemnification will apply to the
entire aggregate amount of Damages. Subject to the Shareholders' option to
exercise the set-off described in the Notes in lieu of applying the Pledged
Shares to satisfy any claims hereunder or to pay cash as provided in Section
7.2(c) below, the Pledged Shares shall represent the exclusive means of
satisfying any claims under Section 7.1(a) and with respect to Claims (as
defined below) relating to any breach of the representation or warranties set
forth in Section 3 or the covenants set forth in Section 5, except with respect
to Claims relating to any breach of the representations and warranties set forth
in Section 3.12 (Taxes) and 3.22 (Environmental Matters) or for Claims relating
to fraud or willful misconduct. For purposes of satisfying indemnification
obligations pursuant to Section 7.1(a), the Pledged Shares shall be valued at
$16 per share, or in the event Parent shall have effected a registration
statement on Form S-1 covering the offer and sale of common stock of Parent for
the account of Parent to the public, at the greater of $16 or the average of the
closing price of such Parent Common Stock as reported on a national securities
exchange or quoted on NASDAQ for the ten trading days preceding the date of the
Claim Notice. Any Damages paid pursuant to Section 7.1(a) shall be paid on a
prorated basis by the Shareholders in relation to their allocable portion of the
Pledged Shares, and any Damages paid pursuant to Section 7.1(b) shall be paid by
Parent to the Shareholders on a pro-rated basis in relation to their allocable
portion of shares of Series E Preferred. Notwithstanding the foregoing, in the
event
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<PAGE>
Parent shall have consummated an IPO within one year following the Closing and
all of the Pledged Shares to be issued to the Minority Shareholders shall have
been released in accordance with Section 2.1(i)(ii), any Damages paid pursuant
to Section 7.1(a) shall be paid on a prorated basis by the Principal
Shareholders in relation to their allocated portion of the Pledged Shares as
among themselves without regard to the Pledged Shares issued to the Minority
Shareholders.
(b) The indemnification obligations under this Section 7 shall
terminate as follows:
(i) with respect to claims or demands (a "Claim") relating to a
breach of the representations and warranties set forth in Section 3.12 (Taxes)
and 3.22 (Environmental Matters) or fraud or willful misconduct, upon the later
of the expiration of the applicable statute of limitations period or the final
resolution of any and all such Claims pending as of such date; and
(ii) with respect to all other Claims for indemnification under
this Section 7, upon the later of the second anniversary of the Closing Date or
the final resolution of any such claims pending as of the second anniversary of
the Closing Date.
The term "Indemnification Deadline Date" refers to the expiration date of
the applicable statute of limitations period with respect to Claims under clause
(i) above and the second anniversary of the Closing Date with respect to claims
under clause (ii) above. The term "Pending Claims" refers to the pending claims
described in clauses (i) and (ii) above. From and after the applicable
Indemnification Deadline Date, the indemnification obligations under this
Section 7 shall survive only to the extent of Pending Claims.
(c) Notwithstanding any other provisions contained herein to the
contrary, the Shareholders shall have the option exercisable by prior written
notice to Parent of not more than 5 days following the Claim Date to satisfy any
claims under this Section 7 by paying in immediately available funds the amount
of Damages such Shareholders are obligated to pay hereunder. The term "Claim
Date" shall mean the date on which the Shareholders shall have adjudged to be
liable or shall have entered into settlements or compromises or shall be subject
to any arbitration awards with respect to any Claims.
7.3 Indemnification Procedures. All Claims for indemnification under this
--------------------------
Section 7 shall be asserted and resolved as follows:
(a) In the event the Indemnified Party has a Claim hereunder which
does not involve a Claim being asserted against or sought to be collected by a
third party, the Indemnified Party shall with reasonable promptness send a Claim
Notice (as defined in Section 7.3(c) below) with respect to such Claim to the
indemnifying party. If the indemnifying party does not notify the Indemnified
Party within 45 days from the date of receipt of such Claim Notice that
indemnifying party disputes such Claim, the amount of such Claim shall be
conclusively deemed a liability of the indemnifying party hereunder. In case the
indemnifying party shall object in writing to any Claim made in accordance with
this Section 7.3(a), the Indemnified Party shall have fifteen (15) days to
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<PAGE>
respond in a written statement to the objection of the indemnifying party. If
after such fifteen (15) day period there remains a dispute as to any Claims, the
parties shall attempt in good faith for sixty (60) days to agree upon the rights
of the respective parties with respect to each of such Claims. If the parties
should so agree, a memorandum setting forth such agreement shall be prepared and
signed by both parties. If no such agreement can be reached after good faith
negotiation, either party may demand arbitration of the matter unless the amount
of the damage or loss is at issue in pending litigation with a third party, in
which event arbitration shall not be commenced until such amount is ascertained
or both parties agree to arbitration; and in either such event the matter shall
be settled by arbitration conducted by three arbitrators. Parent and the
Shareholders Representative (as defined in Section 7.4) shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator,
each of which arbitrators shall be independent and have at least ten years
relevant experience. The arbitrators shall set a limited time period and
establish procedures designed to reduce the cost and time for discovery while
allowing the parties an opportunity, adequate in the sole judgment of the
arbitrators, to discover relevant information from the opposing parties about
the subject matter of the dispute. The arbitrators shall rule upon motions to
compel or limit discovery and shall have the authority to impose sanctions,
including attorneys fees and costs, to the extent as a court of competent law or
equity, should the arbitrators determine that discovery was sought without
substantial justification or that discovery was refused or objected to without
substantial justification. The decision of a majority of the three arbitrators
as to the validity and amount of any Claim in such Claim Notice shall be binding
and conclusive upon the parties to this Agreement. Such decision shall be
written and shall be supported by written findings of fact and conclusions which
shall set forth the award, judgment, decree or order awarded by the arbitrators.
(b) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Santa Clara County, California under the rules then in effect of the American
Arbitration Association. For purposes of this Section 7.3, in any arbitration
hereunder in which any claim or the amount thereof stated in the Claim Notice is
at issue, the Indemnified Party shall be deemed to be the Non-Prevailing Party
in the event that the arbitrators award such Indemnified Party less than the sum
of one-half (1/2) of the disputed amount plus any amounts not in dispute;
otherwise, the Indemnifying Party shall be deemed to be the Non-Prevailing
Party. The Non-Prevailing Party to an arbitration shall pay its own expenses,
the fees of each arbitrator, the administrative costs of the arbitration, and
the expenses, including without limitation, reasonable attorneys' fees and
costs, incurred by the other party to the arbitration.
(c) In the event that any Claim for which the indemnifying party
would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party, the Indemnified Party shall with reasonable
promptness notify the indemnifying party of such Claim, including a copy of the
Claim made if the Claim was made in writing, specifying the nature of such claim
and the amount or the estimated amount thereof to the extent then feasible
(which estimate shall not be conclusive of the final amount of such Claim) (the
"Claim Notice"). The indemnifying party shall have 30 days from the receipt of
the Claim Notice (the "Notice Period") to notify the Indemnified Party (i)
whether or not the indemnifying party disputes the indemnifying party's
liability to the Indemnified Party hereunder with respect to such Claim and (ii)
if the indemnifying party does not dispute such liability, whether or not the
indemnifying party desires, at the sole cost
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and expense of the indemnifying party, to defend against such Claim, provided
that the indemnifying party is hereby authorized (but not obligated) prior to
and during the Notice Period to file any motion, answer or other pleading and to
take any other action which the indemnifying party shall deem necessary or
appropriate to protect the indemnifying party's interests. In the event that the
indemnifying party notifies the Indemnified Party within the Notice Period that
the indemnifying party does not dispute the indemnifying party's obligation to
indemnify hereunder and desires to defend the Indemnified Party against such
Claim and except as hereinafter provided, the indemnifying party shall have the
right to defend by appropriate proceedings, which proceedings shall be
diligently settled or prosecuted by the indemnifying party to a final
conclusion; provided that, unless the Indemnified Party otherwise agrees in
--------
writing, the indemnifying party may not settle any matter (in whole or in part)
unless such settlement includes a complete and unconditional release of the
Indemnified Party. If the Indemnified Party desires to participate in, but not
control, any such defense or settlement the Indemnified Party may do so at the
Indemnified Party's sole cost and expense. If the indemnifying party elects not
to defend the Indemnified Party against such Claim, whether by failure of the
indemnifying party to give the Indemnified Party timely notice as provided above
or otherwise, then the Indemnified Party, without waiving any rights against the
indemnifying party, may settle or defend against any such Claim in the
Indemnified Party's sole discretion and the Indemnified Party shall be entitled
to recover from the indemnifying party the amount of any settlement or judgment
and, on an ongoing basis, all indemnifiable costs and expenses of the
Indemnified Party with respect thereto, including interest from the date such
costs and expenses were incurred.
(d) Notwithstanding Section 7.4(b) above, in the event Parent is an
Indemnified Party, Parent shall have the right to control or assume (as the case
may be) the defense of any Claim and the amount of any judgment or settlement
and fifty percent (50%) of the reasonable costs and expenses of defense shall be
included as part of the indemnification obligations of the Shareholders
hereunder if any Claim seeks material prospective relief which, in the
reasonable opinion of Parent, has reasonable likelihood of success and which
success could have a material adverse effect on the assets, liabilities,
financial condition, results of operations or business prospects of Parent and
Parent shall have given the Shareholder Representative written notice of the
same. If Parent should elect to exercise such right, the Shareholder
Representative shall have the right to participate in, but not control, the
defense of such claim or demand at the sole cost and expense of the
Shareholders. Notwithstanding the foregoing, Parent shall not settle any Claim
without the written consent of the Shareholder Representative, which consent
shall not be unreasonably withheld.
(e) Nothing herein shall be deemed to prevent the Indemnified Party
from making a Claim, and an Indemnified Party may make a Claim hereunder, for
potential or contingent claims or demands provided the Claim Notice sets forth
the specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such a claim or demand may be made.
(f) The Indemnified Party's failure to give reasonably prompt notice
to the indemnifying party of any actual, threatened or possible claim or demand
which may give rise to a right of indemnification hereunder shall not relieve
the indemnifying party of any liability which the
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indemnifying party may have to the Indemnified Party unless the failure to give
such notice materially and adversely prejudiced the indemnifying party.
(g) The parties will make appropriate adjustments for any tax
benefits, tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under Section 7, provided that the indemnifying
--------
party shall not be obligated to seek any payment pursuant to the terms of any
insurance policy.
7.4 Shareholders' Representative.
----------------------------
(a) Upon the closing of the Merger, Mr. Roger Sturgeon shall be
constituted and appointed as agent and attorney-in-fact (the "Shareholders'
Representative") for and on behalf of each of the Shareholders to give and
receive notices and communications, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to Claims, and to take all actions
necessary or appropriate in the judgment of the Shareholders' Representative for
the accomplishment of the foregoing. Such agency may be changed (whether
pursuant to vacancy, removal or resignation) by the vote of a majority of the
Shareholders from time to time upon not less than thirty (30) days prior written
notice to Parent. No bond shall be required of the Shareholders' Representative,
and the Shareholders' Representative shall receive no compensation for its
services, except for payment by the Shareholders of expenses, including fees of
counsel, reasonably incurred by the Shareholders' Representative in connection
with the performance of its duties hereunder.
(b) The Shareholders' Representative shall not be liable for any act
done or omitted hereunder as Shareholders' Representative while acting in good
faith, and any act done or omitted pursuant to the advice of counsel shall be
conclusive evidence of such good faith. The Shareholders shall severally
indemnify the Shareholders' Representative and hold such agent harmless against
any loss, liability or expense incurred without bad faith on the part of the
Shareholders' Representative and arising out of or in connection with the
acceptance or administration of the Shareholders' Representative's duties
hereunder.
(c) A decision, act, consent or instruction of the Shareholders'
Representative shall constitute a decision of all Shareholders and shall be
final, binding and conclusive upon each Shareholder, and Parent may rely upon
any decision, act, consent or instruction of the Shareholders' Representative
taken in such manner as being the decision, act, consent or instruction of each
and every Shareholder. Parent is hereby relieved from any liability to any
person for any acts done by them in accordance with such decision, act, consent
or instruction of the Shareholders' Representative.
7.5 Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
representations, warranties and covenants made by the Company and the Principal
Shareholders in or pursuant to this Agreement or in any document delivered
pursuant hereto will survive the Closing and will remain in effect until, and
will expire upon the Indemnification Deadline Date, provided, however, that the
indemnification obligations with respect to any Pending Claim (and the related
representations, warranties and covenants) will survive until the final
resolution of such Pending Claim.
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<PAGE>
SECTION 8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated and the Merger
-----------
abandoned at any time prior to the Effective Time, whether before or after
approval of the Merger by the Shareholders of the Company:
(a) by mutual written consent of the Company and Parent;
(b) by Parent or the Company if the Closing has not occurred within
60 days from the date hereof: provided however, that the right to terminate this
Agreement under this Section 8.1(b) shall not be available to any party whose
action or failure to act has been the principal cause of the failure of the
Merger to occur on or before such date and such action or failure to act
constitutes a material breach of this Agreement;
(c) by Parent or the Company if there shall be a final nonappealable
order of a federal or state court in effect preventing consummation of the
Merger; or there shall be any action taken, or any statute, rule, regulation or
order enacted, promulgated or issued or deemed applicable to the Merger by any
Governmental Entity which would make the consummation of the Merger illegal;
(d) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any Governmental Entity, which would: (i) prohibit Parent's or the
Company's ownership or operation of all or a portion of the business of the
Company or (ii) compel Parent or the Company to dispose of or hold separate all
or a portion of the business or assets of the Company or Parent as a result of
the Merger;
(e) by Parent if it is not in breach of its obligations under this
Agreement and there has been a breach of any representation, warranty, covenant
or agreement contained in this Agreement on the part of the Company or the
Principal Shareholders and such breach has not been cured within five (5)
business days after written notice to the Company and the Principal Shareholder
(provided that no cure period shall be required for a breach which by its nature
cannot be cured);
(f) by the Company if it is not in breach of its obligations under
this Agreement and there has been a breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of Parent or Sub
and such breach has not been cured within five (5) business days after written
notice to Parent (provided that no cure period shall be required for a breach
which by its nature cannot be cured); or
(g) by Parent if an event having a material adverse effect on the
assets, liabilities, financial condition or results of operations of the Company
shall have occurred after the date of this Agreement.
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<PAGE>
(h) by the Company if an event having a material adverse effect on
the assets, liabilities, financial condition or results of operation of Parent
shall have occurred after the date of this Agreement.
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Sub, the Company or
the Principal Shareholders, or their respective officers, directors or
shareholders, provided that each party shall remain liable for any breaches of
this Agreement prior to its termination; and provided further that, the
provisions of Sections 5.4, 5.5, 5.6, 7 and 8 of this Agreement shall remain in
full force and effect and survive any termination of this Agreement.
8.3 Amendment. This Agreement may be amended by the parties hereto at any
---------
time prior to the Closing by execution of an instrument in writing signed on
behalf of each of the parties hereto, provided however that no amendment shall
be made which by law requires the further approval of the shareholders of the
Company without obtaining such approval.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent
-----------------
and Sub, on the one hand, and the Company, on the other, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
8.5 Notice of Termination. Any termination of this Agreement under
---------------------
Section 8.1 above will be effective immediately upon the delivery of written
notice of the terminating party to the other parties hereto.
SECTION 9
MISCELLANEOUS
9.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
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<PAGE>
(a) if to Parent or Sub, to:
Numerical Technologies, Inc.
70 West Plumeria Drive
San Jose, CA 95134-2134
Attention: Chief Executive Officer
Telephone No.: (408) 919-1910
Facsimile No.: (408) 919-1920
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: John Roos, Esq.
Page Mailliard, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 496-4088
(b) if to the Company, to:
Transcription Enterprises Limited
101 Albright way
Los Gatos, CA 95032
Attention: President
Telephone No.: (408) 866-1851
Facsimile No.: (408) 866-4839
with a copy to:
Rosenblum Parish & Isaacs
160 West Santa Clara Street
15th Floor
San Jose, CA 95113
Attention: Steve Wurzburg, Esq.
Telephone No.: (408) 280-2800
Facsimile No.: (408) 280-2801
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<PAGE>
(c) if to the Principal Shareholders, to:
Roger Sturgeon
16490 Lucky Road
Los Gatos, CA 95030
Telephone No.: (408) 354-3045
Kevin MacLean
18550 Overlook Road
Los Gatos, CA 95030
Telephone No.: (408) 395-2727
9.2 Interpretation.
--------------
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a Section of this Agreement unless otherwise indicated. The words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to "the business of" an entity, such reference shall be deemed to
include the business of all direct and indirect subsidiaries of such entity.
(b) For purposes of this Agreement the term "knowledge" means with
respect to a party hereto, with respect to any matter in question, that any of
the chief executive officer, chief operating officer, president, chief financial
officer, general counsel or controller of such party, has actual knowledge of
such matter.
(c) For purposes of this Agreement, the term "Material Adverse
Effect" when used in connection with an entity means any change, event,
violation, inaccuracy, circumstance or other matter, if such change, event,
violation, inaccuracy, circumstance or other matter would have a material
adverse effect on the business, prospects, assets (including intangible assets),
capitalization or financial condition of (i) such entity and its subsidiaries
taken as a whole, or (ii) the Surviving Corporation, except for those changes,
events and effects that (x) are primarily caused by conditions affecting the
United States or world economy as a whole or affecting the industry in which
such entity competes as a whole.
(d) For purposes of this Agreement, the term "subsidiary" of any
entity means any other entity of which securities or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are directly or indirectly owned or
controlled by such entity.
9.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more
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<PAGE>
counterparts have been signed by each of the parties and delivered to the other
party, it being understood that all parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the schedules and
----------------------------
Exhibits hereto, the Confidentiality Agreement and the documents and instruments
and other agreements among the parties hereto referenced herein: (a) constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof; (b) are not
intended to confer upon any other person any rights or remedies hereunder; and
(c) shall not be assigned by operation of law or otherwise except as otherwise
specifically provided, except that Parent and Sub may assign their respective
rights and delegate their respective obligations hereunder to their respective
affiliates. This Agreement is binding upon and will inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
9.5 Severability. In the event that any provision of this Agreement or
------------
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
9.8 Further Assurances. Each party agrees to cooperate fully with the
------------------
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
9.9 Absence of Third Party Beneficiary Rights. No provision of this
-----------------------------------------
Agreement is intended, nor will be interpreted, to provide to create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, employee, partner of any party hereto or any
other person or entity.
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<PAGE>
9.10 Mutual Drafting. This Agreement is the joint product of the parties
---------------
hereto, and each provision hereof has been subject to the mutual consultation,
negotiation and agreement of each of the parties, and shall not be construed for
or against any party hereto.
9.11 Further Representations. Each party to this Agreement acknowledges and
-----------------------
represents that it has been represented by its own legal counsel in connection
with the transactions contemplated by this Agreement, with the opportunity to
seek advice as to its legal rights from such counsel. Each party further
represents that it is being independently advised as to the tax consequences of
the transactions contemplated by this Agreement and is not relying on any
representation or statements made by the other party as to such tax
consequences. The Company also represents that it has communicated the above to
its Shareholders.
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<PAGE>
IN WITNESS WHEREOF, Parent, Sub, the Company and the Principal Shareholders
have entered into this Agreement as of the date first written above.
NUMERICAL TECHNOLOGIES, INC. TRANSCRIPTION ENTERPRISES LIMITED
By: /s/ Yagyensh C. Pati By: /s/ Roger Sturgeon
---------------------------- ----------------------------------------
Name: Yagyensh C. Pati Name: Roger Sturgeon
-------------------------- --------------------------------------
Title: CEO & President Title: President
------------------------- -------------------------------------
PRINCIPAL SHAREHOLDERS TRANSCRIPTION ENTERPRISES, INC.
/s/ Roger Sturgeon By: /s/ Yagyensh C. Pati
- -------------------------------- ----------------------------------------
Roger Sturgeon
/s/ Kevin MacLean Name: Yagyensh C. Pati
- -------------------------------- --------------------------------------
Kevin MacLean
Title: President & Secretary
-------------------------------------
[Signature page to Reorganization Agreement]
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<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
NUMERICAL TECHNOLOGIES, INC.
I.
The name of this corporation is Numerical Technologies, Inc. (the
"Corporation").
II.
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801.
The name of its registered agent at such address is The Corporation Trust
Company.
III.
The purpose of this Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
IV.
The Corporation is authorized to issue two classes of shares to be
designated respectively Common Stock, par value $0.0001 per share (the "Common
Stock"), and Preferred Stock, par value $0.0001 per share (the "Preferred
Stock"). The total number of shares of Common Stock the Corporation shall have
authority to issue is 20,000,000. The total number of shares of Preferred Stock
the Corporation shall have authority to issue is 8,168,820: 1,500,005 of which
shares shall be designated Series A Preferred Stock ("Series A Preferred"),
700,000 of which shares shall be designated Series B Preferred Stock ("Series B
Preferred"), 1,730,061 of which shares shall be designated Series C Preferred
Stock ("Series C Preferred"), 1,698,754 of which shares shall be designated
Series D Preferred Stock ("Series D Preferred") and 2,540,000 of which shares
shall be designated Series E Preferred Stock ("Series E Preferred").
Upon the automatic conversion of all outstanding shares of Preferred Stock
in accordance with the provisions of Article IV, Section 4(b) of this
Certificate of Incorporation (the "Automatic Conversion Event"), the Company
shall immediately thereafter be authorized to issue two classes of stock to be
designated, respectively, Common Stock, par value $0.0001 per share, and
Preferred Stock, par value $0.0001 per share. After the Automatic Conversion
Event, the total number of shares of Common Stock the Corporation shall have
authority to issue shall be 100,000,000, and the total number of shares of
Preferred Stock the Company shall have the authority to issue shall be
5,000,000. After the Automatic Conversion Event, the Preferred Stock may be
issued from time to time in one or more series pursuant to a resolution or
resolutions providing for such issue duly adopted by the Board of Directors
(authority to do so being hereby expressly vested in the Board of
<PAGE>
Directors). With respect to such series, the Board of Directors is authorized
(i) to determine the number of shares of any such series and the designation
thereof, (ii) to determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of Preferred
Stock and (iii) within the limits and restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number of shares
constituting any series, to increase (but not above the total number of
authorized shares of the class) or decrease (but not below the number of shares
of such series then outstanding) the number of shares of any such series
subsequent to the issue of shares of that series.
Immediately following any Automatic Conversion Event, the Board of
Directors is authorized, without the further consent or approval of the
stockholders of the Company to amend and restate this Certificate of
Incorporation to show the authorized classes of capital stock as set forth in
the preceding paragraph and to eliminate all references in this Certificate of
Incorporation to the rights, preferences, privileges and restrictions of the
series of Preferred Stock converted to Common Stock (and, in connection with any
such amendment and restatement, to renumber the remaining Articles).
The Corporation shall from time to time in accordance with the laws of the
State of Delaware increase the authorized amount of its Common Stock if at any
time the number of shares of Common Stock remaining unissued and available for
issuance shall not be sufficient to permit conversion of the Preferred Stock.
The relative rights, preferences, privileges and restrictions granted to or
imposed on the respective classes of the shares of capital stock or the holders
thereof are as follows:
1. Dividends. The holders of shares of Series A Preferred, Series B
---------
Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall
be entitled to receive dividends, when and as declared by the Board of
Directors, out of funds legally available therefor, payable in preference and
priority to any payment of any dividend on Common Stock of the Corporation, at
the rate of $0.03, $0.10, $0.49, $0.71 and $1.28 per share (adjusted for any
recapitalizations, stock combinations, stock dividends, stock splits and the
like with respect to such shares ("Recapitalizations")) per annum, respectively.
The right to such dividends on the Series A Preferred, the Series B Preferred,
the Series C Preferred, the Series D Preferred and the Series E Preferred shall
not be cumulative. No dividend shall be paid on the Common Stock in any year,
other than dividends payable solely in Common Stock, until all dividends for
such year have been declared and paid on the Series A Preferred, the Series B
Preferred, the Series C Preferred, the Series D Preferred and the Series E
Preferred, and then such dividends on the Common Stock shall not be in excess of
the dividends paid on the Series A Preferred, the Series B Preferred, the Series
C Preferred, the Series D Preferred and the Series E Preferred unless the amount
of such excess is also paid on the Series A Preferred, the Series B Preferred,
the Series C Preferred, the Series D Preferred and the Series E Preferred on an
as-converted per share basis.
2. Liquidation Preferences. In the event of any liquidation,
-----------------------
dissolution or winding up of the Corporation, either voluntary or involuntary,
distributions to the stockholders of the Corporation shall be made in the
following manner:
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<PAGE>
(a) Series E Liquidation Preference. The holders of Series E
-------------------------------
Preferred shall be entitled to receive an amount equal to the sum of $16.00
(subject to adjustment for Recapitalizations) for each outstanding share of
Series E Preferred plus an amount equal to all declared but unpaid dividends on
such share as of the date fixed for distribution (the "Series E Liquidation
Preference").
(1) The Series E Liquidation Preference to be paid to the
holders of the Series E Preferred under this Section 2(a) shall be paid or set
apart for payment before the payment or setting apart for payment of any amount
for, or the distribution of any assets of the Corporation to, the holders of the
Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D
Preferred and the holders of the Common Stock in connection with any such
liquidation, dissolution or winding up.
(2) If the assets and funds distributed to the holders of
the Series E Preferred shall be insufficient to permit payment to such holders
of the full aforesaid preferential amounts, then the entire assets or property
of the Corporation legally available for distribution shall be distributed
ratably to the holders of the Series E Preferred in such a manner that the
preferential amount to be distributed to each such holder shall equal the amount
obtained by multiplying the entire assets and funds of the Corporation legally
available for distribution hereunder by a fraction, the numerator of which shall
be the number of shares of Series E Preferred then held by such holder, and the
denominator of which shall be the total number of shares of Series E Preferred
then outstanding.
(b) Distribution After Payment of Series E Liquidation
--------------------------------------------------
Preference. After payment has been made to the holders of the Series E
- ----------
Preferred of the Series E Liquidation Preference, the holders of Series D
Preferred shall be entitled to receive an amount equal to the sum of $8.83
(subject to adjustment for stock splits, stock dividends and recapitalizations)
for each outstanding share of Series D Preferred plus an amount equal to all
declared but unpaid dividends on such share as of the date fixed for
distribution (the "Series D Liquidation Preference").
(1) The Series D Liquidation Preference to be paid to the
holders of the Series D Preferred under this Section 2(b) shall be paid or set
apart for payment before the payment or setting apart for payment of any amount
for, or the distribution of any assets of the Corporation to, the holders of the
Series A Preferred, the Series B Preferred, the Series C Preferred and the
holders of the Common Stock in connection with any such liquidation, dissolution
or winding up.
(2) If the assets and funds distributed to the holders of
the Series D Preferred shall be insufficient to permit payment to such holders
of the full aforesaid preferential amounts, then the entire assets or property
of the Corporation legally available for distribution (following payment to the
holders of the Series E Preferred of the Series E Liquidation Preference) shall
be distributed ratably to the holders of the Series D Preferred in such a manner
that the preferential amount to be distributed to each such holder shall equal
the amount obtained by multiplying the entire assets and funds of the
Corporation legally available for distribution hereunder by a fraction, the
numerator of which shall be the number of shares of Series D Preferred then held
-3-
<PAGE>
by such holder, and the denominator of which shall be the total number of shares
of Series D Preferred then outstanding.
(c) Distribution After Payment of Series E and Series D
---------------------------------------------------
Liquidation Preference. After payment has been made to the holders of the
- ----------------------
Series E Preferred and the Series D Preferred of the full preferential amounts
as set forth in Sections 2(a) and 2(b) above, the holders of Series C Preferred
shall be entitled to receive an amount equal to the sum of $4.89 (subject to
adjustment for stock splits, stock dividends and recapitalizations) for each
outstanding share of Series C Preferred plus an amount equal to all declared but
unpaid dividends on such share as of the date fixed for distribution (the
"Series C Liquidation Preference").
(1) The Series C Liquidation Preference to be paid to the
holders of the Series C Preferred under this Section 2(c) shall be paid or set
apart for payment before the payment or setting apart for payment of any amount
for, or the distribution of any assets of the Corporation to, the holders of the
Series A Preferred, the Series B Preferred and the holders of the Common Stock
in connection with any such liquidation, dissolution or winding up.
(2) If the assets and funds distributed to the holders of
the Series C Preferred shall be insufficient to permit payment to such holders
of the full aforesaid preferential amounts, then the entire assets or property
of the Corporation legally available for distribution (following payment to the
holders of Series E Preferred and the Series D Preferred of the Series E
Liquidation Preference and the Series D Liquidation Preference, respectively)
shall be distributed ratably to the holders of the Series C Preferred in such a
manner that the preferential amount to be distributed to each such holder shall
equal the amount obtained by multiplying the entire assets and funds of the
Corporation legally available for distribution hereunder by a fraction, the
numerator of which shall be the number of shares of Series C Preferred then held
by such holder, and the denominator of which shall be the total number of shares
of Series C Preferred then outstanding.
(d) Distribution after Payment of Series E, Series D and Series
-----------------------------------------------------------
C Liquidation Preference. After payment has been made to the holders of the
- ------------------------
Series E Preferred, the Series D Preferred and the Series C Preferred of the
full preferential amounts as set forth in Sections 2(a), 2(b) and 2(c) above,
(i) the holders of Series A Preferred shall be entitled to receive an amount
equal to the sum of $0.36 (subject to adjustment for stock splits, stock
dividends and recapitalizations) for each outstanding share of Series A
Preferred plus an amount equal to all declared but unpaid dividends on such
share as of the date fixed for distribution (the "Series A Liquidation
Preference") and (ii) the holders of Series B Preferred shall be entitled to
receive an amount equal to the sum of $1.00 (subject to adjustment for stock
splits, stock dividends and recapitalizations) for each outstanding share of
Series B Preferred plus an amount equal to all declared but unpaid dividends on
such share as of the date fixed for distribution (the "Series B Liquidation
Preference"). The Series A Preferred and Series B Preferred shall rank on parity
as to the receipt of the respective preferential amounts for each such series.
(1) All of the preferential amounts to be paid to the
holders of the Series A Preferred and the Series B Preferred under this Section
2(d) shall be paid or set apart for payment before the payment or setting apart
for payment of any amount for, or the distribution of
-4-
<PAGE>
any assets of the Corporation to, the holders of Common Stock in connection with
any such liquidation, dissolution or winding up.
(2) If the assets and funds distributed to the holders of
the Series A Preferred and the Series B Preferred shall be insufficient to
permit payment to such holders of the full aforesaid preferential amounts, then
the entire assets or property of the Corporation legally available for
distribution (following payment to the holders of the Series E Preferred, the
Series D Preferred and the Series C Preferred of the Series E Liquidation
Preference, the Series D Liquidation Preference and the Series C Liquidation
Preference, respectively) shall be distributed ratably to the holders of the
Series A Preferred and the Series B Preferred in proportion to the aggregate
Series A Liquidation Preference and Series B Liquidation Preference in such a
manner that the preferential amount to be distributed to each such holder shall
equal the amount obtained by multiplying the entire assets and funds of the
Corporation legally available for distribution hereunder by a fraction, the
numerator of which shall be the sum of the number of shares of Series A
Preferred then held by such holder times the Series A Liquidation Preference
plus the number of shares of Series B Preferred then held by such holder times
the Series B Liquidation Preference, and the denominator of which shall be the
sum of the total number of shares of Series A Preferred then outstanding times
the Series A Liquidation Preference plus the total number of shares of Series B
Preferred then outstanding times the Series B Liquidation Preference.
(e) Distribution after Payment of Series E, Series D, Series C,
----------------------------------------------------------
Series B and Series A Liquidation Preferences. After payment has been made to
- ---------------------------------------------
the holders of the Series E Preferred, the Series D Preferred, the Series C
Preferred, the Series B Preferred and the Series A Preferred of the full
preferential amounts as set forth in Sections 2(a), 2(b), 2(c) and 2(d) above,
the entire remaining assets and funds of the Corporation legally available for
distribution, if any, shall be distributed ratably and solely to the holders of
the Common Stock.
(f) For purposes of this Section 2, a merger or consolidation of
the Corporation with or into any other entity, or the merger of any other entity
into the Corporation, or the sale of all or substantially all of the assets of
the Corporation, or any other corporate reorganization, in which consolidation,
merger, sale of assets or reorganization ("Change of Control") the stockholders
of the Corporation receive distributions in cash or securities of another entity
as a result of such consolidation, merger, sale of assets or reorganization,
shall be treated as a liquidation, dissolution or winding up of the Corporation
unless the stockholders of this Corporation hold more than fifty percent (50%)
of the voting equity securities of the successor or surviving entity immediately
following such consolidation, merger, sale of assets or reorganization, in which
case such consolidation, merger, sale of assets or reorganization shall not be
treated as a liquidation, dissolution or winding up.
(g) Consent. Each holder of an outstanding share of Preferred
-------
Stock shall be deemed to have consented, for purposes of Sections 502, 503 and
506 of the General Corporation Law of the State of California, to distributions
made by the Corporation in connection with the repurchase of shares of Common
Stock issued to or held by employees or consultants upon termination of their
employment or services pursuant to agreements between the Corporation and such
persons providing for the Corporation's right of said repurchase.
-5-
<PAGE>
3. Voting Rights.
-------------
(a) Except as otherwise required by law or by this Certificate
of Incorporation, the holder of each share of Common Stock issued and
outstanding shall have one vote and the holder of each share of Preferred Stock
shall be entitled to the number of votes equal to the number of shares of Common
Stock into which such share of Preferred Stock could be converted at the record
date for determination of the stockholders entitled to vote on such matters, or,
if no such record date is established, at the date such vote is taken or any
written consent of stockholders is solicited, such votes to be counted together
with all other shares of stock of the Corporation having general voting power
and not separately as a class. Holders of Common Stock and Preferred Stock shall
be entitled to notice of any stockholders' meeting in accordance with the Bylaws
of the Corporation. Fractional votes by the holders of Preferred Stock shall
not, however, be permitted and any fractional voting rights shall (after
aggregating all shares into which shares of Preferred Stock held by each holder
could be converted) be rounded to the nearest whole number.
(b) The holders of the Preferred and Common Stock shall vote for
the Corporation's Board of Directors as follows: (i) one (1) member elected by
the holders of the shares of Series E Preferred, and (ii) the remaining members
elected by the holders of the Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Common Stock, voting together as a class. Any
director designated under this Section 3(b) may be removed from the Board only
at the written request of the holders which designated such director in
accordance with this Section 3(b). In the event of the death, resignation,
removal or inability to serve of any designees, the resulting vacancy on the
Board shall be filled by an individual designated by the holders who designated
the vacating director.
4. Conversion. The holders of Preferred Stock have conversion
----------
rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Corporation or any transfer agent
for the Preferred Stock. Each share of Series A Preferred shall be convertible
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $0.36 by the Series A Conversion Price, determined as
hereinafter provided, in effect at the time of conversion, each share of Series
B Preferred shall be convertible into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing $1.00 by the
Series B Conversion Price, determined as hereinafter provided, in effect at the
time of conversion, each share of Series C Preferred shall be convertible into
such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $4.89 by the Series C Conversion Price, determined as
hereinafter provided, in effect at the time of conversion, each share of Series
D Preferred shall be convertible into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing $8.83 by the
Series D Conversion Price, determined as hereinafter provided, in effect at the
time of conversion, and each share of Series E Preferred shall be convertible
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $16.00 by the Series E Conversion Price, determined as
hereinafter provided, in effect at the time of conversion. The price at which
shares of Common Stock shall be deliverable upon conversion of shares of each
Series of Preferred Stock shall initially be $0.36 with respect to
-6-
<PAGE>
each share of Series A Preferred (the "Series A Conversion Price"), $1.00 with
respect to each share of Series B Preferred (the "Series B Conversion Price"),
$4.89 with respect to each share of Series C Preferred (the "Series C Conversion
Price"), $8.83 with respect to each share of Series D Preferred (the "Series D
Conversion Price"), and $16.00 with respect each share of Series E Preferred
(the "Series E Conversion Price"). The term "Conversion Price" shall refer to
the Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price, the Series D Conversion Price and the Series E Conversion
Price, as applicable, and shall be subject to adjustment as hereinafter
provided.
(b) Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at the then effective
Conversion Price for such series upon the earlier of (i) the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement on Form S-1 or any successor form under the Securities Act of 1933, as
amended, covering the offer and sale of the Common Stock for the account of the
Corporation to the public at a price per share (prior to underwriter commissions
and offering expenses) (the "IPO Price") of not less than $16.00 per share
(appropriately adjusted for any Recapitalizations) and an aggregate offering
price to the public of not less than $15,000,000, or (ii) (x) with respect to
shares of Series A Preferred, Series B Preferred, Series C Preferred and Series
D Preferred, at the election of holders of at least a majority of the
outstanding shares of Series A Preferred, Series B Preferred, Series C Preferred
and Series D Preferred, voting together as a class and (y) with respect to
shares of Series E Preferred, at the election of holders of at least a majority
of the outstanding shares of Series E Preferred, voting as a class. In the event
of the automatic conversion of the Preferred Stock upon a public offering as
aforesaid, the person(s) entitled to receive the Common Stock issuable upon such
conversion of Preferred Stock shall not be deemed to have converted such
Preferred Stock until immediately prior to the closing of such sale of
securities.
(c) Mechanics of Conversion. No fractional shares of Common
-----------------------
Stock shall be issued upon conversion of Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price. Before any holder of Preferred Stock shall be
entitled to convert the same into full shares of Common Stock and to receive
certificates therefor, the holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Preferred Stock, and shall give written notice to the
Corporation at such office that the holder elects to convert the same; provided,
however, that in the event of an automatic conversion pursuant to Section 4(b),
the outstanding shares of Preferred Stock shall be converted automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent and provided further, that the Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon such
automatic conversion unless the certificates evidencing such shares of Preferred
Stock are either delivered to the Corporation or its transfer agent as provided
above, or the holder notifies the Corporation or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates. The Corporation shall, as
soon as practicable after such delivery, or such agreement and indemnification
in the case of a lost certificate, issue and deliver at such office to such
holder of Preferred Stock, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be
-7-
<PAGE>
entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of
Common Stock. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, or in the case of automatic conversion then on
the date of closing of the offering, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.
(d) (1) Adjustment of Series A Conversion Price, Series B
-------------------------------------------------
Conversion Price, Series C Conversion Price, Series D Conversion Price and
- --------------------------------------------------------------------------
Series E Conversion Price. The Series A Conversion Price, the Series B
- -------------------------
Conversation Price, the Series C Conversion Price, the Series D Conversion Price
and the Series E Conversion Price shall be subject to adjustment from time to
time as follows:
(i) Adjustments for Subdivisions, Combinations or
---------------------------------------------
Consolidation of Common Stock. In the event the outstanding shares of Common
- -----------------------------
Stock shall be subdivided by stock split, stock dividends or otherwise, into a
greater number of shares of Common Stock, the Series A Conversion Price, the
Series B Conversion Price, the Series C Conversion Price, the Series D
Conversion Price and the Series E Conversion Price then in effect shall,
concurrently with the effectiveness of such subdivision, be proportionately
decreased. In the event the outstanding shares of Common Stock shall be combined
or consolidated, by reclassification or otherwise, into a lesser number of
shares of Common Stock, the Series A Conversion Price, the Series B Conversion
Price, the Series C Conversion Price, the Series D Conversion Price and the
Series E Conversion Price then in effect shall, concurrently with the
effectiveness of such combination or consolidation, be proportionately
increased.
(ii) Adjustments for Stock Dividends and Other
-----------------------------------------
Distributions. In the event the Corporation at any time or from time to time
- -------------
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive any distribution (excluding any repurchases of securities by
the Corporation not made on a pro rata basis from all holders of any class of
the Corporation's securities) payable in property or in securities of the
Corporation other than shares of Common Stock, and other than as otherwise
adjusted in this Section 4 or as provided in Section 1, then and in each such
event the holders of Preferred Stock shall receive at the time of such
distribution, the amount of property or the number of securities of the
Corporation that they would have received had their Preferred Stock been
converted into Common Stock on the date of such event.
(iii) Adjustments for Reclassification, Exchange and
----------------------------------------------
Substitution. Except as provided in Section 2 upon any liquidation,
- ------------
dissolution or winding up of the Corporation, if the Common Stock issuable upon
conversion of the Preferred Stock shall be changed into the same or a different
number of shares of any other class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a subdivision or
combination of shares provided for above), each share of Preferred Stock shall
thereafter be convertible into the number of shares of stock or other securities
or property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such share of Preferred Stock shall
have been entitled upon such reorganization or reclassification.
-8-
<PAGE>
(2) Adjustments of Conversion Price for Diluting Issues.
---------------------------------------------------
In addition to the adjustment of the Series A Conversion Price, the Series B
Conversion Price, the Series C Conversion Price, the Series D Conversion Price
and the Series E Conversion Price provided in Section 4(d)(1) above, the Series
A Conversion Price, the Series B Conversion Price, the Series C Conversion
Price, the Series D Conversion Price and the Series E Conversion Price shall be
subject to further adjustment from time to time as follows:
(i) Special Definitions. For purposes of this
-------------------
Section 4(d)(2), the following definitions shall apply:
(1) Options shall mean rights, options or
-------
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) Original Issue Date shall mean the date on
-------------------
which the first share of Series E Preferred was first issued.
(3) Convertible Securities shall mean securities
----------------------
convertible into or exchangeable for Common Stock.
(4) Additional Shares of Common Stock shall mean
---------------------------------
all shares of Common Stock issued (or, pursuant to Section 4(d)(2)(iii), deemed
to be issued) by the Corporation after the Original Issue Date other than shares
----------
of Common Stock issued (or, pursuant to Section 4(d)(2)(iii), deemed to be
issued):
(A) upon conversion of shares of the
Preferred Stock;
(B) to officers, directors and employees of,
and consultants to, the Corporation pursuant to plans and arrangements approved
by the Board of Directors, which shares shall not exceed, at any time, 20% of
the shares of capital stock of the Corporation outstanding as of such time on a
fully diluted basis; provided, however, that such percentage may be increased to
-------- -------
an amount as approved by the holders of two-thirds of the outstanding shares of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
and Series E Preferred, voting together as one class, pursuant to Article III,
Section 6(a)(iv).
(C) as a dividend or other distribution on
the Preferred Stock or pursuant to clause (i), (ii) or (iii) of Section 4(d)(1);
(D) upon the exercise (in whole or in part)
of warrants to purchase an aggregate of 100,000 shares of Series C Preferred
Stock (as adjusted for Recapitalizations);
(E) in connection with a merger or
acquisition of the Corporation or in connection with a strategic partnership;
-9-
<PAGE>
(F) in a public offering pursuant to an
effective registration statement on Form S-1 or any successor form under the
Securities Act of 1933, as amended, or with respect to any issuance of Common
Stock thereafter; or
(G) by way of dividend or other
distributions on securities referred to in clauses (A), (B), (C), (D), (E) and
(F) above.
(ii) No Adjustment of Conversion Price. No
---------------------------------
adjustment in the Series A Conversion Price, the Series B Conversion Price, the
Series C Conversion Price, the Series D Conversion Price or the Series E
Conversion Price of a particular share of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred or Series E Preferred, as the
case may be, shall be made in respect of the issuance of Additional Shares of
Common Stock unless the consideration per share for an Additional Share of
Common Stock issued or deemed to be issued by the Corporation is less than the
Series A Conversion Price, Series B Conversion Price, Series C Conversion Price,
Series D Conversion Price or Series E Conversion Price, as the case may be, in
effect on the date of, and immediately prior to such issue.
(iii) Deemed Issue of Additional Shares of Common
-------------------------------------------
Stock.
- -----
(1) Options and Convertible Securities. Except
----------------------------------
as otherwise provided in Section 4(d)(2)(i)(4)(A) - (G) and 4(d)(2)(ii), in the
event the Corporation at any time or from time to time after the Original Issue
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of any holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the maximum number of
shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that in
any such case in which additional shares of Common Stock are deemed to be
issued:
(A) no further adjustment in the Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(B) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase or decrease in the consideration payable to the Corporation, or
increase or decrease in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
-10-
<PAGE>
(C) upon the expiration of any such Options
or any rights of conversion or exchange under such Convertible Securities which
shall not have been exercised, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon such expiration, be
recomputed as if:
(I) in the case of Convertible
Securities or Options for Common Stock, the only additional shares of Common
Stock issued were shares of Common Stock, if any, actually issued upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities, and the consideration received therefor was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration actually received by the Corporation
upon such exercise, or for the issue of all such Convertible Securities which
were actually converted or exchanged, plus the additional consideration, if any,
actually received by the Corporation upon such conversion or exchange, and
(II) in the case of Options for
Convertible Securities, only the Convertible Securities, if any, actually issued
upon the exercise thereof were issued at the time of issue of such Options and
the consideration received by the Corporation for the Additional Shares of
Common Stock deemed to have been then issued was the consideration actually
received by the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration deemed to have been received by the
Corporation upon the issue of the Convertible Securities with respect to which
such Options were actually exercised;
(D) no readjustment pursuant to clause (B)
or (C) above shall have the effect of increasing the Conversion Price to an
amount which exceeds the lower of (i) the Conversion Price on the original
adjustment date, or (ii) the Conversion Price that would have resulted from any
issuance of Additional Shares of Common Stock between the original adjustment
date and such readjustment date; and
(E) in the case of any Options which expire
by their terms not more than thirty (30) days after the date of issue thereof,
no adjustment of the Conversion Price shall be made until the expiration or
exercise of all such Options.
(iv) Adjustment of Conversion Price Upon Issuance of
-----------------------------------------------
Additional Shares of Common Stock. In the event the Corporation shall issue
- ---------------------------------
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 4(d)(2)(iii)) without consideration or
for a consideration per share less than the Series A Conversion Price, the
Series B Conversion Price, the Series C Conversion Price, the Series D
Conversion Price or the Series E Conversion Price, in effect on the date of, and
immediately prior to such issue, then and in such event, such Series A
Conversion Price, such Series B Conversion Price, such Series C Conversion
Price, such Series D Conversion Price or such Series E Conversion Price, as the
case may be, shall be reduced, concurrently with such issue: (i) with respect to
the Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price and the Series D Conversion Price, to a price (calculated to
the nearest cent) determined by multiplying such Series A Conversion Price, such
Series B Conversion Price, such Series C Conversion Price or such Series D
-11-
<PAGE>
Conversion Price, as the case may be, by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at the Series A Conversion
Price, the Series B Conversion Price, the Series C Conversion Price or the
Series D Conversion Price, as the case may be; and the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of such Additional Shares of Common Stock so issued;
and provided further that, for the purposes of this Section 4(d)(2)(iv), all
-------- -------
shares of Common Stock issuable upon exercise of outstanding Options or
conversion of outstanding Convertible Securities shall be deemed to be
outstanding, and immediately after any Additional Shares of Common Stock are
deemed issued pursuant to Section 4(d)(2)(iii), such Additional Shares of Common
Stock shall be deemed to be outstanding; and (ii) with respect to the Series E
Conversion Price, to a price (calculated to the nearest cent) equal to the price
paid per share for such Additional Shares of Common Stock, provided however
-------- -------
than in no event shall the Series E Conversion Price be lower than $12.00 per
share (appropriately adjusted for any Recapitalizations).
(v) Determination of Consideration. For purposes of
------------------------------
this Section 4(d)(2), the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property: Such consideration shall:
-----------------
(A) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation prior to
amounts paid or payable for accrued interest or accrued dividends and prior to
any commissions or expenses paid by the Corporation;
(B) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
----------------------------------
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 4(d)(2)(iii)(1),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
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<PAGE>
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(e) No Impairment. Except as provided in Section 6, the Corporation
-------------
will not, by amendment of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price, Series D Conversion Price or Series E
Conversion Price pursuant to this Section 4, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each holder of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred or Series E Preferred, as the
case may be, a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
or Series E Preferred, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Series A Conversion Price, Series B Conversion Price, Series C Conversion Price,
Series D Conversion Price or Series E Conversion Price, as the case may be, at
the time in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon the
conversion of Series A Preferred, Series B Preferred, Series C Preferred, Series
D Preferred or Series E Preferred, as the case may be.
(g) Notices of Record Date. In the event that the Corporation shall
----------------------
propose at any time:
(i) to declare any dividend or distribution upon its Common
Stock, whether in cash, property, stock or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any class or
series or other rights;
-13-
<PAGE>
(iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge or consolidate with or into any other Corporation,
or sell, lease or convey all or substantially all its property or business, or
to liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
holders of Preferred Stock:
(1) at least 20 days' prior written notice of the date on
which a record shall be taken for such dividend, distribution or subscription
rights (and specifying the date on which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote in respect of the matters
referred to in (i) and (ii) above; and
(2) in the case of the matters referred to in (iii) and
(iv) above, at least 20 days' prior written notice of the date when the same
shall take place (and specifying the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event).
Each such written notice shall be delivered personally or given by first
class mail, postage prepaid, addressed to the holders of the Preferred Stock at
the address for each such holder as shown on the books of the Corporation.
Notwithstanding any provision to the contrary, any notices required by this
Section 4(g) may be waived by the holders of a majority of the outstanding
shares of Preferred Stock.
5. Status of Converted Stock. In case any shares of Preferred Stock
-------------------------
shall be repurchased or converted pursuant to Section 4, the shares so
repurchased or converted shall be cancelled and shall not be issued by the
Corporation and this Certificate of Incorporation shall be appropriately amended
to effect the corresponding reduction in the Corporation's authorized Preferred
Stock.
6. Covenants.
---------
(a) Amendment by Two-Thirds Vote of Series A Preferred, Series B
------------------------------------------------------------
Preferred, Series C Preferred, Series D Preferred and Series E Preferred. In
- ------------------------------------------------------------------------
addition to any other rights provided by law, so long as at least twenty-five
percent (25%) of the authorized Preferred Stock as of the date of this
Certificate of Incorporation shall be outstanding, the Corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of not less than two-thirds of the outstanding shares of Preferred Stock voting
together as a single class:
(i) enter into or approve, or permit any subsidiary of the
Corporation to enter into, any agreement providing for the acquisition of any
business through purchase of assets, purchase of stock, licensing arrangement,
or otherwise;
-14-
<PAGE>
(ii) enter into an agreement providing for the merger or
consolidation with, or the sale of substantially all of the Corporation's assets
to, any other person or entity, unless the stockholders of the Corporation would
hold more than fifty percent (50%) of the voting equity securities of the
surviving corporation immediately following such merger or consolidation (a
"Change of Control Acquisition Agreement");
(iii) declare or pay any dividend or other distribution on any
shares of capital stock or purchase, redeem or otherwise acquire any shares of
the Corporation; provided, however, that this provision shall not apply with
respect to repurchases by the Corporation of shares of Common Stock or Preferred
Stock issued to or held by employees, officers, directors or consultants of the
Corporation or its subsidiaries upon termination of their employment or services
pursuant to agreements providing for the right of said repurchase; or
(iv) revise Article III, Section 4(d)(2)(i)(4)(B) to increase
the percentage stated therein.
(b) Amendment by Two-Thirds Vote of Series A Preferred and Series B
---------------------------------------------------------------
Preferred. In addition to any other rights provided by law, so long as at least
- ---------
twenty-five percent (25%) of the authorized Series A Preferred and Series B
Preferred as of the date of this Certificate of Incorporation shall be
outstanding, the Corporation shall not, without first obtaining the affirmative
vote or written consent of the holders of not less than two-thirds of the
outstanding shares of the Series A Preferred and the Series B Preferred, voting
together as a single class:
(i) authorize or issue shares of any class or series of stock
(or reclassify any shares of the Corporation into shares of stock) having any
preference or priority as to dividends, liquidation rights or assets superior to
any such preference or priority of the Series A Preferred and the Series B
Preferred; or
(ii) amend or repeal any provision of the Corporation's
Certificate of Incorporation if such action would materially and adversely alter
or change the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of, the Series A Preferred and Series B Preferred.
(c) Amendment by Majority Vote of Series C Preferred. In addition to
------------------------------------------------
any other rights provided by law, so long as at least twenty-five percent (25%)
of the authorized Series C Preferred as of the date of this Certificate of
Incorporation shall be outstanding, the Corporation shall not, without first
obtaining the affirmative vote or written consent of the holders of not less
than a majority of the outstanding shares of Series C Preferred:
(i) authorize or issue shares of any class or series of stock
(or reclassify any shares of the Corporation into shares of stock) having any
preference or priority as to dividends, liquidation rights or assets on parity
with or superior to any such preference or priority of the Series C Preferred;
or
(ii) amend or repeal any provision of the Corporation's
Certificate of Incorporation or Bylaws if such action would materially and
adversely alter or change the
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<PAGE>
preferences, rights, privileges or powers of, or the restrictions provided for
the benefit of, the Series C Preferred.
(d) Amendment by Two-Thirds Vote of Series D Preferred. In addition
--------------------------------------------------
to any other rights provided by law, so long as at least twenty-five percent
(25%) of the authorized Series D Preferred as of the date of this Certificate of
Incorporation shall be outstanding, the Corporation shall not, without first
obtaining the affirmative vote or written consent of the holders of not less
than two-thirds of the outstanding shares of Series D Preferred:
(i) amend or repeal any provision of the Corporation's
Certificate of Incorporation if such action would materially and adversely alter
or change the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of, the Series D Preferred;
(ii) authorize or issue shares of any class or series of stock
(or reclassify any shares of the Corporation into shares of stock) having any
preference or priority as to dividends, liquidation rights or assets on parity
with or superior to any such preference or priority of the Series D Preferred;
or
(iii) enter into a Change of Control Acquisition Agreement
pursuant to which the stockholders of the Corporation will receive consideration
in an amount valued less than $12.50 per share of Common Stock (appropriately
adjusted for any recapitalizations, stock splits, stock combinations, stock
dividends and the like).
(e) Amendment by Majority Vote of Series E Preferred. In addition to
------------------------------------------------
any other rights provided by law, so long as at least twenty-five percent (25%)
of the authorized Series E Preferred as of the date of this Certificate of
Incorporation shall be outstanding, the Corporation shall not, without first
obtaining the affirmative vote or written consent of the holders of not less
than a majority of the outstanding shares of Series E Preferred:
(i) amend or repeal any provision of the Corporation's
Certificate of Incorporation if such action would materially and adversely alter
or change the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of, the Series E Preferred;
(ii) authorize or issue shares of any class or series of stock
(or reclassify any shares of the Corporation into shares of stock) having any
preference or priority as to dividends, liquidation rights or assets on parity
with or superior to any such preference or priority of the Series E Preferred;
or
(iii) enter into a Change of Control Acquisition Agreement
pursuant to which the holders of Series E Preferred, or if no shares of Series E
Preferred are outstanding, the stockholders of the Corporation, will receive
consideration in an amount valued less than (1) $16.00 per share of Common Stock
with respect to an agreement entered prior to January 1, 2001, (2) $18.00 per
share of Common Stock with respect to an agreement entered into after January 1,
2001 and prior to January 1, 2002, (3) $19.00 per share of Common Stock with
respect to an agreement entered into after January 1, 2002 and prior to January
1, 2003, and (4) $20.00 per share of Common
-16-
<PAGE>
Stock with respect to an agreement entered into after January 1, 2003 (each
appropriately adjusted for any Recapitalizations).
(iv) amend or waive the application of Section 4(b)(i) such that
the automatic conversion of Series E Preferred occurs at an IPO Price of less
than $16.00 per share (as adjusted for any Recapitalizations).
V.
To the fullest extent permitted by the General Corporation Law of the State
of Delaware as the same exists or may hereafter be amended, no director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director.
Neither any amendment, modification nor repeal of this Article, nor the
adoption of any provision of this Certificate of Incorporation inconsistent with
this Article, shall eliminate, reduce or adversely affect, any right or
protection of a director of the Corporation existing hereunder with respect to
any act or omission occurring prior to such amendment, modification, repeal or
adoption of an inconsistent provision.
VI.
Effective upon the closing of a firm commitment underwritten public
offering of Common Stock of the Corporation, no action that is required or
permitted to be taken by the stockholders of the Corporation at any annual or
special meeting of stockholders may be effected by written consent of
stockholders in lieu of a meeting of stockholders.
VII.
Effective upon the closing of a firm commitment underwritten public
offering of Common Stock of the Corporation, no stockholder will be permitted to
cumulate votes at any election of directors.
VIII.
Notwithstanding the foregoing, effective upon the closing of a firm
commitment underwritten public offering of Common Stock of the corporation, the
Board of Directors shall be divided into three classes, the members of each
class to serve for a term of three years; provided that the directors shall be
elected as follows: at the first annual meeting of the stockholders held
following the closing of a firm commitment underwritten public offering of
Common Stock of the corporation, the directors in the first class shall be
elected for a term of three years, at the second annual meeting following such
date, the directors in the second class shall be elected for a term of three
years, and at the third annual meeting following such date, the directors in the
third class shall be elected for a term of three years. The Board of Directors
by resolution shall nominate the directors to be elected for each class. At
subsequent annual meetings of stockholders, a number of directors shall be
elected equal to the number of directors with terms expiring at that annual
meeting.
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<PAGE>
Directors elected at each such subsequent annual meeting shall be elected for a
term expiring with the annual meeting of stockholders three years thereafter.
IX.
The Board of Directors of the Corporation is expressly authorized to adopt,
amend or repeal the Bylaws of the Corporation, but the stockholders may make
additional by-laws and may alter or repeal any by-law whether adopted by them or
otherwise.
Notwithstanding any other provision of this Certificate of Incorporation,
the Bylaws of the Corporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of stock of the Corporation required
by law, this Certificate of Incorporation or any Preferred Stock designation,
the affirmative vote of sixty-six and two-thirds percent (66-2/3%) of the voting
power of the then outstanding shares of the voting stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required for the adoption, amendment or repeal of Section
2.2 (Annual Meeting), Section 2.3 (Special Meeting), Section 2.5 (Advance Notice
of Stockholder Nominees and Stockholder Business), Section 3.3 (Election and
Term of Office of Directors) and Section 3.4 (Resignation and Vacancies) of the
Bylaws of the Corporation or of Article VIII or this Article IX.
X.
Elections of directors need not be by written ballot except and to the
extent provided in the Bylaws of the Corporation.
XI.
The Corporation is to have perpetual existence.
XII.
The number of directors which constitute the whole Board of Directors of
the Corporation shall be designated in the Bylaws of the Corporation.
XIII.
Advance notice of new business and stockholder proposals and stockholder
nominations for the election of directors shall be given in the manner and to
the extent provided in the Bylaws of the Corporation.
XIV.
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the laws of the State of Delaware)
outside of the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the Bylaws of the Corporation.
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<PAGE>
XV.
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by the laws of the State of Delaware, and all rights
conferred herein are granted subject to this reservation.
XVI.
The name and mailing address of the incorporator are as follows:
Joan Moses
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94303-1050
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<PAGE>
The undersigned incorporator hereby acknowledges that the above Certificate
of Incorporation of Numerical Technologies, Inc., is her act and deed and that
the facts stated therein are true.
Dated: ____________, 2000
___________________________________
Joan Moses
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<PAGE>
EXHIBIT 3.3
BYLAWS
OF
NUMERICAL TECHNOLOGIES, INC.
(a Delaware corporation)
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I CORPORATE OFFICES............................................ 1
1.1 REGISTERED OFFICE............................................ 1
1.2 OTHER OFFICES................................................ 1
ARTICLE II MEETINGS OF STOCKHOLDERS..................................... 1
2.1 PLACE OF MEETINGS............................................ 1
2.2 ANNUAL MEETING............................................... 1
2.3 SPECIAL MEETING.............................................. 1
2.4 NOTICE OF STOCKHOLDERS' MEETINGS............................. 2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND
STOCKHOLDER BUSINESS......................................... 2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE................. 4
2.7 QUORUM....................................................... 4
2.8 ADJOURNED MEETING; NOTICE.................................... 5
2.9 VOTING....................................................... 5
2.10 WAIVER OF NOTICE............................................. 5
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT
A MEETING.................................................... 6
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING................... 6
2.13 PROXIES...................................................... 7
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE........................ 7
ARTICLE III DIRECTORS.................................................... 8
3.1 POWERS....................................................... 8
3.2 NUMBER OF DIRECTORS.......................................... 8
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS..................... 8
3.4 RESIGNATION AND VACANCIES.................................... 9
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE..................... 9
3.6 REGULAR MEETINGS............................................. 9
3.7 SPECIAL MEETINGS; NOTICE..................................... 9
3.8 QUORUM....................................................... 10
3.9 WAIVER OF NOTICE............................................. 10
3.10 ADJOURNMENT.................................................. 10
3.11 NOTICE OF ADJOURNMENT........................................ 10
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING............ 11
3.13 FEES AND COMPENSATION OF DIRECTORS........................... 11
3.14 APPROVAL OF LOANS TO OFFICERS................................ 11
ARTICLE IV COMMITTEES................................................... 11
4.1 COMMITTEES OF DIRECTORS...................................... 11
4.2 MEETINGS AND ACTION OF COMMITTEES............................ 12
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
4.3 COMMITTEE MINUTES........................................... 12
ARTICLE V OFFICERS.................................................... 13
5.1 OFFICERS.................................................... 13
5.2 ELECTION OF OFFICERS........................................ 13
5.3 SUBORDINATE OFFICERS........................................ 13
5.4 REMOVAL AND RESIGNATION OF OFFICERS......................... 13
5.5 VACANCIES IN OFFICES........................................ 13
5.6 CHAIRMAN OF THE BOARD....................................... 14
5.7 PRESIDENT................................................... 14
5.8 VICE PRESIDENTS............................................. 14
5.9 SECRETARY................................................... 14
5.10 CHIEF FINANCIAL OFFICER..................................... 15
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
OTHER AGENTS.......................................................... 15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS................... 15
6.2 INDEMNIFICATION OF OTHERS................................... 16
6.3 INSURANCE................................................... 16
ARTICLE VII RECORDS AND REPORTS......................................... 16
7.1 MAINTENANCE AND INSPECTION OF RECORDS....................... 16
7.2 INSPECTION BY DIRECTORS..................................... 17
7.3 ANNUAL STATEMENT TO STOCKHOLDERS............................ 17
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.............. 17
7.5 CERTIFICATION AND INSPECTION OF BYLAWS...................... 17
ARTICLE VIII GENERAL MATTERS............................................. 17
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING....... 17
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS................... 18
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED........... 18
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES............ 18
8.5 SPECIAL DESIGNATION ON CERTIFICATES......................... 19
8.6 LOST CERTIFICATES........................................... 19
8.7 CONSTRUCTION; DEFINITIONS................................... 20
ARTICLE IX AMENDMENTS.................................................. 20
9.1 AMENDMENTS BY STOCKHOLDERS AND DIRECTORS.................... 20
-ii-
<PAGE>
BYLAWS
------
OF
--
NUMERICAL TECHNOLOGIES, INC.
----------------------------
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
-------------
The Board of Directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place within or outside the
State of Delaware designated by the Board of Directors. In the absence of any
such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the Board of Directors. At the meeting, directors shall be
elected and any other proper business may be transacted.
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by the
Board of Directors, the chairman of the board, the chief executive officer or
the president of the Company.
<PAGE>
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings of stockholders shall be sent or otherwise given in
accordance with Section 2.5 of these bylaws not less than ten (10) nor more than
sixty (60) days before the date of the meeting. The notice shall specify the
place, date and hour of the meeting and (i) in the case of a special meeting,
the purpose or purposes for which the meeting is called (no business other than
that specified in the notice may be transacted) or (ii) in the case of the
annual meeting, those matters which the Board of Directors, at the time of
giving the notice, intends to present for action by the stockholders (but any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
---------------------------------------------------------------
Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors, by any nominating committee or person appointed by the
Board of Directors or by any stockholder of the corporation entitled to vote in
the election of directors at the meeting who complies with the notice procedures
set forth in this Section and who was a stockholder of record at the time of the
giving of such notice. Such nominations, other than those made by or at the
direction of the Board of Directors or by any nominating committee or person
appointed by the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of the corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the corporation not less than sixty (60) days nor more than one
hundred twenty (120) days prior to the scheduled meeting regardless of any
postponements, deferrals or adjournments of that meeting to a later date;
provided, however, that in the event less than seventy (70) days notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. For purposes
of this Section 2.5 "public disclosure" shall mean disclosure in a press release
reported by the Dow Jones News Service, Associated Press or a comparable
national news service or in a document publicly filed by the corporation with
the Securities and Exchange Commission. Such stockholder's notice shall set
forth (a) as to each person, if any, whom the stockholder proposes to nominate
for election or re-election as a director: (i) the name, age, business address
and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the
corporation which are beneficially owned by such person, (iv) any other
information relating to such person that is required by law to be disclosed in
solicitations of proxies for election of directors pursuant to applicable rules
and regulations of the Securities and Exchange Commission promulgated under the
Securities Exchange Act of 1934, as amended, and (v) such person's written
consent to being named as a nominee and to serving as a director if elected; and
(b) as to the stockholder giving the notice: (i) the name and address, as they
appear on the corporation's books, of such stockholder, (ii) the class and
number of shares of the corporation
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<PAGE>
which are beneficially owned by such stockholder on the date of such stockholder
notice, and (iii) a description of all arrangements or understandings between
such stockholder and each nominee and any other person or persons (naming such
person or persons) relating to the nomination. At the request of the Board of
Directors any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the corporation that information
required to be set forth in the stockholder's notice of nomination which
pertains to the nominee or required by the corporation to determine the
eligibility of such proposed nominee to serve as director of the corporation. No
person shall be eligible for election as a director of the corporation unless
nominated in accordance with the procedures set forth in this Section. The
chairman of the meeting shall, if the facts warrant, determine and declare at
the meeting that a nomination was not made in accordance with the procedures
prescribed by these Bylaws, and if the chairman should so determine, the
chairman shall so declare at the meeting and the defective nomination shall be
disregarded.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (a) as specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (b) otherwise properly brought before the
meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a stockholder that was a stockholder of
record at the time of the giving of the relevant notice as provided below.
Business to be brought before an annual meeting by a stockholder shall not be
considered properly brought if the stockholder has not given timely notice
thereof in writing to the Secretary of the corporation or if such business is
not a proper matter for stockholder action under the General Corporation Law of
the State of Delaware. To be timely, a stockholder's notice must be delivered
to or mailed and received at the principal executive offices of the corporation
not less than sixty (60) nor more than one hundred twenty (120) days prior to
the scheduled meeting regardless of any postponements, deferrals or adjournments
of that meeting to a later date; provided, however, that in the event that less
than seventy (70) days notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to
be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business and any other
stockholders known by such stockholder to be supporting such proposal, (iii) the
class and number of shares of the corporation which are beneficially owned by
the stockholder and by any other stockholders known by such stockholder to be
supporting such proposal on the date of such stockholder notice, (iv) any
material interest of the stockholder in such business, and (v) any other
information that is required by law to be provided by the stockholder in his
capacity as a proponent of a stockholder proposal. Notwithstanding the
foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholders' meeting,
stockholders must provide notice as required by the regulations promulgated
under the
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<PAGE>
Securities Exchange Act of 1934, as amended. Notwithstanding anything in these
bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this Section. The
chairman of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this Section, and, if the chairman
should so determine, the chairman shall so declare at the meeting that any such
business not properly brought before the meeting shall not be transacted.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. Notice shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.7 QUORUM
------
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting in accordance
with Section 2.7 of these bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the certificate of incorporation or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of the question.
If a quorum be initially present, the stockholders may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
-4-
<PAGE>
2.8 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time and place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.9 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of the State of Delaware (relating to voting rights of fiduciaries, pledgors and
joint owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation or
these bylaws, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
At a stockholders' meeting at which directors are to be elected, a
stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such stockholder normally
is entitled to cast) if the candidates' names have been placed in nomination
prior to commencement of the voting and the stockholder has given notice prior
to commencement of the voting of the stockholders' intention to cumulate votes.
If any stockholder has given such a notice, then every stockholder entitled to
vote may cumulate votes for candidates in nomination either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that stockholder's shares are
normally entitled or (ii) by distributing the stockholder's votes on the same
principle among any or all of the candidates, as the stockholder thinks fit.
The candidates receiving the highest number of affirmative votes, up to the
number of directors to be elected, shall be elected; votes against any candidate
and votes withheld shall have no legal effect.
Notwithstanding the foregoing, effective upon the closing of a firm
commitment underwritten public offering of Common Stock of the corporation, no
stockholder will be permitted to cumulate votes at any election of directors.
2.10 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of the State of Delaware or of the certificate of incorporation
or these bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of
-5-
<PAGE>
notice of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Unless otherwise provided in the certificate of incorporation, any action
required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing and, who, if the action had been taken at a
meeting, would have been entitled to notice of the meeting if the record date
for such meeting had been the date that written consents signed by a sufficient
number of holders to take the action were delivered to the corporation as
provided in Section 228(c) of the General Corporation Law of the State of
Delaware. If the action which is consented to is such as would have required
the filing of a certificate under any section of the General Corporation Law of
the State of Delaware if such action had been voted on by stockholders at a
meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of the State of Delaware.
Notwithstanding the foregoing, effective upon the closing of a firm
commitment underwritten public offering of Common Stock of the corporation, no
action that is required or permitted to be taken by the stockholders at any
annual or special meeting of stockholders may be effected by written consent of
stockholders in lieu of a meeting of stockholders.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
------------------------------------------
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the Board of Directors may fix, in advance, a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors and which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting, and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date.
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If the Board of Directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section 8.1
of these bylaws.
2.13 PROXIES
-------
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission, telefacsimile or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(e) of the General Corporation Law of
the State of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
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ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of the State of
Delaware and any limitations in the certificate of incorporation and these
bylaws relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
Board of Directors.
3.2 NUMBER OF DIRECTORS
-------------------
The Board of Directors shall be eight until changed by amendment of this
Section 3.2 duly approved by a majority of the directors then in office. No
reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
----------------------------------------
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Each director, including a director elected or appointed to fill
a vacancy or a newly created directorship, shall hold office until the
expiration of the term of the class of directors for which elected and until a
successor has been elected and qualified.
Notwithstanding the foregoing, effective upon the closing of a firm
commitment underwritten public offering of Common Stock of the corporation, the
Board of Directors shall be divided into three classes, the members of each
class to serve for a term of three years; provided that the directors shall be
elected as follows: at the first annual meeting of the stockholders held
following the closing of a firm commitment underwritten public offering of
Common Stock of the corporation, the directors in the first class shall be
elected for a term of three years, at the second annual meeting following such
date, the directors in the second class shall be elected for a term of three
years, and at the third annual meeting following such date, the directors in the
third class shall be elected for a term of three years. The Board of Directors
by resolution shall nominate the directors to be elected for each class. At
subsequent annual meetings of stockholders, a number of directors shall be
elected equal to the number of directors with terms expiring at that annual
meeting. Directors elected at each such subsequent annual meeting shall be
elected for a term expiring with the annual meeting of stockholders three years
thereafter.
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3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the Board of Directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the Board of Directors
may elect a successor to take office when the resignation becomes effective.
All vacancies and newly created directorships in the Board of Directors may
be filled by a majority of the remaining directors, even if less than a quorum,
or by a sole remaining director; provided, that whenever the holders of any
class or classes of stock or series thereof are entitled to elect one or more
directors by the provisions of the certificate of incorporation, vacancies and
newly created directorships of such class or classes or series may be filled by
a majority of the directors elected by such class or classes or series thereof
then in office, or by a sole remaining director so elected.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
Regular meetings of the Board of Directors may be held at any place within
or outside the State of Delaware that has been designated from time to time by
resolution of the Board of Directors. In the absence of such a designation,
regular meetings shall be held at the principal executive office of the
corporation. Special meetings of the Board of Directors may be held at any
place within or outside the State of Delaware that has been designated in the
notice of the meeting or, if not stated in the notice or if there is no notice,
at the principal executive office of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 REGULAR MEETINGS
----------------
Regular meetings of the Board of Directors may be held without notice if
the times of such meetings are fixed by the Board of Directors.
3.7 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the Board of Directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation, or by facsimile or electronic
mail. If the notice is mailed, it shall be deposited in the United States mail
at least four (4) days before the time of the holding of the meeting. If the
notice is delivered personally or by telephone or
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<PAGE>
telegram or by facsimile or electronic mail, it shall be delivered personally or
by telephone or to the telegraph company or by facsimile or electronic mail at
least forty-eight (48) hours before the time of the holding of the meeting. Any
oral notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose or the place of the meeting, if the meeting
is to be held at the principal executive office of the corporation.
3.8 QUORUM
------
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.10
of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the Board of Directors, subject to the provisions of the
certificate of incorporation and applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.9 WAIVER OF NOTICE
----------------
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the Board of Directors.
3.10 ADJOURNMENT
-----------
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
---------------------
Notice of the time and place of holding an adjourned meeting need not be
given unless the meeting is adjourned for more than twenty-four (24) hours. If
the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given before the adjourned
meeting takes place, in the manner specified in Section 3.7 of these bylaws, to
the directors who were not present at the time of the adjournment.
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3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Any action required or permitted to be taken by the Board of Directors may
be taken without a meeting, provided that all members of the Board of Directors
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
Board of Directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the Board of Directors.
3.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the Board of Directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.14 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The Board of Directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of one (1) or more directors of the corporation. The Board of
Directors may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. In the
absence or disqualification of a member of the committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
such member or members constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in place of any such
absent or disqualified
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<PAGE>
member. Any committee, to the extent provided in the resolution of the Board of
Directors, or in these bylaws, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it, but no such committee shall have the
power or authority to:
(a) approve or adopt, or recommend to the stockholders, any action or
matter expressly required by the General Corporation Law of the State of
Delaware to be submitted to stockholders for approval; or
(b) adopt, amend or repeal any bylaw of the corporation.
4.2 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action without meeting), with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the Board of
Directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the Board of Directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the Board of Directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
4.3 COMMITTEE MINUTES.
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the Board of Directors when required.
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ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the corporation shall be a president, a secretary and a
chief financial officer. The corporation may also have, at the discretion of
the Board of Directors, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers and such
other officers as may be appointed in accordance with the provisions of Section
5.3 of these bylaws. Any number of offices may be held by the same person.
5.2 ELECTION OF OFFICERS
--------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws,
shall be chosen by the Board of Directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
--------------------
The Board of Directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority and perform
such duties as are provided in these bylaws or as the Board of Directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
Board of Directors at any regular or special meeting of the Board of Directors
or, except in case of an officer chosen by the Board of Directors, by any
officer upon whom such power of removal may be conferred by the Board of
Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
--------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
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5.6 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the Board of Directors and exercise and perform
such other powers and duties as may from time to time be assigned to the
chairman of the board by the Board of Directors or as may be prescribed by these
bylaws. If there is no president, then the chairman of the board shall also be
the chief executive officer of the corporation and shall have the powers and
duties prescribed in Section 5.7 of these bylaws.
5.7 PRESIDENT
---------
Subject to such supervisory powers, if any, as may be given by the Board of
Directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and the officers of the corporation. The
president shall preside at all meetings of the stockholders and, in the absence
or nonexistence of a chairman of the board, at all meetings of the Board of
Directors. The president shall have the general powers and duties of management
usually vested in the office of president of a corporation, and shall have such
other powers and duties as may be prescribed by the Board of Directors or these
bylaws.
5.8 VICE PRESIDENTS
---------------
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the Board of Directors or, if not ranked, a
vice president designated by the Board of Directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board of Directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors and stockholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at stockholders'
meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the Board of Directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
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and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors required to be given by law or by
these bylaws. The secretary shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the Board of Directors. The chief financial officer shall disburse
the funds of the corporation as may be ordered by the Board of Directors, shall
render to the president and directors, whenever they request it, an account of
all of such person's transactions as chief financial officer and of the
financial condition of the corporation, and shall have such other powers and
perform such other duties as may be prescribed by the Board of Directors or
these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
-------------------------------------------------
AND OTHER AGENTS
----------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of the State of Delaware as the same now exists or
may hereafter be amended, indemnify any person against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred in connection with any threatened, pending or completed
action, suit or proceeding in which such person was or is a party or is
threatened to be made a party by reason of the fact that such person is or was a
director or officer of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation shall mean any person (i) who is or
was a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
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6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of the State of Delaware as the
same now exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit or proceeding,
in which such person was or is a party or is threatened to be made a party by
reason of the fact that such person is or was an employee or agent of the
corporation. For purposes of this Section 6.2, an "employee" or "agent" of the
corporation (other than a director or officer) shall mean any person (i) who is
or was an employee or agent of the corporation, (ii) who is or was serving at
the request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 INSURANCE
---------
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against such person and incurred
by such person in any such capacity, or arising out of such person's status as
such, whether or not the corporation would have the power to indemnify such
person against such liability under the provisions of the General Corporation
Law of the State of Delaware.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The corporation shall, either at its principal executive office or at such
place or places as designated by the Board of Directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent
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to so act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in the State of Delaware or at its
principal place of business.
7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position as a director.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
--------------------------------
The Board of Directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, if any, the president, any vice president, the
chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the Board of Directors or the
president or a vice president, is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of the
stock of any other corporation or corporations standing in the name of this
corporation. The authority herein granted may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
7.5 CERTIFICATION AND INSPECTION OF BYLAWS
--------------------------------------
The original or a copy of these bylaws, as amended or otherwise altered to
date, certified by the secretary, shall be kept at the corporation's principal
executive office and shall be open to inspection by the stockholders of the
corporation, at all reasonable times during office hours.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
-----------------------------------------------------
For purposes of determining the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any other lawful
action, the Board of Directors may fix, in advance, a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted and which shall not be more than sixty (60) days before any such
action. In that case, only stockholders of record at the close of business on
the date so fixed are entitled to receive the dividend, distribution or
allotment of rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of
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any shares on the books of the corporation after the record date so fixed,
except as otherwise provided in the General Corporation Law of the State of
Delaware. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
If the Board of Directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the applicable
resolution.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
-----------------------------------------
From time to time, the Board of Directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
-------------------------------------------------
The Board of Directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
------------------------------------------------
The shares of the corporation shall be represented by certificates,
provided that the Board of Directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the Board
of Directors, every holder of stock represented by certificates and, upon
request, every holder of uncertificated shares, shall be entitled to have a
certificate signed by, or in the name of the corporation by, the chairperson or
vice-chairperson of the Board of Directors, or the president or vice-president,
and by the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of the corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if such person were
such officer, transfer agent or registrar at the date of issue.
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Upon surrender to the secretary or transfer agent of the corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences and the relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
the State of Delaware, in lieu of the foregoing requirements there may be set
forth on the face or back of the certificate that the corporation shall issue to
represent such class or series of stock a statement that the corporation will
furnish without charge to each stockholder who so requests the powers, the
designations, the preferences and the relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.6 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The Board of
Directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates or uncertificated shares on such terms and conditions as the board
may require; the board may require indemnification of the corporation secured by
a bond or other adequate security sufficient to protect the corporation against
any claim that may be made against it, including any expense or liability, on
account of the alleged loss, theft or destruction of the certificate or the
issuance of the replacement certificate or uncertificated shares.
-19-
<PAGE>
8.7 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the General Corporation Law of the State of
Delaware shall govern the construction of these bylaws. Without limiting the
generality of this provision, the singular number includes the plural, the
plural number includes the singular, and the term "person" includes both a
corporation and a natural person.
ARTICLE IX
AMENDMENTS
----------
9.1 AMENDMENTS BY STOCKHOLDERS AND DIRECTORS
----------------------------------------
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote or by the Board of Directors of
the corporation. The fact that such power has been so conferred upon the
directors shall not divest the stockholders of the power, nor limit their power
to adopt, amend or repeal bylaws.
Whenever an amendment or new bylaw is adopted, it shall be copied in the
book of bylaws with the original bylaws, in the appropriate place. If any bylaw
is repealed, the fact of repeal with the date of the meeting at which the repeal
was enacted or the filing of the operative written consent(s) shall be stated in
said book.
-20-
<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
NUMERICAL TECHNOLOGIES, INC.
A DELAWARE CORPORATION
Adoption by Incorporator
------------------------
The undersigned person appointed in the Certificate of Incorporation to act
as the Incorporator of Numerical Technologies, Inc. hereby adopts the foregoing
bylaws, comprising nineteen (19) pages, as the Bylaws of the corporation.
Executed this [________] day of February, 2000.
________________________________________
Joan B. Moses, Incorporator
Certificate by Secretary of Adoption by Incorporator
----------------------------------------------------
The undersigned hereby certifies that he is the duly elected, qualified and
acting Secretary of Numerical Technologies, Inc. and that the foregoing Bylaws,
comprising nineteen (19) pages, were adopted as the Bylaws of the corporation on
February [___], 2000 by the person appointed in the Certificate of Incorporation
to act as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this [___] day of February, 2000.
________________________________________
John V. Roos, Secretary
<PAGE>
EXHIBIT 10.2
NUMERICAL TECHNOLOGIES, INC.
2000 STOCK PLAN
1. Purposes of the Plan. The purposes of this 2000 Stock Plan are:
--------------------
. to attract and retain the best available personnel for
positions of substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Cause" means (i) any act of personal dishonesty taken by the
-----
Optionee in connection with his responsibilities as an Employee which is
intended to result in personal enrichment of the Optionee, (ii) the Optionee's
conviction of a felony, (iii) any act by the Optionee that constitutes
misconduct, and (iv) continued violations by the Optionee of the Optionee's
obligations to the Company.
(e) "Change of Control" means the occurrence of any of the following
-----------------
events:
(i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the total voting power represented
by the Company's then outstanding voting securities; or
<PAGE>
(ii) The consummation of the sale or disposition by the Company
of all or substantially all of the Company's assets; or
(iii) The consummation of a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or its parent) at
least seventy percent (70%) of the total voting power represented by the voting
securities of the Company or such surviving entity or its parent outstanding
immediately after such merger or consolidation.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
----
(g) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 of the Plan.
(h) "Common Stock" means the common stock of the Company.
------------
(i) "Company" means Numerical Technologies, Inc., a California
-------
corporation.
(j) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
(k) "Director" means a member of the Board.
--------
(l) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(m) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(o) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
-2-
<PAGE>
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(p) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(q) "Inside Director" means a Director who is an Employee.
---------------
(r) "IPO Effective Date" means the date upon which the Securities and
------------------
Exchange Commission declares the initial public offering of the Company's Common
Stock as effective.
(s) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(t) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain times and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(u) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(v) "Option" means a stock option granted pursuant to the Plan.
------
(w) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(x) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are surrendered in exchange for Options with a lower exercise price.
(y) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
-3-
<PAGE>
(z) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(aa) "Outside Director" means a Director who is not an Employee.
----------------
(bb) "Plan" means this 2000 Stock Option Plan, as amended and
----
restated.
(cc) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(dd) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(ee) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(ff) "Section 16(b) " means Section 16(b) of the Exchange Act.
-------------
(gg) "Service Provider" means an Employee, Director or Consultant.
----------------
(hh) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 14 of the Plan.
(ii) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(jj) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 14 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 2,000,000 Shares, which includes the Shares available for
future issuance under the Numerical Technologies, Inc. 1997 Stock Plan (the
"1997 Stock Plan") as of the effective date of this Plan and any Shares returned
to the 1997 Stock Plan. The number of Shares reserved for issuance under the
Plan shall increase annually on the first day of the Company's fiscal year
beginning in 2001 by an amount of Shares equal to the lesser of (i) 2,000,000
Shares, (ii) 5% of the outstanding Shares on such date or (iii) an amount
determined by the Board. The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan
-4-
<PAGE>
and shall not become available for future distribution under the Plan, except
that if Shares of Restricted Stock are repurchased by the Company at their
original purchase price, such Shares shall become available for future grant
under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be
------------------------------
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions
----------
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
-5-
<PAGE>
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 16(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which
-6-
<PAGE>
Incentive Stock Options are exercisable for the first time by the Optionee
during any calendar year (under all plans of the Company and any Parent or
Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory
Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall
be taken into account in the order in which they were granted. The Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without Cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of the
Company, Options to purchase more than 1,000,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 2,000,000
Shares, which shall not count against the limit, set forth in subsection (i)
above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 14.
(iv) If an Option is cancelled in the same fiscal year of the Company
in which it was granted (other than in connection with a transaction described
in Section 14), the cancelled Option will be counted against the limits set
forth in subsections (i) and (ii) above. For this purpose, if the exercise
price of an Option is reduced, the transaction will be treated as a cancellation
of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 20 of the Plan, the Plan shall
------------
become effective upon its adoption by the Board. It shall continue in effect
for a term of ten (10) years unless terminated earlier under Section 16 of the
Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
-7-
<PAGE>
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price of less than 100% of the Fair Market Value per Share on
the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
-8-
<PAGE>
(v) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 14 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. Subject to
-------------------------------------------------
Section 14, if an Optionee ceases to be a Service Provider (but not in the event
of an Optionee's change of status from Employee to Consultant (in which case an
Employee's Incentive Stock Option shall automatically convert to a Nonstatutory
Stock Option on the ninety-first (91/st/) day following such change of status)
or from Consultant to Employee), such Optionee may, but only within such period
of time as is specified in the Option Agreement (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent
-9-
<PAGE>
that Optionee was entitled to exercise it at the date of such termination. In
the absence of a specified time in the Option Agreement, the Option shall remain
exercisable for three (3) months following the Optionee's termination. If, on
the date of termination, the Optionee is not vested as to his or her entire
Option, the Shares covered by the unvested portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may, but only
within twelve (12) months from the date of such termination (and in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise his or her Option to the extent that the Option is
vested on the date of termination. If, on the date of termination, the Optionee
is not vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or
administrator of the Optionee's estate or, if none, by the person(s) entitled to
exercise the Option under the Optionee's will or the laws of descent or
distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
-10-
<PAGE>
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 14
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Formula Option Grants to Outside Directors. Outside Directors shall be
------------------------------------------
granted Options in accordance with the following provisions:
(a) All Options granted pursuant to this Section shall be Nonstatutory
Stock Options and, except as otherwise provided herein, shall be subject to the
other terms and conditions of the Plan.
(b) Except as provided in subsection (d) below, each person who first
becomes an Outside Director on or after the IPO Effective Date, whether through
election by the stockholders of the Company or appointment by the Board to fill
a vacancy shall be automatically granted an Option to purchase up to 25,000
Shares (the "First Option") on the date he or she first becomes an Outside
Director; provided, however, that an Inside Director who ceases to be an Inside
Director but who remains a Director shall not receive a First Option.
(c) Except as provided in subsection (d) below, each Outside Director
shall be automatically granted an Option to purchase up to 6,250 Shares (a
"Subsequent Option") following each annual meeting of the stockholders of the
Company occurring after the end of the Company's fiscal year 2000, if
immediately after such meeting, he or she shall continue to serve on the Board
and shall have served on the Board for at least the preceding six (6) months.
-11-
<PAGE>
(d) Notwithstanding the provisions of subsections (b) and (c)
hereof, any exercise of an Option granted before the Company has obtained
stockholder approval of the Plan in accordance with Section 20 hereof shall be
conditioned upon obtaining such stockholder approval of the Plan in accordance
with Section 20 hereof.
(e) The terms of each First Option granted pursuant to this Section
shall be as follows:
(i) the term of the Option shall be ten (10) years.
(ii) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option.
(iii) 25% of the Shares subject to the Option shall vest twelve
months after the date of grant and 1/16 of the Shares subject to the Option
shall vest each quarter thereafter. provided that the Outside Director shall
continue to serve on the Board on such dates.
(f) The terms of each Subsequent Option granted pursuant to this
Section shall be as follows:
(i) the term of the Option shall be ten (10) years.
(ii) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option.
(iii) the Option shall vest and become exercisable in full on
the fourth anniversary after the date of grant provided that in each case the
Outside Director shall continue to serve on the Board on such date.
14. Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
----------------------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities
-12-
<PAGE>
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option or Stock Purchase Right until
fifteen (15) days prior to such transaction as to all of the Optioned Stock
covered thereby, including Shares as to which the Option or Stock Purchase Right
would not otherwise be exercisable. In addition, the Administrator may provide
that any Company repurchase option applicable to any Shares purchased upon
exercise of an Option or Stock Purchase Right shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. Subject to Section 15 below, in the event of
--------------------
a merger of the Company with or into another corporation, or the sale of
substantially all of the assets of the Company (a "Merger"), each outstanding
Option and Stock Purchase Right shall be assumed or an equivalent option or
right substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation (the "Successor Corporation"). In the event that the
Successor Corporation refuses to assume or substitute for the Option or Stock
Purchase Right, the Optionee shall fully vest in and have the right to exercise
the Option or Stock Purchase Right as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an
Option or Stock Purchase Right becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a Merger, the Administrator shall
notify the Optionee in writing or electronically that the Option or Stock
Purchase Right shall be fully vested and exercisable for a period of fifteen
(15) days from the date of such notice, and the Option or Stock Purchase Right
shall terminate upon the expiration of such period. For the purposes of this
Section 14(c), the Option or Stock Purchase Right shall be considered assumed
if, following the Merger, the option or right confers the right to purchase or
receive, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right immediately prior to the Merger, the consideration (whether
stock, cash, or other securities or property) received in the Merger by holders
of Common Stock for each Share held on the effective date of the transaction
(and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the Merger is not
solely common stock of the Successor Corporation or its Parent, the
Administrator may, with the consent of the Successor Corporation, provide for
the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the Successor Corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the Merger.
15. Change of Control. In the event of a Change of Control, each
-----------------
outstanding Option held by an Outside Director shall vest and become exercisable
in full as to all of the Optioned Stock,
-13-
<PAGE>
including Shares as to which the Outside Director would not otherwise be vested
or exercisable. If an Option becomes fully vested and exercisable as provided in
this paragraph, the Administrator shall notify the Optionee in writing or
electronically that the Option shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option shall
terminate upon the expiration of such period.
16. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
17. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
18. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
19. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
-14-
<PAGE>
20. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
21. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-15-
<PAGE>
EXHIBIT 10.3
NUMERICAL TECHNOLOGIES, INC.
1997 STOCK PLAN
(as amended and restated)
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
--------------------
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock Purchase
Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan in accordance with Section 4 hereof.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any other country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 hereof.
(f) "Common Stock" means the Common Stock of the Company.
------------
(g) "Company" means Numerical Technologies, Inc., a California
-------
corporation.
(h) "Consultant" means any person who is engaged by the Company or any
----------
Parent or Subsidiary to render consulting or advisory services to such entity.
(i) "Director" means a member of the Board of Directors of the
--------
Company.
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any
<PAGE>
successor. For purposes of Incentive Stock Options, no such leave may exceed
ninety days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract. If reemployment upon expiration of a leave of absence
approved by the Company is not so guaranteed, on the 181st day of such leave any
Incentive Stock Option held by the Optionee shall cease to be treated as an
Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory
Stock Option. Neither service as a Director nor payment of a director's fee by
the Company shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code.
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(p) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(q) "Option" means a stock option granted pursuant to the Plan.
------
(r) "Option Agreement" means a written or electronic agreement between
----------------
the Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(s) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are exchanged for Options with a lower exercise price.
-2-
<PAGE>
(t) "Optioned Stock" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
(u) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(v) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this 1997 Stock Plan.
----
(x) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of a Stock Purchase Right under Section 11 below.
(y) "Section 16(b)" means Section 16(b) of the Securities Exchange Act
-------------
of 1934, as amended.
(z) "Service Provider" means an Employee, Director or Consultant.
----------------
(aa) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 12 below.
(bb) "Stock Purchase Right" means a right to purchase Common Stock
--------------------
pursuant to Section 11 below.
(cc) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold under the Plan is 4,131,000 Shares. The Shares may be authorized but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). However, Shares that have actually been issued under the Plan,
upon exercise of either an Option or Stock Purchase Right, shall not be returned
to the Plan and shall not become available for future distribution under the
Plan, except that if Shares of Restricted Stock are repurchased by the Company
at their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Administrator. The Plan shall be administered by the Board or a
-------------
Committee appointed by the Board, which Committee shall be constituted to comply
with Applicable Laws.
-3-
<PAGE>
(b) Powers of the Administrator. Subject to the provisions of the Plan
---------------------------
and, in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities, the
Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by each
such award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, of any Option or
Stock Purchase Right granted hereunder. Such terms and conditions include, but
are not limited to, the exercise price, the time or times when Options or Stock
Purchase Rights may be exercised (which may be based on performance criteria),
any vesting acceleration or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Option or Stock Purchase Right or the
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(e) instead of Common Stock;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by Optionees to
have Shares withheld for this purpose shall be made in such form and under such
conditions as the Administrator may deem necessary or advisable; and
(xi) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
-4-
<PAGE>
(c) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
(b) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall it interfere in
any way with his or her right or the Company's right to terminate such
relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon its adoption by the
------------
Board. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 14 of the Plan.
7. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement; provided, however, that the term shall be no more than ten (10) years
from the date of grant thereof. In the case of an Incentive Stock Option
granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant or such shorter term as may be provided
in the Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the exercise
price shall be no less than 110% of the Fair Market Value per Share on the date
of grant.
-5-
<PAGE>
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a Service Provider who, at the time of grant
of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the exercise price shall be no less than 110% of the Fair Market Value per Share
on the date of grant.
(B) granted to any other Service Provider, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms hereof at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Except in the case of Options granted to Officers,
Directors and Consultants, Options shall become exercisable at a rate of no less
than 20% per year over five (5) years from the date the Options are granted.
Unless the Administrator provides otherwise, vesting of Options granted
hereunder shall be tolled during any unpaid leave of absence. An Option may not
be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
-6-
<PAGE>
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, such Optionee may exercise his or her Option
within such period of time as is specified in the Option Agreement (of at least
thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for three (3) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
(of at least six (6) months) to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). In the absence of a specified time
in the Option Agreement, the Option shall remain exercisable for twelve (12)
months following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (of at least six (6) months) to the extent that the Option is
vested on the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement) by the Optionee's
estate or by a person who acquires the right to exercise the Option by bequest
or inheritance. In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to the
entire Option, the Shares covered by the unvested portion of the Option shall
immediately revert to the Plan. If the Option is not so exercised within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
-7-
<PAGE>
10. Non-Transferability of Options and Stock Purchase Rights. The Options
--------------------------------------------------------
and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically of the terms, conditions and restrictions
related to the offer, including the number of Shares that such person shall be
entitled to purchase, the price to be paid, and the time within which such
person must accept such offer. The terms of the offer shall comply in all
respects with Section 260.140.42 of Title 10 of the California Code of
Regulations. The offer shall be accepted by execution of a Restricted Stock
purchase agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine. Except with respect to Shares purchased by
Officers, Directors and Consultants, the repurchase option shall in no case
lapse at a rate of less than 20% per year over five (5) years from the date of
purchase.
(c) Other Provisions. The Restricted Stock purchase agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.
12. Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
----------------------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the
-8-
<PAGE>
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company. The
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option or Stock Purchase Right until
fifteen (15) days prior to such transaction as to all of the Optioned Stock
covered thereby, including Shares as to which the Option or Stock Purchase Right
would not otherwise be exercisable. In addition, the Administrator may provide
that any Company repurchase option applicable to any Shares purchased upon
exercise of an Option or Stock Purchase Right shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Option or Stock Purchase Right shall terminate as of
the date of the closing of the merger or asset sale. For the purposes of this
paragraph, the Option or Stock Purchase Right shall be considered assumed if,
following the merger or sale of assets, the option or right confers the right to
purchase or receive, for each Share of Optioned Stock subject to the Option or
Stock Purchase Right immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
13. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the
-9-
<PAGE>
determination granting such Option or Stock Purchase Right, or such other date
as is determined by the Administrator. Notice of the determination shall be
given to each Employee to whom an Option or Stock Purchase Right is so granted
within a reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Board shall obtain shareholder approval
--------------------
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
16. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan,
---------------------
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under Applicable Laws.
-10-
<PAGE>
19. Information to Optionees and Purchasers. The Company shall provide to
---------------------------------------
each Optionee and to each individual who acquires Shares pursuant to the Plan,
not less frequently than annually during the period such Optionee or purchaser
has one or more Options or Stock Purchase Rights outstanding, and, in the case
of an individual who acquires Shares pursuant to the Plan, during the period
such individual owns such Shares, copies of annual financial statements. The
Company shall not be required to provide such statements to key employees whose
duties in connection with the Company assure their access to equivalent
information.
-11-
<PAGE>
EXHIBIT 10.4
NUMERICAL TECHNOLOGIES, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean Numerical Technologies, Inc., a California
-------
corporation, and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
and commissions, exclusive of payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
---------------
Period.
(i) "Exercise Date" shall mean the last day of each Offering Period.
-------------
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
<PAGE>
(1) If the Common Stock is listed on any established stock exchange or
a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market
Value shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system for the last market
trading day on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean of the closing bid and asked prices for the Common Stock on the date of
such determination, as reported in The Wall Street Journal or such other source
as the Board deems reliable, or;
(3) In the absence of an established market for the Common Stock, the
Fair Market Value thereof shall be determined in good faith by the Board; or
(4) For purposes of the Enrollment Date of the first Offering Period
under the Plan, the Fair Market Value shall be the initial price to the public
as set forth in the final prospectus included within the registration statement
in Form S-1 filed with the Securities and Exchange Commission for the initial
public offering of the Company's Common Stock (the "Registration Statement").
(k) "Offering Period" shall mean a period of approximately six (6) months
---------------
during which an option granted pursuant to the Plan may be exercised, commencing
on the first Trading Day on or after May 15 and terminating on the last Trading
Day in the period ending the following November 14, or commencing on the first
Trading Day on or after November 15 and terminating on the last Trading Day in
the period ending the following May 14; provided, however, that the first
Offering Period under the Plan shall commence with the first Trading Day on or
after the date on which the Securities and Exchange Commission declares the
Company's Registration Statement effective and ending on the last Trading Day on
or before November 14, 2000. The duration of Offering Periods may be changed
pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
----
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair Market
--------------
Value of a share of Common Stock on the Enrollment Date or on the Exercise Date,
whichever is lower; provided, however, that the Purchase Price may be adjusted
by the Board pursuant to Section 20.
(n) "Reserves" shall mean the number of shares of Common Stock covered by
--------
each option under the Plan which have not yet been exercised and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(o) "Subsidiary" shall mean a corporation, domestic or foreign, of which
----------
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
-2-
<PAGE>
(p) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive
----------------
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after May 15 and November 15 each year, or on such other date as the Board
shall determine, and continuing thereafter until terminated in accordance with
Section 20 hereof; provided, however, that the first Offering Period under the
Plan shall commence with the first Trading Day on or after the date on which the
Securities and Exchange Commission declares the Company's Registration Statement
effective and ending on the last Trading Day on or before November 14, 2000.
The Board shall have the power to change the duration of Offering Periods
(including the commencement dates thereof) with respect to future offerings
without stockholder approval if such change is announced at least five (5) days
prior to the scheduled beginning of the first Offering Period to be affected
thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
-3-
<PAGE>
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding fifteen percent (15%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during an
Offering Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than
10,000 shares (subject to any adjustment pursuant to Section 19), and provided
further that such purchase shall be subject to the limitations set forth in
Sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in
Section 8 hereof, unless
-4-
<PAGE>
the participant has withdrawn pursuant to Section 10 hereof. The Option shall
expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan
------------------
as provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, the shares purchased upon exercise of his or
her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
-------------------------
Employee for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
-5-
<PAGE>
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be two hundred thousand (200,000) Shares, plus an annual increase to be
added on the first day of the Company's fiscal year beginning in 2001 equal to
the lesser of (i) 450,000 Shares, (ii) 2% of the outstanding shares on such date
or (iii) a lesser amount determined by the Board. If, on a given Exercise Date,
the number of shares with respect to which options are to be exercised exceeds
the number of shares then available under the Plan, the Company shall make a pro
rata allocation of the shares remaining available for purchase in as uniform a
manner as shall be practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more
-6-
<PAGE>
dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the
------------
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
-------
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
---------------------------------------------------------
Liquidation, Merger or Asset Sale.
- ---------------------------------
(a) Changes in Capitalization. Subject to any required action by
-------------------------
the stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase per Offering Period (pursuant to Section 7), as well as
the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New
-7-
<PAGE>
Exercise Date and that the participant's option shall be exercised automatically
on the New Exercise Date, unless prior to such date the participant has
withdrawn from the Offering Period as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, the Offering Period
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date"). The New Exercise Date shall be before the date of the
Company's proposed sale or merger. The Board shall notify each participant in
writing, at least ten (10) business days prior to the New Exercise Date, that
the Exercise Date for the participant's option has been changed to the New
Exercise Date and that the participant's option shall be exercised automatically
on the New Exercise Date, unless prior to such date the participant has
withdrawn from the Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its stockholders. Except as
provided in Section 19 and Section 20 hereof, no amendment may make any change
in any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(a) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
-8-
<PAGE>
(1) altering the Purchase Price for any Offering Period including an
Offering Period underway at the time of the change in Purchase Price;
(2) shortening any Offering Period so that Offering Period ends on a
new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
-----
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
-9-
<PAGE>
EXHIBIT A
---------
NUMERICAL TECHNOLOGIES, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ________________________________ hereby elects to participate in the
Numerical Technologies, Inc. 2000 Employee Stock Purchase Plan (the
"Employee Stock Purchase Plan") and subscribes to purchase shares of the
Company's Common Stock in accordance with this Subscription Agreement and
the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 0 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my ability
to exercise the option under this Subscription Agreement is subject to
stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse
only):_____________________.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be treated
for federal income tax purposes as having received ordinary income at the
time of such disposition in an amount equal to the excess of the fair
market value of the shares at the time such shares were purchased by me
over the price which I paid for the shares. I hereby agree to notify the
----------------------------
Company in writing within 30 days after the date of any disposition of
----------------------------------------------------------------------
shares and I will make adequate provision for Federal, state or other tax
-------------------------------------------------------------------------
<PAGE>
withholding obligations, if any, which arise upon the disposition of the
------------------------------------------------------------------------
Common Stock. The Company may, but will not be obligated to, withhold from
------------
my compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any time
after the expiration of the 2-year holding period, I understand that I will
be treated for federal income tax purposes as having received income only
at the time of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the lesser of (1)
the excess of the fair market value of the shares at the time of such
disposition over the purchase price which I paid for the shares, or (2) 15%
of the fair market value of the shares on the first day of the Offering
Period. The remainder of the gain, if any, recognized on such disposition
will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) ____________________________________________
(First) (Middle) (Last)
_____________________ ____________________________________________
Relationship
____________________________________________
(Address)
Employee's Social
Security Number: ____________________________________________
Employee's Address: ____________________________________________
____________________________________________
-2-
<PAGE>
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated: ________________ _____________________________________________________
Signature of Employee
_____________________________________________________
Spouse's Signature (If beneficiary other than spouse)
-3-
<PAGE>
EXHIBIT B
NUMERICAL TECHNOLOGIES, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Numerical
Technologies, Inc., 2000 Employee Stock Purchase Plan which began on
___________, ______ (the "Enrollment Date") hereby notifies the Company that he
or she hereby withdraws from the Offering Period. He or she hereby directs the
Company to pay to the undersigned as promptly as practicable all the payroll
deductions credited to his or her account with respect to such Offering Period.
The undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
____________________________________
____________________________________
____________________________________
Signature:
____________________________________
Date: _______________________________
<PAGE>
EXHIBIT 10.5
* * * * * * * * * * * * * * * * * * * *
Lease
VALLEY CENTRE I
* * * * * * * * * * * * * * * * * * * *
Between
NUMERICAL TECHNOLOGIES, INC.
(Tenant)
and
CARRAMERICA REALTY CORPORATION
(Landlord)
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. LEASE AGREEMENT 3
A. Commencement Date 3
B. Termination Date 3
C. Early Occupancy 3
2. RENT 3
A. Types of Rent 3
B. Payment of Operating Cost Share Rent and Tax Share Rent 3
C. Definitions 5
D. Computation of Base Rent and Rent Adjustments 8
3. CONDITION OF PREMISES AND POSSESSION 9
A. Condition of Premises 9
B. Tenant's Possession 9
4. SERVICES AND UTILITIES 9
5. ALTERATIONS 10
A. Landlord's Consent and Conditions 10
B. Damage to Systems 11
C. No Liens. 11
D. Ownership of Improvements 12
E. Removal Upon Termination 12
6. USE OF PREMISES 12
A. Limitation on Use 12
B. Signs 12
C. Parking 13
D. Prohibition Against Use of Roof and Structure of Building 13
7. GOVERNMENTAL REQUIREMENTS AND BUILDING RULES 13
8. REPAIR AND MAINTENANCE 14
A. Landlord's Obligations 14
B. Tenant's Obligations 15
9. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE 15
A. Waiver of Claims 15
B. Indemnification 16
C. Tenant's Insurance 16
D. Insurance Certificates 17
E. Landlord's Insurance 17
(i)
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
Page
----
10. FIRE AND OTHER CASUALTY 18
A. Termination 18
B. Restoration 18
11. EMINENT DOMAIN 18
12. RIGHTS RESERVED TO LANDLORD 19
A. Name 19
B. Signs 19
C. Window Treatments 19
D. Keys 19
E. Access 19
F. Preparation for Reoccupancy 19
G. Heavy Articles 19
H. Show Premises 19
I. Relocation of Tenant 20
J. Use of Lockbox 20
K. Repairs and Alterations 20
L. Landlord's Agents 20
M. Building Services 20
N. Use of Roof 20
O. Other Actions 20
13. TENANT'S DEFAULT 21
A. Rent Default 21
B. Assignment/Sublease or Hazardous Substances Default 21
C. Other Performance Default 21
D. Credit Default 21
E. Abandonment Default 21
14. LANDLORD REMEDIES 21
A. Termination of Lease or Possession 21
B. Possession Termination Damages 21
C. Lease Termination Damages 22
D. Landlord's Remedies Cumulative 23
E. WAIVER OF TRIAL BY JURY 23
F. Litigation Costs 23
15. SURRENDER 23
16. HOLDOVER 24
17. SUBORDINATION TO GROUND LEASES AND MORTGAGES 24
(ii)
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
Page
----
A. Subordination 24
B. Termination of Ground Lease or Foreclosure of Mortgage 25
C. Security Deposit 25
D. Notice and Right to Cure 25
E. Definitions 25
18. ASSIGNMENT AND SUBLEASE 25
A. In General 25
B. Landlord's Consent 26
C. Procedure 26
D. Change of Management or Ownership 27
E. Excess Payments 27
F. Recapture 27
19. CONVEYANCE BY LANDLORD 27
20. ESTOPPEL CERTIFICATE 27
21. LEASE DEPOSIT 27
22. FORCE MAJEURE 29
23. TENANT'S PERSONAL PROPERTY AND TRADE FIXTURES 29
24. NOTICES 29
A. Landlord 29
B. Tenant 30
25. QUIET POSSESSION 30
26. REAL ESTATE BROKER 30
27. MISCELLANEOUS 30
A. Successors and Assigns 30
B. Date Payments Are Due 30
C. Meaning of "Landlord," "Re-Entry," "including" and "Affiliate" 30
D. Time of the Essence 31
E. No Option 31
F. Severability 31
G. Governing Law 31
H. Lease Modification 31
I. No Oral Modification 31
J. Landlord's Right to Cure 31
(iii)
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
Page
----
K. Captions 31
L. Authority 31
M. Landlord's Enforcement of Remedies 31
N. Entire Agreement 31
O. Landlord's Title 31
P. Light and Air Rights 31
Q. Singular and Plural 32
R. No Recording by Tenant 32
S. Exclusivity 32
T. No Construction Against Drafting Party 32
U. Survival 32
V. Rent Not Based on Income 32
W. Building Manager and Service Providers 32
X. Late Charge and Interest on Late Payments 32
Y. Tenant's Financial Statements 32
Z. Attorneys Fees 32
AA. Consents 33
28. UNRELATED BUSINESS INCOME 33
29. HAZARDOUS SUBSTANCES 33
A. Prohibition Against Hazardous Substances 33
B. "Hazardous Substances" 33
C. Prior Contamination. 33
30. EXCULPATION 34
31. OPTION TO EXTEND. 34
(iv)
<PAGE>
LEASE
THIS LEASE (the "Lease") is made as of June 15, 1999 (dated for reference
-----
purposes only) between CarrAmerica Realty Corporation, a Maryland corporation
(the "Landlord") and the Tenant as named in the Schedule below. The term
--------
"Project" means the two (2) buildings (the "Project Buildings") and other
------- -----------------
improvements commonly known as "Valley Centre I" located at 70 Plumeria Drive,
San Jose, California, as more particularly described in Exhibit A. The
---------
"Premises" means that portion of the Project Buildings described in the Schedule
--------
and outlined on Exhibit A, attached hereto. The Project Buildings in which the
Premises are located shall be collectively referred to herein as the "Building"
--------
and the other Project Buildings shall be referred to as the "Other Buildings".
---------------
The following schedule (the "Schedule") is an integral part of this Lease. Terms
--------
defined in this Schedule shall have the same meaning throughout the Lease.
SCHEDULE
1. TENANT: Numerical Technologies, Inc., a California corporation
2. PREMISES: 70 Plumeria Drive, San Jose, California
3. PROJECT: Valley Centre I
4. RENTABLE SQUARE FEET OF THE PREMISES: 39,301
5. TENANT'S PROPORTIONATE SHARE: 49.25% of the Building (based upon a
total of 79,791 rentable square feet in the Building) and 38.42% of the
Project (based upon a total of 102,291 rentable square feet in the
Project)
6. LEASE DEPOSIT: Prepaid Rent: $46,453.78, Security Deposit: $272,277.00 (of
which $204,208.00 may be in the form of a letter of credit, subject to the
requirements set forth in Section 21)
7. PERMITTED USE: General Office
8. TENANT'S REAL ESTATE BROKER FOR THIS LEASE: Cushman & Wakefield
9. LANDLORD'S REAL ESTATE BROKER FOR THIS LEASE: None.
10. TENANT IMPROVEMENTS: Landlord shall provide the Premises on a
"turn-key" basis with those certain interior tenant improvements
("Tenant Improvements") within the Premises to be constructed by
Landlord, at Landlord's cost, in accordance with the terms and
conditions set forth in the Tenant Improvement Agreement attached
hereto as Exhibit C.
---------
11. COMMENCEMENT DATE: That date on which there is "Substantial Completion"
of the "Tenant Improvements", subject to the terms and conditions set
forth in the Tenant Improvement Agreement attached hereto as Exhibit C.
---------
Landlord and Tenant shall
1
<PAGE>
execute a Commencement Date Confirmation in the form of Exhibit D, attached
---------
hereto, which shall set forth both the Commencement Date and the
Termination Date for this Lease.
12. TERM: Five years, with one (1) option to renew for three (3) years (see
Section 31).
13. TERMINATION DATE: Five years after the Commencement Date, provided that
if the Commencement Date is not the first day of a month, then the
Termination Date shall be the date which is five (5) years after the
first day of the calendar month immediately following the Commencement
Date, and as may be extended pursuant to Section 31 herein.
14. GUARANTOR: None
15. PARKING SPACES: 156 unassigned parking spaces
16. BASE RENT:
Period Annual Base Rent Monthly Base Rent
- ------ ---------------- -----------------
Months 1 - 5: N/A $46,453.78
Months 6 - 17: $722,509.56 $60,209.13
Months 18 - 29: $746,090.16 $62,174.18
Months 30 - 41: $769,670.76 $64,139.23
Months 42 - 53: $793,251.36 $66,104.28
Months 54 - 60: N/A $68,069.33
Exhibit A - Site Plan Of Project
Exhibit B - Rules And Regulations
Exhibit C - Tenant Improvement Agreement
Exhibit C-1 - Layout of Tenant Improvements
Exhibit D - Commencement Date Confirmation
Exhibit E - Landlord's Signage Standards
2
<PAGE>
1. LEASE AGREEMENT. On the terms stated in this Lease, Landlord leases
---------------
the Landlord to Tenant, and Tenant leases the Landlord from Landlord, for the
term beginning on the commencement date and ending on the termination date
unless extended or sooner terminated pursuant to this Lease.
A. Commencement Date. The commencement date ("Commencement Date")
----------------- -----------------
for this Lease is the date set forth in the Schedule.
B. Termination Date. The Termination Date is that date set forth in
----------------
the Schedule.
C. Early Occupancy. During the period commencing on the date this
---------------
Lease is executed by both Landlord and Tenant and ending on the Commencement
Date (the "Early Occupancy Period"), Tenant shall be permitted to enter the
Premises for the sole purpose of installing certain trade fixtures, computer and
phone systems therein, provided that Tenant's occupancy of the Premises during
the Early Occupancy Period shall (i) not interfere with Landlord's construction
of the Tenant Improvements, and (ii) be subject to all of the terms, covenants
and conditions of this Lease (including, without limitation, Tenant's
obligations under Sections 5 (regarding obtaining Landlord's prior written
consent before commencing any alterations) and 9 (regarding Tenant's indemnity
and insurance obligations), except that Landlord agrees, subject to the last
sentence of this Section 1.C, that Tenant's obligation to pay Base Rent,
Operating Cost Share Rent and Tax Share Rent (as such terms are defined in
Sections 2.B(1), (2) and (3) below) during the Early Occupancy Period shall be
waived. If Tenant occupies any part of the Premises during the Early Occupancy
Period for purposes of doing business, then Tenant shall pay all Base Rent,
Operating Cost Share Rent and Tax Share Rent at the rate for the first Lease
Year as set forth in the Schedule prorated for any partial month.
2. RENT.
----
A. Types of Rent. Tenant shall pay the following Rent in the form
-------------
of a check to Landlord at the following address:
CarrAmerica Realty Corporation
t/a Valley Centre I
P.O. Box 198291
Atlanta, GA 30384-8291
or by wire transfer as follows:
Account Name: CarrAmerica Realty Corporation
t/a Valley Centre I
Bank Name: NationsBank of Georgia
ABA Number: 061-000-052
Account Number: 3255807127
Notification: Serina Arnold (CarrAmerica)
Telephone: (202) 729-3852
or in such other manner as Landlord may notify Tenant:
3
<PAGE>
(1) Base Rent in monthly installments in advance, the first
---------
monthly installment payable concurrently with the execution of this Lease and
thereafter on or before the first day of each month of the Term in the amount
set forth on the Schedule.
(2) Operating Cost Share Rent in an amount equal to the Tenant's
-------------------------
Proportionate Share of the Operating Costs for the applicable fiscal year of the
Lease, paid monthly in advance in an estimated amount. Definitions of Operating
Costs and Tenant's Proportionate Share, and the method for billing and payment
of Operating Cost Share Rent are set forth in Sections 2.B, 2.C and 2.D.
(3) Tax Share Rent in an amount equal to the Tenant's
--------------
Proportionate Share of the Taxes for the applicable fiscal year of this Lease,
paid monthly in advance in an estimated amount. A definition of Taxes and the
method for billing and payment of Tax Share Rent are set forth in Sections 2.B,
2.C and 2.D.
(4) Additional Rent in the amount of all costs, expenses,
---------------
liabilities, and amounts which Tenant is required to pay under this Lease,
excluding Base Rent, Operating Cost Share Rent, and Tax Share Rent, but
including any interest for late payment of any item of Rent.
(5) Rent as used in this Lease means Base Rent, Operating Cost
----
Share Rent, Tax Share Rent and Additional Rent. Tenant's agreement to pay Rent
is an independent covenant, with no right of setoff, deduction or counterclaim
of any kind.
B. Payment of Operating Cost Share Rent and Tax Share Rent.
-------------------------------------------------------
(1) Payment of Estimated Operating Cost Share Rent and Tax
------------------------------------------------------
Share Rent. Landlord shall estimate the Operating Costs and Taxes of the
- ----------
Project by April 1 of each fiscal year, or as soon as reasonably possible
thereafter. Landlord may revise these estimates whenever it obtains more
accurate information, such as the final real estate tax assessment or tax rate
for the Project, provided in no event shall the estimate be revised more than
once in any calendar year. Within ten (10) days after receiving the original or
revised estimate from Landlord, Tenant shall pay Landlord one-twelfth (1/12th)
of Tenant's Proportionate Share of this estimate, multiplied by the number of
months that have elapsed in the applicable fiscal year to the date of such
payment including the current month, minus payments previously made by Tenant
for the months elapsed. On the first day of each month thereafter, Tenant shall
pay Landlord one-twelfth (1/12th) of Tenant's Proportionate Share of this
estimate, until a new estimate becomes applicable. Any interest or penalties
payable by Landlord as a result of Tenant's failure to timely pay such Taxes to
Landlord shall be deemed Additional Rent payable by Tenant hereunder upon
request by Landlord.
(2) Correction of Operating Cost Share Rent. Landlord shall
---------------------------------------
deliver to Tenant a report for the previous fiscal year (the "Operating Cost
--------------
Report") by May 15 of each year, or as soon as reasonably possible thereafter,
- ------
setting forth (a) the actual Operating Costs incurred, (b) the amount of
Operating Cost Share Rent due from Tenant, and (c) the amount of Operating Cost
Share Rent paid by Tenant. Within twenty (20) days after such delivery, Tenant
4
<PAGE>
shall pay to Landlord the amount due minus the amount paid. If the amount paid
exceeds the amount due, Landlord shall apply the excess to Tenant's payments of
Operating Cost Share Rent next coming due.
(3) Correction of Tax Share Rent. Landlord shall deliver to
----------------------------
Tenant a report for the previous fiscal year (the "Tax Report") by May 15 of
----------
each year, or as soon as reasonably possible thereafter, setting forth (a) the
actual Taxes, (b) the amount of Tax Share Rent due from Tenant, and (c) the
amount of Tax Share Rent paid by Tenant. Within twenty (20) days after such
delivery, Tenant shall pay to Landlord the amount due from Tenant minus the
amount paid by Tenant. If the amount paid exceeds the amount due, Landlord shall
apply any excess as a credit against Tenant's payments of Tax Share Rent next
coming due.
C. Definitions.
-----------
(1) Included Operating Costs. "Operating Costs" means any
------------------------ ----------------
expenses, costs and disbursements of any kind other than Taxes, paid or incurred
by Landlord in connection with the management, maintenance, operation, insurance
(including the related deductibles), repair and other related activities in
connection with any part of the Project and of the personal property, fixtures,
machinery, equipment, systems and apparatus used in connection therewith,
including the cost of providing those services required to be furnished by
Landlord under this Lease and a management fee in an amount equal to two percent
(2%) of Base Rent. Operating Costs shall also include the costs of any capital
improvements which are intended to reduce Operating Costs or improve safety, and
those made to keep the Project in compliance with governmental requirements
applicable from time to time or to replace existing capital improvements,
facilities and equipment within the Building or the common areas of the Project,
such as the roof membrane and resurfacing of the parking areas, such as the roof
membrane, parking and landscape areas and the utility pipes, conduits and lines
which run from the street to each Building and between each of the Buildings (to
the extent Landlord is responsible for the replacement or repair of such items
hereunder) (collectively, "Included Capital Items"); provided, that the costs of
----------------------
any Included Capital Item shall be amortized by Landlord, together with an
amount equal to interest at ten percent (10%) per annum, over the estimated
useful life of such item and such amortized costs are only included in Operating
Costs for that portion of the useful life of the Included Capital Item which
falls within the Term, unless the cost of the Included Capital Item is less than
Ten Thousand Dollars ($10,000) in which case it shall be expensed in the year in
which it was incurred.
If the Project contains more than one building, then Operating Costs shall
include (i) all Operating Costs fairly allocable to the Building, and (ii) a
proportionate share (based on the gross rentable area of the Building as a
percentage of the gross rentable area of all of the Buildings in the Project) of
all Operating Costs which relate to the Project in general and are not fairly
allocable to any one building in the Project.
If the Project is not fully occupied during any portion of any Fiscal Year
(as defined in Section 2.C(6) below), Landlord may adjust (an "Equitable
---------
Adjustment") Operating Costs to equal what would have been incurred by Landlord
- ----------
had the Project been fully occupied. This Equitable Adjustment shall apply only
to Operating Costs which are variable and therefore
5
<PAGE>
increase as occupancy of the Project increases. Landlord may incorporate the
Equitable Adjustment in its estimates of Operating Costs.
If Landlord does not furnish any particular service whose cost would have
constituted an Operating Cost to a Tenant other than Tenant who has undertaken
to perform such service itself, Operating Costs shall be increased by the amount
which Landlord would have incurred if it had furnished the service to such
Tenant.
(2) Excluded Operating Costs. Operating Costs shall not include:
------------------------
(a) costs of alterations of tenant premises;
(b) costs of capital improvements other than Included
Capital Items;
(c) interest and principal payments on mortgages or any
other debt costs, or rental payments on any ground
lease of the Project;
(d) real estate brokers' leasing commissions;
(e) legal fees, space planner fees and advertising expenses
incurred with regard to leasing the Building or
portions thereof;
(f) any cost or expenditure for which Landlord is
reimbursed (or would have been had Landlord maintained
the insurance required to be maintained by Landlord
hereunder), by insurance proceeds, warranties, tort
claims or otherwise, except by Operating Cost Share
Rent;
(g) the cost of any service furnished to any tenant of the
Project which Landlord does not make available to
Tenant;
(h) depreciation, amortization or expense reserves (except
on any Included Capital Items as provided in Section
2.C(1));
(i) franchise or income taxes imposed upon Landlord;
(j) costs of correcting defects in construction of the
Building (as opposed to the cost of normal repair,
maintenance and replacement expected with the
construction materials and equipment installed in the
Building in light of their specifications);
(k) legal and auditing fees which are for the benefit of
Landlord such as collecting delinquent rents, preparing
tax returns and other financial statements, and audits
other than
6
<PAGE>
those incurred in connection with the preparation of
reports required pursuant to Section 2.B above;
(l) the wages of any employee for services not related
directly to the management, maintenance, operation and
repair of the Building;
(m) fines, penalties and interest;
(n) any property management fee in excess of three percent
(3%) of the gross revenues for the Building; and
(o) any costs incurred in connection with Pre-existing
Contamination (as defined in Section 29) or other
contamination originating from a source either not
located on the Project or which is caused or
contributed by other tenants within the Project.
(3) Taxes. "Taxes" means any and all taxes, assessments and
----- -----
charges of any kind, general or special, ordinary or extraordinary, levied
against the Project, which Landlord shall pay or become obligated to pay in
connection with the ownership, leasing, renting, management, use, occupancy,
control or operation of the Project or of the personal property, fixtures,
machinery, equipment, systems and apparatus used in connection therewith. Taxes
shall include real estate taxes, personal property taxes, sewer rents, water
rents, special or general assessments, transit taxes, ad valorem taxes, and any
tax levied on the rents hereunder or the interest of Landlord under this Lease
(the "Rent Tax"). Taxes shall also include all fees and other costs and expenses
--------
paid by Landlord in reviewing any tax and in seeking a refund or reduction of
any Taxes, whether or not the Landlord is ultimately successful. Taxes shall
also include any assessments or fees paid to any business park owners
association, or similar entity, which are imposed against the Project pursuant
to any Covenants, Conditions and Restrictions ("CC&R's") recorded against the
------
Land and any installments of principal and interest required to pay any existing
or future general or special assessments for public improvements, services or
benefits, and any increases resulting from reassessments imposed in connection
with any change in ownership or new construction.
If the Project contains more than one building, then Taxes shall include
(i) all Taxes fairly allocable to the Building, and (ii) a proportionate share
(based on the gross rentable area of the Building as a percentage of the gross
rentable area of all of the Buildings in the Project) of all Taxes which relate
to the Project in general and are not fairly allocable to any one building in
the Project.
For any year, the amount to be included in Taxes (a) from taxes or
assessments payable in installments, shall be the amount of the installments
(with any interest) due and payable during such year, and (b) from all other
Taxes, shall at Landlord's election be the amount accrued, assessed, or
otherwise imposed for such year or the amount due and payable in such year. Any
refund or other adjustment to any Taxes by the taxing authority shall apply
during the year in which the adjustment is made. Taxes shall not include any net
income (except Rent Tax),
7
<PAGE>
capital, stock, succession, transfer, franchise, gift, estate or inheritance
tax, except to the extent that such tax shall be imposed in lieu of any portion
of Taxes.
(4) Lease Year. "Lease Year" means each consecutive twelve-month
---------- ----------
period beginning with the Commencement Date, except that if the Commencement
Date is not the first day of a calendar month, then the first Lease Year shall
be the period from the Commencement Date through the final day of the twelve
months after the first day of the following month, and each subsequent Lease
Year shall be the twelve months following the prior Lease Year.
(5) Fiscal Year. "Fiscal Year" means the calendar year, except
----------- -----------
that the first Fiscal Year and the last Fiscal Year of the Term may be a partial
calendar year.
D. Computation of Base Rent and Rent Adjustments.
---------------------------------------------
(1) Prorations. If this Lease begins on a day other than the
----------
first day of a month, the Base Rent, Operating Cost Share Rent and Tax Share
Rent shall be prorated for such partial month based on the actual number of days
in such month. If this Lease begins on a day other than the first day, or ends
on a day other than the last day, of the Fiscal Year, Operating Cost Share Rent
and Tax Share Rent shall be prorated for the applicable Fiscal Year.
(2) Default Interest. Any sum due from Tenant to Landlord not
----------------
paid when due shall bear interest from the date due until paid at the lesser of
eighteen percent (18%) per annum or the maximum rate permitted by law.
(3) Rent Adjustments. The square footage of the Premises,
----------------
Building, and other Project Buildings, as set forth in the Schedule are
conclusively deemed to be the actual square footage thereof, without regard to
any subsequent remeasurement of the Premises, Building or other Project
Buildings. If any Operating Cost paid in one Fiscal Year relates to more than
one Fiscal Year, Landlord may proportionately allocate such Operating Cost among
the related Fiscal Years.
(4) Books and Records. Landlord shall maintain books and records
-----------------
reflecting the Operating Costs and Taxes in accordance with sound accounting and
management practices. Tenant and its certified public accountant shall have the
right to inspect Landlord's records at the then applicable local office of
Landlord upon at least seventy-two (72) hours' prior notice during normal
business hours during the ninety (90) days following the respective delivery of
the Operating Cost Report or the Tax Report. Tenant shall use good faith,
reasonable efforts and due diligence to (i) keep the results of any such
inspection confidential, and (ii) include a provision in any contract with its
certified public accountant for such audit which requires that the results of
such audit shall be confidential (i.e., the results shall not be made available
to any other tenant of the Project). Unless Tenant sends to Landlord any written
exception to either such report within said ninety (90) day period, such report
shall be deemed final and accepted by Tenant. Tenant shall pay the amount shown
on both reports in the manner prescribed in this Lease, whether or not Tenant
takes any such written exception, without any prejudice to such exception. If
Tenant makes a timely exception, Landlord and Tenant shall choose an independent
certified public accountant or another firm with at least five (5) years of
8
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experience in auditing the books and records of commercial office projects to
issue a final and conclusive resolution of Tenant's exception. Tenant shall pay
the cost of such certification unless Landlord's original determination of
annual Operating Costs and Taxes in the aggregate overstated the amounts thereof
by more than five percent (5%) in which case, Landlord shall pay for the costs
of such certification.
(5) Miscellaneous. So long as Tenant is in default of any
-------------
obligation under this Lease, Tenant shall not be entitled to any refund of any
amount from Landlord. If this Lease is terminated for any reason prior to the
annual determination of Operating Cost Share Rent or Tax Share Rent, either
party shall pay the full amount due to the other within fifteen (15) days after
Landlord's notice to Tenant of the amount when it is determined. Landlord may
commingle any payments made with respect to Operating Cost Share Rent or Tax
Share Rent, without payment of interest.
3. CONDITION OF PREMISES AND POSSESSION.
------------------------------------
A. Condition of Premises. Except to the extent of the Tenant
---------------------
Improvements item on the Schedule, Landlord is leasing the Premises to Tenant
"as is," without any representations or warranties of any kind and without any
obligation to alter, remodel, improve, repair or decorate any part of the
Premises. Landlord shall cause the Premises to be completed in accordance with
the Tenant Improvement Agreement attached as Exhibit C.
---------
Notwithstanding the forgoing, Landlord shall pay any costs associated
with the repair of the HVAC system during the sixty (60) day period immediately
following the Commencement Date.
B. Tenant's Possession. Tenant's taking possession of any portion
-------------------
of the Premises shall be conclusive evidence that the Premises was in good
order, repair and condition. If Landlord authorizes Tenant to take possession of
any part of the Premises prior to the Commencement Date for purposes of doing
business, all terms of this Lease shall apply to such pre-Term possession,
including the obligation to pay Base Rent at the rate for the first Lease Year
as set forth in the Schedule prorated for any partial month.
4. SERVICES AND UTILITIES. Tenant shall promptly pay, as the same become
----------------------
due, all charges for water, gas, electricity, telephone, sewer service, waste
pick-up and any other utilities, materials and services furnished directly to or
used by Tenant on or about the Premises during the Term, including without
limitation, (i) meter, use and/or connection fees, hook-up fees, or standby fees
(excluding any connection fees or hook-up fees which relate to making the
existing electrical, gas, water and sewer service available to the Premises as
of the commencement date), and (ii) penalties for discontinued interrupted
service. If any utility service is not separately metered to the Premises, then
Tenant shall pay its pro rata share of the cost of such utility service with all
others served by the service not separately metered. However, if Landlord
reasonably determines that Tenant is using a disproportionate amount of any
utility service (whether or not separately metered), then Landlord at its
election may (i) periodically charge Tenant, as Additional Rent, a sum equal to
Landlord's reasonable estimate of the cost of Tenant's excess use of such
utility service, (ii) install, at Tenant's expense, a separate meter to measure
the utility service supplied to the Premises, and/or (iii) in the event Landlord
determines that Tenant is using a disproportionate share of the electrical
capacity available for the Building or Project (i.e., electrical usage in excess
of that which would typically be used for
9
<PAGE>
general office purposes), Landlord may at Tenant's expense install additional
equipment to increase the electrical capacity for the Building or Project to
offset such excess usage by Tenant. Any interruption or cessation of utilities
resulting from any causes, including any entry for repairs pursuant to this
Lease, and any renovation, redecoration or rehabilitation of any area of the
Project shall not render Landlord liable for damages to either person or
property or for interruption or loss to Tenant's business, nor be construed as
an eviction of Tenant, nor work an abatement of any portion of Rent, nor relieve
Tenant from fulfillment of any covenant or agreement hereof.
5. ALTERATIONS.
-----------
A. Landlord's Consent and Conditions. Tenant shall not make any
---------------------------------
improvements or alterations to the Premises (the "Work") without in each
instance submitting plans and specifications for the Work to Landlord and
obtaining Landlord's prior written consent which shall not be unreasonably
withheld, unless (a) the cost thereof is less than $10,000 per building per
occurrence, (b) such Work does not impact the base structural components or
systems of the Building, (c) such Work will not impact any other tenant's
premises, and (d) such Work is not visible from outside the Premises. Provided
that Landlord receives all necessary information and plans from Tenant, Landlord
agrees to respond to Tenant's request for Landlord's prior written consent to
such alterations within ten (10) business days. However, even if Landlord's
prior written consent is not required Tenant shall provide Landlord with prior
written notice at least five (5) days in advance of commencing the Work so that
Landlord may take appropriate actions (e.g., notify other tenants in the
Project, post and record notices of nonresponsibility or other notices deemed by
Landlord to be appropriate, request and review applicable insurance
certificates) before the commencement of such Work. Tenant shall pay Landlord's
actual out-of-pocket costs incurred for reviewing of all of the plans and all
other items submitted by Tenant. Landlord will be deemed to be acting reasonably
in withholding its consent for any Work which (a) impacts the base structural
components or systems of the Building, and (b) impacts any other tenant's
premises.
Tenant shall pay for the cost of all Work, including the cost of any and
all approvals, permits, fees and other charges which may be required as a
condition of performing such Work. Upon completion all Work shall become the
property of Landlord, except for Tenant's trade fixtures and for items which
Landlord requires Tenant to remove at Tenant's cost at the termination of the
Lease pursuant to Section 5.E.
The following requirements shall apply to all Work:
(1) Prior to commencement, Tenant shall furnish to Landlord
building permits, certificates of insurance satisfactory to Landlord, and, at
Landlord's request, security for payment of all costs.
(2) Tenant shall perform all Work so as to maintain peace and
harmony among other contractors serving the Project and shall avoid interference
with other work to be performed or services to be rendered in the Project.
10
<PAGE>
(3) The Work shall be performed in a good and workmanlike
manner, meeting the standard for construction and quality of materials in the
Building, and shall comply with all insurance requirements and all applicable
governmental laws, ordinances and regulations ("Governmental Requirements").
-------------------------
(4) Tenant shall perform all Work so as to minimize or prevent
disruption to other tenants, and Tenant shall comply with all reasonable
requests of Landlord in response to complaints from other tenants.
(5) Tenant shall perform all Work in compliance with any
"Policies, Rules and Procedures for Construction Projects" which may be in
-------- ----- ---------- ---------------------
effect at the time the Work is performed.
(6) Tenant shall permit Landlord to supervise and observe all
Work. Landlord may charge a supervisory fee not to exceed three (3) percent (3%)
of labor, material, and all other costs of the Work, if Landlord's employees or
contractors perform the Work.
(7) Upon completion, Tenant shall furnish Landlord with
contractor's affidavits and full and final statutory waivers of liens, as-built
plans and specifications, and receipted bills covering all labor and materials,
and all other close-out documentation related to the Work, including any other
information required under any "Policies, Rules and Procedures for Construction
-----------------------------------------------
Projects" which may be in effect at such time.
- --------
B. Damage to Systems. If any part of the mechanical, electrical or other
-----------------
systems in the Premises (e.g., HVAC, life safety or automatic fire
extinguisher/sprinkler system) shall be damaged during the performance of the
Work, Tenant shall promptly notify Landlord, and Landlord shall repair such
damage at Tenant's expense. Landlord may also at any reasonable time make any
repairs or alterations which Landlord deems necessary for the safety or
protection of the Project, or which Landlord is required to make by any court or
pursuant to any Governmental Requirement. The cost of any repairs made by
Landlord on account of Tenant's default, or on account of the misuse or neglect
by Tenant or its invitees, contractors or agents anywhere in the Project, shall
become Additional Rent payable by Tenant on demand.
C. No Liens. Tenant has no authority to cause or permit any lien or
--------
encumbrance of any kind to affect Landlord's interest in the Project; any such
lien or encumbrance shall attach to Tenant's interest only. If any mechanic's
lien shall be filed or claim of lien made for work or materials furnished to
Tenant, then Tenant shall at its expense within ten (10) days thereafter either
discharge or contest the lien or claim. If Tenant contests the lien or claim,
then Tenant shall (i) within such ten (10) day period, provide Landlord adequate
security for the lien or claim, (ii) contest the lien or claim in good faith by
appropriate proceedings that operate to stay its enforcement, and (iii) pay
promptly any final adverse judgment entered in any such proceeding. If Tenant
does not comply with these requirements, Landlord may discharge the lien or
claim, and the amount paid, as well as attorney's fees and other expenses
incurred by Landlord, shall become Additional Rent payable by Tenant on demand.
Landlord shall not grant to tenants in the Project rights to more parking than
exist in the Project.
11
<PAGE>
D. Ownership of Improvements. All Work as defined in this Section 5,
-------------------------
partitions, hardware, equipment, machinery and all other improvements and all
fixtures except trade fixtures, constructed in the Premises by either Landlord
or Tenant, (i) shall become Landlord's property upon installation without
compensation to Tenant, unless Landlord consents otherwise in writing, and (ii)
shall at Landlord's option either (a) be surrendered to Landlord with the
Premises at the termination of the Lease or of Tenant's right to possession, or
(b) be removed in accordance with Subsection 5.E below (unless Landlord at the
time it gives its consent to the performance of such construction expressly
waives in writing the right to require such removal).
E. Removal Upon Termination. Upon the termination of this Lease or
------------------------
Tenant's right of possession, Tenant shall remove from the Premises and Project
its trade fixtures, furniture, moveable equipment and other personal property,
any improvements which Landlord elects pursuant to Section 5.D shall be removed
by Tenant, and any improvements to any portion of the Project other than the
Premises. Tenant shall repair all damage caused by the installation or removal
of the foregoing items. If Tenant does not timely remove such property, then
Tenant shall be conclusively presumed to have, at Landlord's election (i)
conveyed such property to Landlord without compensation or (ii) abandoned such
property, and Landlord may dispose of or store any part thereof in any manner at
Tenant's sole cost, without waiving Landlord's right to claim from Tenant all
expenses arising out of Tenant's failure to remove the property, and without
liability to Tenant or any other person. Landlord shall have no duty to be a
bailee of any such personal property. If Landlord elects abandonment, Tenant
shall pay to Landlord, upon demand, any expenses incurred for disposition.
6. USE OF PREMISES.
---------------
A. Limitation on Use. Tenant shall use the Premises only for the
-----------------
Permitted Use stated in the Schedule. Tenant shall not allow any use of the
Premises which will negatively affect the cost of coverage of Landlord's
insurance on the Project. Tenant shall not allow any inflammable or explosive
liquids or materials to be kept on the Premises. Tenant shall not allow any use
of the Premises which would cause the value or utility of any part of the
Premises to diminish or would interfere with any other tenant or with the
operation of the Project by Landlord. Tenant shall not permit any nuisance or
waste to occur on the Project or upon the Premises, or allow any offensive noise
or odor in or around the Project. At the end of each business day, or more
frequently if necessary, Tenant shall deposit all garbage and other trash
(excluding any inflammable, explosive and/or hazardous materials) in trash bins
or containers approved by Landlord in locations designated by Landlord from time
to time. If any governmental authority shall deem the Premises to be a "place of
public accommodation" under the Americans with Disabilities Act or any other
comparable law as a result of Tenant's use, Tenant shall either modify its use
to cause such authority to rescind its designation or be responsible for any
alterations, structural or otherwise, required to be made to the Building or the
Premises under such laws.
B. Signs. Tenant shall not place on any portion of the Premises any
-----
sign, placard, lettering, banner, displays or other advertising or communicative
material which is visible from the exterior of the Building without the prior
written approval of Landlord (including any signage to be installed on the
monument sign). Any approved signs shall strictly
12
<PAGE>
conform to all Governmental Restrictions, any CC&R's recorded against the
Project, and any sign criteria which may be established by Landlord and in
effect at the time, and shall be installed (and removed upon the Termination
Date) at Tenant's expense. Tenant, at its sole cost, shall maintain such signs
in good condition and repair, including the repair of any damage caused to the
Building or Project upon Tenant's removal of such signs. Landlord current
Signage Standards are attached hereto as Exhibit E. Notwithstanding the
foregoing, Tenant, at Tenant's sole cost and expense, shall have the right to
place its name on the existing monument base for the Building.
C. Parking. Tenant shall have the nonexclusive right to park in the
-------
Project's parking facilities in common with other tenants of the Project upon
terms and conditions, as may from time to time be established by Landlord.
Tenant agrees not to overburden the parking facilities (i.e., use more than the
number of unassigned parking stalls indicated on the Schedule) and agrees to
cooperate with Landlord and other tenants in the Project in the use of the
parking facilities. Landlord reserves the right in its discretion to determine
whether the parking facilities are becoming crowded and to allocate and assign
parking spaces among Tenant and the other tenants in the Project. Landlord shall
have the right to charge Tenant the portion that Landlord deems allocable to
Tenant of any charges (e.g., fees or taxes) imposed by the Regional Air Quality
Control Board or other governmental or quasi-governmental agency in connection
with the parking facilities (e.g., in connection with operation or use of the
parking facilities). Landlord shall not be liable to Tenant, nor shall this
Lease be affected, if any parking is impaired by moratorium, initiative,
referendum, law, ordinance, regulation or order passed, issued or made by any
governmental or quasi-governmental body.
D. Prohibition Against Use of Roof and Structure of Building.
---------------------------------------------------------
Tenant shall be prohibited from using any all or any portion of the roof of the
Building or any portion of the structure of the Building during the Term of this
Lease (or any extensions thereof) for any purposes (including without limitation
for the installation, maintenance and repair of a satellite dish and/or other
telecommunications equipment), without the prior written consent of Landlord,
which consent Landlord may withhold in its sole and absolute discretion.
Notwithstanding the foregoing, Landlord shall grant Tenant with reasonable
access to the roof as may be reasonably necessary to allow Tenant to perform its
HVAC and other maintenance obligations hereunder, provided that such access
shall be subject to any reasonable rules and restrictions that Landlord may
impose from time to time. Nothing herein shall limit Landlord's rights under
Section 11.N, or require Landlord to obtain Tenant's consent prior to exercising
such rights.
7. GOVERNMENTAL REQUIREMENTS AND BUILDING RULES. Tenant shall comply
--------------------------------------------
with all Governmental Requirements applying to its use, maintenance and repair
of the Premises. Tenant shall also comply with all reasonable rules for the
Project which may be established and amended from time to time by Landlord. The
present rules and regulations are contained in Exhibit B. Failure by another
tenant to comply with the rules or failure by Landlord to enforce them shall not
relieve Tenant of its obligation to comply with the rules or make Landlord
responsible to Tenant in any way. Landlord shall use reasonable efforts to apply
the rules and regulations uniformly with respect to Tenant and any other tenants
in the Project under leases containing rules and regulations similar to this
Lease. In the event of alterations and repairs performed by Tenant, Tenant shall
comply with the provisions of Section 5 of this Lease and any applicable
"Policies, Rules and Regulations for Construction Projects" which may be
13
<PAGE>
established by Landlord and in effect at the time. Notwithstanding the
foregoing, Landlord shall perform any code compliance work, including ADA
compliance work, required in the common areas of the Project, except that Tenant
shall be solely responsible for all code compliance work, including ADA
compliance work, which is required in the common areas of the Project as a
result of Tenant's particular use or activities (e.g., Tenant's proposed
alterations or repairs). Except for Landlord's code compliance obligations as
set forth above, Tenant shall, at its sole cost and expense (i) perform all code
compliance work, including ADA compliance work, which is required in the common
areas of the Project as a result of Tenant's particular use or activities, and
(ii) take all proper and necessary action to cause the Premises, including any
repairs, replacements, alterations and improvements thereto, to be maintained,
constructed, used and occupied in compliance with applicable Governmental
Requirements, including any applicable code and ADA requirements, whether or not
such requirements are based on Tenant's use of the Premises, and further to
assume all responsibility to ensure the Premises' continued compliance with all
Governmental Requirements, including applicable code and ADA requirements,
throughout the Term. Landlord agrees that the Premises shall comply with
applicable code and ADA requirements as of the Commencement Date. Landlord makes
no representations or warranties regarding the Project's compliance with
applicable Governmental Requirements as of the date of this Lease. Tenant shall
pay as Additional Rent hereunder, Tenant's Proportionate Share of any code
compliance costs incurred by Landlord hereunder.
8. REPAIR AND MAINTENANCE.
----------------------
A. Landlord's Obligations. Landlord shall keep in good order,
----------------------
condition and repair (i) the structural parts of the Building, which structural
parts include only the foundation and subflooring of the Building and the
structural condition of the roof and the exterior walls of the Building (but
excluding the interior surfaces of exterior walls and exterior and interior of
all windows, doors, ceiling and plate glass which shall be maintained and
repaired by Tenant), (ii) the roof membrane, and (iii) the common areas of the
Project. The costs incurred by Landlord to perform the foregoing obligations to
the extent they are deemed "Operating Costs" (as defined in Section 2.C) shall
be passed through to Tenant and any other tenants in the Project, except that
any damage to any of the foregoing caused by the negligence or willful acts or
omissions of Tenant or of Tenant's agents, employees or invitees, or by reason
of the failure of Tenant to perform or comply with any terms of this Lease, or
caused by Tenant or Tenant's agents, employees or contractors during the
performance of any Work shall be repaired by Landlord, solely at Tenant's
expense, or at Landlord's election, such repairs shall be made by Tenant, at
Tenant's expense, with contractors approved by Landlord. It is an express
condition precedent to all obligations of Landlord to repair and maintain that
Tenant shall have notified Landlord of the need for such repairs or maintenance.
Tenant waives the provisions of Sections 1941 and 1942 of the California Civil
Code and any similar or successor law regarding Tenant's right to make repairs
and deduct the expenses of such repairs from the Rent due under this Lease.
Notwithstanding the foregoing, in the event Tenant notifies Landlord in
writing of an item needing immediate repair and there is no dispute concerning
the need for such repair, the scope of the repair or that Landlord is the party
responsible for such repair, then (A) in the event of an emergency repair (e.g.,
roof leakage or other repairs which adversely and materially affect Tenant's
ability to conduct its normal business operations within the Premises), Landlord
shall commence and complete such repair within the five (5) day period following
Landlord's receipt
14
<PAGE>
of Tenant's repair notice, unless the nature of the repair is such that more
than five (5) days is required to complete such repair in which case Landlord
shall commence the repair within such five (5) day period and thereafter
diligently prosecute the same to completion, or (b) in the event of any other
type of repair, Landlord shall commence and complete such repair within the
thirty (30) day period following Landlord's receipt of Tenant's repair notice,
unless the nature of the repair is such that more than thirty (30) days is
required to complete such repair in which case Landlord shall commence the
repair within such thirty (30) day period and thereafter diligently prosecute
the same to completion. In the event Landlord fails to dispute or commence the
repair within such thirty (30) day period, then Tenant shall have the right, but
not the obligation, to cause the repair of such item and to submit an invoice to
Landlord for the reasonable out-of-pocket costs incurred by Tenant for the same
(including reasonable supporting documentation for the same), and Landlord shall
pay such amount to Tenant within thirty (30) days of receipt of Tenant's invoice
and related documentation for such work.
B. TENANT'S OBLIGATIONS. Tenant shall at all times and at its own
--------------------
expense clean, keep and maintain in good order, condition and repair every part
of the Premises (including Tenant's fixtures and personal property) which is not
within Landlord's obligation pursuant to Section 8.A. Tenant's repair and
maintenance obligations shall include, all plumbing and sewage facilities within
the Premises, fixtures, interior walls and ceiling, floors, windows (including
the repairing, resealing, cleaning and replacing of both interior and exterior
windows), doors, entrances, plate glass, showcases, skylights, all electrical
facilities and equipment, including lighting fixtures, lamps, fans and any
exhaust equipment and systems, electrical motors and all other appliances and
equipment of every kind and nature located in, upon or about the Premises.
Tenant shall also be responsible for all pest control within the Premises, and
for all trash removal and disposal for the Premises. Tenant shall obtain HVAC
systems preventive maintenance contracts with bimonthly or monthly service in
accordance with manufacturer recommendations, which shall be subject to the
reasonable prior written approval of Landlord and paid for by Tenant, and which
shall provide for and include replacement of filters, oiling and lubricating of
machinery, parts replacement, adjustment of drive belts, oil changes and other
preventive maintenance, including annual maintenance of duct work, interior unit
drains and caulking at sheet metal, and recaulking of jacks and vents on an
annual basis. Tenant shall have the benefit of all warranties available to
Landlord regarding the equipment in such HVAC systems. To the extent Tenant
fails to perform such repairs or maintenance as required herein, Landlord may
elect to perform all repairs and maintenance itself, at Tenant's expense, to the
Building's mechanical, electrical or other systems in the Premises (e.g., HVAC,
life safety and automatic fire extinguisher/sprinkler systems). Landlord may
also perform any maintenance or repairs itself, at Tenant's expense, to the
extent Tenant fails to perform such maintenance or repairs as required herein.
9. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE.
--------------------------------------------
A. Waiver of Claims. To the extent permitted by law, Tenant waives
----------------
any claims it may have against Landlord or its officers, directors, employees or
agents for business interruption or damage to property sustained by Tenant as
the result of any act or omission of Landlord, its agents or employees. To the
extent permitted by law, Landlord waives any claims it may have against Tenant
or its officers, directors, employees or agents for loss of rents (other
15
<PAGE>
than Rent) or damage to property sustained by Landlord as the result of any act
or omission of Tenant, its agents or employees.
B. Indemnification. Tenant shall indemnify, defend and hold
---------------
harmless Landlord and its officers, directors, employees and agents against any
claim by any third party for injury to any person or damage to or loss of any
property occurring in or around the Project and arising from the use of the
Premises or from any other act or omission or negligence or intentional
misconduct of Tenant, its employees, agents or invitees, or Tenant's breach of
its obligations hereunder. Tenant's obligations under this section shall survive
the termination of this Lease.
Landlord shall indemnify, defend and hold harmless Tenant and its officers,
directors, employees and agents against any claim by any third party for injury
or damage to person or the Premises to the extent caused by the gross negligence
or intentional misconduct of Landlord or any of Landlord's employees or agents,
or Landlord's beach of its obligations hereunder. Landlord's obligations under
this section shall survive the termination of this Lease.
C. Tenant's Insurance. Tenant shall maintain insurance as follows,
------------------
with such other terms, coverages and insurers, as Landlord shall reasonably
require from time to time:
(1) Commercial general liability insurance, with (a) contractual
liability including the indemnification provisions contained in this Lease, (b)
a severability of interest endorsement, (c) limits of not less than Two Million
Dollars ($2,000,000) combined single limit per occurrence and not less than Two
Million Dollars ($2,000,000) in the aggregate for bodily injury, sickness or
death, and property damage, and umbrella coverage of not less than Five Million
Dollars ($5,000,000).
(2) Property Insurance against "All Risks" of physical loss
---------
covering the replacement cost of all improvements, fixtures and personal
property and business interruption. Tenant waives all rights of subrogation, and
Tenant's property insurance shall include a waiver of subrogation in favor of
Landlord.
(3) Workers' compensation or similar insurance in form and
amounts required by law, and Employer's Liability with not less than the
following limits:
Each Accident $500,000
Disease--Policy Limit $500,000
Disease--Each Employee $500,000
Such insurance shall contain a waiver of subrogation provision in favor
of Landlord and its agents.
Tenant's insurance shall be primary and not contributory to that carried by
Landlord, its agents, or mortgagee. Landlord, and if any, Landlord's building
manager or agent, mortgagee and ground lessor shall be named as additional
insureds as respects to insurance required of the Tenant in Section 9.C(1). The
company or companies writing any insurance which Tenant is required to maintain
under this Lease, as well as the form of such insurance, shall at all times be
subject to Landlord's approval, and any such company shall be licensed to do
business in the
16
<PAGE>
state in which the Building is located. Such insurance companies shall have a
A.M. Best rating of A VI or better.
(4) Tenant shall cause any contractor of Tenant performing work
on the Premises to maintain insurance as follows, with such other terms,
coverages and insurers, as Landlord shall reasonably require from time to time:
(a) Commercial General Liability Insurance, including
contractor's liability coverage, contractual liability
coverage, completed operations coverage, broad form
property damage endorsement, and contractor's
protective liability coverage, to afford protection
with limits, for each occurrence, of not less than One
Million Dollars ($1,000,000) with respect to personal
injury, death or property damage:
(b) Workers' compensation or similar insurance in form and
amounts required by law, and Employer's Liability with
not less than the following limits:
Each Accident $500,000
Disease--Policy Limit $500,000
Disease--Each Employee $500,000
Such insurance shall contain a waiver of subrogation provision in favor
of Landlord and its agents.
Tenant's contractor's insurance shall be primary and not contributory to
that carried by Tenant, Landlord, their agents or mortgagees. Tenant and
Landlord, and if any, Landlord's building manager or agent, mortgagee or ground
lessor shall be named as additional insured on Tenant's contractor's insurance
policies.
D. Insurance Certificates. Tenant shall deliver to Landlord
----------------------
certificates evidencing all required insurance no later than five (5) days prior
to the Commencement Date and each renewal date. Each certificate will provide
for thirty (30) days prior written notice of cancellation to Landlord and
Tenant.
E. Landlord's Insurance. Landlord shall maintain "All-Risk" property
-------------------- --------
insurance at replacement cost, including loss of rents, on the Building, and
commercial general liability insurance policies covering the common areas of the
Project, each with such terms, coverages and conditions as are normally carried
by reasonably prudent owners of properties similar to the Project. With respect
to property insurance, Landlord and Tenant mutually waive all rights of
subrogation, and the respective "All-Risk" coverage property insurance policies
--------
carried by Landlord and Tenant shall contain enforceable waiver of subrogation
endorsements.
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10. FIRE AND OTHER CASUALTY.
-----------------------
A. Termination. If a fire or other casualty causes substantial
-----------
damage to the Building or the Premises, and sufficient insurance proceeds will
be available to Landlord to cover the cost of any restoration to the Building
and the Premises, Landlord shall engage a registered architect to certify within
one (1) month of the casualty to both Landlord and Tenant the amount of time
needed to restore the Building and the Premises to tenantability, using standard
working methods without the payment of overtime and other premiums. If the time
needed exceeds twelve (12) months from the beginning of the restoration, or two
(2) months therefrom if the restoration would begin during the last twelve (12)
months of the Lease, then in the case of the Premises, either Landlord or Tenant
may terminate this Lease, and in the case of the Building, Landlord may
terminate this Lease, by notice to the other party within ten (10) days after
the notifying party's receipt of the architect's certificate. If sufficient
insurance proceeds will not be available to Landlord to cover the cost of any
restoration to the Building or the Premises, Landlord may terminate this Lease
by written notice to Tenant. Any termination pursuant to this Section 10.A shall
be effective thirty (30) days from the date of such termination notice and Rent
shall be paid by Tenant to that date, with an abatement for any portion of the
Premises which has been untenantable after the casualty. Notwithstanding any of
the foregoing, Landlord shall not have the right to terminate the Lease if the
damage to the Premises is relatively minor (for example, if the repair or
restoration would cost less than ten percent (10%) of the replacement cost of
the Premises.
B. Restoration. If a casualty causes damage to the Building or the
-----------
Premises but this Lease is not terminated for any reason, then subject to the
rights of any mortgagees or ground lessors, Landlord shall obtain the applicable
insurance proceeds and diligently restore the Building and the Premises subject
to current Governmental Requirements. Landlord's obligation, should it elect or
be obligated to repair or rebuild, shall be limited to the basic Premises, the
building-standard Tenant Improvements, or the basic Building, as the case may
be, and Tenant shall, at Tenant's expense, replace or fully repair its damaged
improvements (including any Tenant Improvements in excess of the building
standard), personal property and fixtures. Rent shall be abated on a per diem
basis during the restoration for any portion of the Premises which is
untenantable, except to the extent that the casualty was caused by the
negligence or intentional misconduct of Tenant, its agents or employees. Tenant
shall not be entitled to any compensation or damages from Landlord for loss of
the use of the Premises, damage to Tenant's personal property and trade fixtures
or any inconvenience occasioned by such damage, repair or restoration. Tenant
hereby waives the provisions of Section 1932, Subdivision 2, and Section 1933,
Subdivision 4, of the California Civil Code, and the provisions of any similar
law hereinafter enacted.
11. EMINENT DOMAIN. If a part of the Project is taken by eminent domain
--------------
or deed in lieu thereof which is so substantial that the Premises cannot
reasonably be used by Tenant for the operation of its business, then either
party may terminate this Lease effective as of the date of the taking. If any
substantial portion of the Project is taken without affecting the Premises, then
Landlord may terminate this Lease as of the date of such taking. Rent shall
abate from the date of the taking in proportion to any part of the Premises
taken. The entire award for a taking of any kind shall be paid to Landlord, and
Tenant shall have no right to share in the award; provided that (i) nothing
contained herein shall be deemed to give Landlord any interest
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in or require Tenant to assign to Landlord any separate award made to Tenant for
the taking of Tenant's personal property and trade fixtures or its relocation
costs, and (ii) in the event of a temporary taking in which there was no Rent
abatement under this Lease, then Tenant shall be entitled to any portion of such
award which was intended to compensate Landlord for lost Rent for the Premises
during the period of the temporary taking. All obligations accrued to the date
of the taking shall be performed by the party liable to perform such obligation
as set forth herein. Tenant may pursue a separate award for its trade fixtures
and moving expenses in connection with the taking, but only if such recovery
does not reduce the award payable to Landlord.
12. RIGHTS RESERVED TO LANDLORD. Landlord may exercise at any time any of
---------------------------
the following rights respecting the operation of the Project without liability
to Tenant of any kind:
A. Name. To change the name of all or any of the Buildings or the
----
Project, or the street address of the Buildings or the suite number(s) of the
Premises.
B. Signs. To install, modify and/or maintain any necessary and
-----
appropriate signs on the exterior and in the interior of the Buildings or on the
Project, and to approve at its sole discretion, prior to installation, any of
Tenant's signs in the Premises visible from the common areas or the exterior of
the Building.
C. Window Treatments. To approve, at its discretion, prior to
-----------------
installation, any shades, blinds, ventilators or window treatments of any kind,
as well as any lighting within the Premises that may be visible from the
exterior of the Building or any interior common area.
E. Access. To have access to the Premises with twenty four hour
------
prior notice (except in the case of an emergency in which case Landlord shall
have the right to immediate access) to inspect the Premises, and to perform its
obligations, or make repairs, alterations, additions or improvements, as
permitted by this Lease.
F. Preparation for Reoccupancy. To decorate, remodel, repair,
---------------------------
alter or otherwise prepare the Premises for reoccupancy at any time after Tenant
abandons the Premises, without relieving Tenant of any obligation to pay Rent.
G. Heavy Articles. To approve the weight, size, placement and time
--------------
and manner of movement within the Building of any safe, central filing system or
other heavy article of Tenant's property. Tenant shall move its property
entirely at its own risk.
H. Show Premises. To show the Premises to prospective purchasers,
-------------
tenants, brokers, lenders, mortgagees, investors, rating agencies or others at
any reasonable time, provided that Landlord gives prior notice to Tenant and
does not materially interfere with Tenant's use of the Premises.
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J. Use of Lockbox. To designate a lockbox collection agent for
--------------
collections of amounts due Landlord. In that case, the date of payment of Rent
or other sums shall be the date of the agent's receipt of such payment or the
date of actual collection if payment is made in the form of a negotiable
instrument thereafter dishonored upon presentment. However, Landlord may reject
any payment for all purposes as of the date of receipt or actual collection by
mailing to Tenant within 21 days after such receipt or collection a check equal
to the amount sent by Tenant, provided that Tenant in then in "Default" under
the terms of this Lease (as defined in Section 13).
K. Repairs and Alterations. To make repairs or alterations to the
-----------------------
Project and in doing so transport any required material through the Premises, to
close entrances, doors, corridors, elevators and other facilities in the
Project, to open any ceiling in the Premises, or to temporarily suspend services
or use of common areas in the Building. Landlord may perform any such repairs or
alterations during ordinary business hours, except that Tenant may require any
work in the Premises to be done after business hours if Tenant pays Landlord for
overtime and any other expenses incurred. Landlord may do or permit any work on
any nearby building, land, street, alley or way.
L. Landlord's Agents. If Tenant is in default under this Lease,
-----------------
possession of Tenant's funds or negotiation of Tenant's negotiable instrument by
any of Landlord's agents shall not waive any breach by Tenant or any remedies of
Landlord under this Lease.
M. Building Services. To install, use and maintain through the
-----------------
Premises, pipes, conduits, wires and ducts serving the Building, provided that
such installation, use and maintenance does not unreasonably interfere with
Tenant's use of the Premises.
N. Use of Roof. To permit Landlord (or any entity selected by
-----------
Landlord) to install, operate, maintain and repair any satellite dish, antennae,
equipment, or other facility on the roof of the Building or to use the roof of
the Building in any other manner, provided that such installation, operation,
maintenance, repair or use does not unreasonably interfere with Tenant's use of
the Premises.
O. Other Actions. To take any other action which Landlord deems
-------------
reasonable in connection with the operation, maintenance or preservation of the
Building and the Project.
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13. TENANT'S DEFAULT. ANY OF THE FOLLOWING SHALL CONSTITUTE A DEFAULT BY
----------------
TENANT:
A. Rent Default. Tenant fails to pay any Rent within five (5) days
------------
after notice that such payment was not paid when due, provided that Tenant
acknowledges that such notice shall be in lieu of and not in addition to any
notice required to be given by Landlord to commence an unlawful detainer action
(or similar eviction proceeding) under the then applicable law;
B. Assignment/Sublease or Hazardous Substances Default. Tenant
---------------------------------------------------
defaults in its obligations under Section 18 Assignment and Sublease or Section
29 Hazardous Substances;
C. Other Performance Default. Tenant fails to perform any other
-------------------------
obligation to Landlord under this Lease, and this failure continues for ten (10)
days after written notice from Landlord, except that if Tenant begins to cure
its failure within the ten (10) day period but cannot reasonably complete its
cure within such period, then, so long as Tenant continues to diligently attempt
to cure its failure, the ten (10) day period shall be extended to sixty (60)
days, or such lesser period as is reasonably necessary to complete the cure;
D. Credit Default. One of the following credit defaults occurs:
--------------
(1) Tenant commences any proceeding under any law relating to
bankruptcy, insolvency, reorganization or relief of debts, or seeks appointment
of a receiver, trustee, custodian or other similar official for the Tenant or
for any substantial part of its property, or any such proceeding is commenced
against Tenant and either remains undismissed for a period of thirty (30) days
or results in the entry of an order for relief against Tenant which is not fully
stayed within seven (7) days after entry;
(2) Tenant becomes insolvent or bankrupt, does not generally pay
its debts as they become due, or admits in writing its inability to pay its
debts, or makes a general assignment for the benefit of creditors;
(3) Any third party obtains a levy or attachment under process
of law against Tenant's leasehold interest.
E. Abandonment Default. Tenant abandons the Premises.
-------------------
14. LANDLORD REMEDIES. UPON A DEFAULT, LANDLORD SHALL HAVE THE FOLLOWING
-----------------
REMEDIES, IN ADDITION TO ALL OTHER RIGHTS AND REMEDIES PROVIDED BY LAW OR
OTHERWISE PROVIDED IN THIS LEASE, TO WHICH LANDLORD MAY RESORT CUMULATIVELY OR
IN THE ALTERNATIVE:
A. Termination of Lease or Possession. If Tenant defaults, Landlord
----------------------------------
may elect by notice to Tenant either to terminate this Lease or to terminate
Tenant's possession of the Premises without terminating this Lease. In either
case, Tenant shall immediately vacate the Premises and deliver possession to
Landlord, and Landlord may repossess the Premises and may, at Tenant's sole
cost, remove any of Tenant's signs and any of its other property, without
21
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relinquishing its right to receive Rent or any other right against Tenant. In
the latter case, this Lease shall continue in full force and effect as long as
Landlord does not terminate this Lease, and Landlord shall have the right to
collect Rent when due.
B. Possession Termination Damages. If Landlord elects to terminate
------------------------------
Tenant's possession without terminating this Lease and Landlord takes possession
of the Premises itself, then Landlord may relet for Tenant's account all or any
portion of the Premises for such rent, length of time and other terms as
Landlord in its sole discretion shall determine, without any obligation to do so
prior to renting other vacant areas in the Building. Tenant shall be liable
immediately to Landlord for all costs Landlord incurs in reletting the Premises
or any part thereof, including, without limitation, broker's commissions,
expenses of cleaning and redecorating the Premises required by the reletting and
like costs. Tenant shall pay to Landlord the Rent and other sums due under this
Lease on the date the Rent is due, less the rent and other sums received by
Landlord from any releasing of the Premises. No act by Landlord other than
giving written notice to Tenant shall terminate this Lease. Acts of maintenance,
efforts to relet the Premises or the appointment of a receiver on Landlord's
initiative to protect Landlord's interest under this Lease shall not constitute
a termination of Tenant's right to possession.
C. Lease Termination Damages. If Landlord elects to terminate this
-------------------------
Lease, then this Lease shall terminate on the date for termination set forth in
such notice. Tenant shall immediately vacate the Premises and deliver possession
to Landlord, and Landlord may repossess the Premises and may, at Tenant's sole
cost, remove any of Tenant's signs and any of its other property, without
relinquishing its right to receive Rent or any other right against Tenant. On
termination, Landlord has the right to recover from Tenant as damages:
(1) The worth at the time of award of unpaid Rent and other sums
due and payable which had been earned at the time of termination; plus
(2) The worth at the time of award of the amount by which the
unpaid Rent and other sums due and payable which after termination until the
time of award exceeds the amount of such Rent loss that Tenant proves could have
been reasonably avoided; plus
(3) The worth at the time of award of the amount by which the
unpaid Rent and other sums due and payable for the balance of the Term after the
time of award exceeds the amount of such Rent loss that Tenant proves could be
reasonably avoided; plus
(4) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform Tenant's
obligations under this Lease, or which, in the ordinary course of things, would
be likely to result therefrom, including, without limitation, any costs or
expenses incurred by Landlord: (i) in retaking possession of the Premises; (ii)
in maintaining, repairing, preserving, restoring, replacing, cleaning, altering
or rehabilitating the Premises or any portion thereof, including such acts for
reletting to a new tenant or tenants; (iii) for leasing commissions; or (iv) for
any other costs necessary or appropriate to relet the Premises; plus
(5) At Landlord's election, such other amounts in addition to or
in lieu of the foregoing as may be permitted from time to time by the laws of
the State of California.
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The "worth at the time of award" of the amounts referred to in Sections
14.C(1) and 14C(2) is computed by allowing interest at the maximum rate
permitted by law on the unpaid rent and other sums due and payable from the
termination date through the date of award. The "worth at the time of award" of
the amount referred to in Section 14.C(3) is computed by discounting such amount
at the discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus one percent (1%). Tenant waives redemption or relief from forfeiture
under California Code of Civil Procedure Sections 1174 and 1179, or under any
other present or future law, in the event Tenant is evicted or Landlord takes
possession of the Premises by reason of any default of Tenant hereunder.
D. Landlord's Remedies Cumulative. All of Landlord's remedies under
------------------------------
this Lease shall be in addition to all other remedies Landlord may have at law
or in equity, including without limitation, the remedy described in California
Civil Code Section 1951.4 (i.e., Landlord may continue the Lease in effect after
Tenant's breach and abandonment and recover as rent as it becomes due if Tenant
has the right to sublet or assign the Lease, subject to reasonable limitations).
Waiver by Landlord of any breach of any obligation by Tenant shall be effective
only if it is in writing, and shall not be deemed a waiver of any other breach,
or any subsequent breach of the same obligation. Landlord's acceptance of
payment by Tenant shall not constitute a waiver of any breach by Tenant, and if
the acceptance occurs after Landlord's notice to Tenant, or termination of the
Lease or of Tenant's right to possession, the acceptance shall not affect such
notice or termination. Acceptance of payment by Landlord after commencement of a
legal proceeding or final judgment shall not affect such proceeding or judgment.
Landlord may advance such monies and take such other actions for Tenant's
account as reasonably may be required to cure or mitigate any default by Tenant.
Tenant shall immediately reimburse Landlord for any such advance, and such sums
shall bear interest at the default interest rate until paid.
E. WAIVER OF TRIAL BY JURY. EACH PARTY WAIVES TRIAL BY JURY IN THE
-----------------------
EVENT OF ANY LEGAL PROCEEDING BROUGHT BY THE OTHER IN CONNECTION WITH THIS
LEASE. EACH PARTY SHALL BRING ANY ACTION AGAINST THE OTHER IN CONNECTION WITH
THIS LEASE IN A FEDERAL OR STATE COURT LOCATED IN CALIFORNIA, CONSENTS TO THE
JURISDICTION OF SUCH COURTS, AND WAIVES ANY RIGHT TO HAVE ANY PROCEEDING
TRANSFERRED FROM SUCH COURTS ON THE GROUND OF IMPROPER VENUE OR INCONVENIENT
FORUM.
F. Litigation Costs. Tenant shall pay Landlord's reasonable
----------------
attorneys' fees and other costs in enforcing this Lease, whether or not suit is
filed.
15. SURRENDER. Upon the expiration or earlier termination of this Lease
---------
for any reason, Tenant shall surrender the Premises to Landlord in its condition
existing as of the commencement date, normal wear and tear and damage by fire or
other casualty excepted, with all interior walls repaired and repainted if
marked or damaged, all carpets shampooed and cleaned, all broken, marred or
nonconforming acoustical ceiling tiles replaced, all windows washed, the
plumbing and electrical systems and lighting in good order and repair, including
replacement of any burned out or broken light bulb or ballasts, the HVAC
equipment serviced and repaired by a reputable and licensed service firm
acceptable to Landlord, and all floors
23
<PAGE>
cleaned and waxed, all to the reasonable satisfaction of Landlord. Tenant shall
remove from the Premises all of Tenant's personal property and all of Tenant's
alterations required to be removed pursuant to Section 5.E, and restore the
Premises to its condition prior to their installation. If Tenant fails to remove
any alterations and/or Tenant's personal property, and such failure continues
after the termination of this Lease, Landlord may retain or dispose of such
property and all rights of Tenant with respect to it shall cease, or Landlord
may place all or any portion of such property in public storage for Tenant's
account. Tenant shall be liable to Landlord for costs of removal of any such
alterations and Tenant's personal property and storage and transportation costs
of same, and the cost of repairing and restoring the Landlord, together with
interest at the interest rate from the date of expenditure by Landlord. If the
Premises are not so surrendered at the termination of this Lease, Tenant shall
indemnify Landlord against all loss or liability, including attorneys' fees and
costs, resulting from delay by Tenant in so surrendering the Premises.
16. HOLDOVER. Tenant shall have no right to holdover possession of the
--------
Premises after the expiration or termination of this Lease without Landlord's
prior written consent which Landlord may withhold in its sole and absolute
discretion. If, however, Tenant retains possession of any part of the Premises
after the term, Tenant shall become a tenant at sufferance only, for the entire
Premises upon all of the terms of this Lease as might be applicable to such
tenancy, except that Tenant shall pay all of the Base Rent, Operating Cost Share
Rent and Tax Share Rent at double the rate in effect immediately prior to such
holdover, computed on a monthly basis for each full or partial month Tenant
remains in possession. Tenant shall also pay Landlord all of Landlord's direct
and consequential damages resulting from Tenant's holdover. No acceptance of
rent or other payments by Landlord under these holdover provisions shall operate
as a waiver of Landlord's right to regain possession or any other of Landlord's
remedies.
17. SUBORDINATION TO GROUND LEASES AND MORTGAGES.
--------------------------------------------
A. Subordination. This Lease shall be subordinate to any present or
-------------
future ground lease or mortgage respecting the Project, and any amendments to
such ground lease or mortgage, at the election of the ground lessor or mortgagee
as the case may be, effected by notice to Tenant in the manner provided in this
Lease. The subordination shall be effective upon such notice, but at the request
of Landlord or ground lessor or mortgagee, Tenant shall within ten (10) days of
the request, execute and deliver to the requesting party any reasonable
documents provided to evidence the subordination. Any mortgagee has the right,
at its sole option, to subordinate its mortgage to the terms of this Lease,
without notice to, nor the consent of, Tenant. At any time that the Project is
made subject to any ground lease or mortgage, Landlord shall use commercially
reasonable efforts to cause the mortgagee or ground lessor to deliver to Tenant
a non-disturbance agreement reasonably acceptable to Tenant, providing that so
long as Tenant is not in default under the Lease after the expiration of any
applicable notice and cure periods, Tenant may remain in possession of the
Premises under the terms of this Lease, even if the ground lessor should
terminate the ground lease or if the mortgagee or its successor should acquire
Landlord's title to the Project. Landlord shall have no responsibility for and
Tenant shall pay for all costs associated with obtaining such non-disturbance
agreement (e.g., attorneys' fees and any fees charged by the ground lessor or
mortgagee).
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B. Termination of Ground Lease or Foreclosure of Mortgage. If any
------------------------------------------------------
ground lease is terminated or mortgage foreclosed or deed in lieu of foreclosure
given and the ground lessor, mortgagee, or purchaser at a foreclosure sale shall
thereby become the owner of the Project, Tenant shall attorn to such ground
lessor or mortgagee or purchaser without any deduction or setoff by Tenant, and
this Lease shall continue in effect as a direct lease between Tenant and such
ground lessor, mortgagee or purchaser. The ground lessor or mortgagee or
purchaser shall be liable as Landlord only during the time such ground lessor or
mortgagee or purchaser is the owner of the Project. At the request of Landlord,
ground lessor or mortgagee, Tenant shall execute and deliver within ten (10)
days of the request any document furnished by the requesting party to evidence
Tenant's agreement to attorn.
C. Security Deposit. Any ground lessor or mortgagee shall be
----------------
responsible for the return of any security deposit by Tenant only to the extent
any security deposit is received by such ground lessor or mortgagee.
D. Notice and Right to Cure. Tenant agrees to send by registered or
------------------------
certified mail to any ground lessor or mortgagee identified in any notice from
Landlord to Tenant a copy of any notice of default sent by Tenant to Landlord.
If Landlord fails to cure such default within the required time period under
this Lease, but ground lessor or mortgagee begins to cure within ten (10) days
after such period and proceeds diligently to complete such cure, then ground
lessor or mortgagee shall have such additional time as is necessary to complete
such cure, including any time necessary to obtain possession if possession is
necessary to cure, and Tenant shall not begin to enforce its remedies so long as
the cure is being diligently pursued.
E. Definitions. As used in this Section 17, "mortgage" shall
-----------
include "trust deed" and "deed of trust", and "mortgagee" shall include
"trustee", "beneficiary" and the mortgagee of any ground lessee, and "ground
lessor," "mortgagee," and "purchaser at a foreclosure sale" shall include, in
each case, all of its successors and assigns, however remote.
18. ASSIGNMENT AND SUBLEASE.
-----------------------
A. In General. Except in the case of a "Permitted Transfer", Tenant
----------
shall not, without the prior consent of Landlord in each case, (i) make or allow
any assignment or transfer, by operation of law or otherwise, of any part of
Tenant's interest in this Lease, (ii) grant or allow any lien or encumbrance, by
operation of law or otherwise, upon any part of Tenant's interest in this Lease,
(iii) sublet any part of the Premises, or (iv) permit anyone other than Tenant
and its employees to occupy any part of the Premises. Tenant shall remain
primarily liable for all of its obligations under this Lease, notwithstanding
any assignment or transfer. No consent granted by Landlord shall be deemed to be
a consent to any subsequent assignment or transfer, lien or encumbrance,
sublease or occupancy. Tenant shall pay all of Landlord's attorneys' fees and
other expenses incurred in connection with any consent requested by Tenant or in
reviewing any proposed assignment or subletting. Any assignment or transfer,
grant of lien or encumbrance, or sublease or occupancy without Landlord's prior
written consent shall be void. If Tenant shall assign this Lease or sublet the
Premises in its entirety any rights of Tenant to renew this Lease, extend the
Term or to lease additional space in the Project shall be extinguished thereby
and will not be transferred to the assignee or subtenant, all such rights being
personal to the Tenant named herein. If Tenant shall assign this Lease or sublet
the Premises in its entirety (except in
25
<PAGE>
the case of a "Permitted Transfer", as defined below) any rights of Tenant to
renew this Lease, extend the Term or to lease additional space in the Project
shall be extinguished thereby and will not be transferred to the assignee or
subtenant, all such rights being personal to the Tenant named herein. If no
default on the part of Tenant has occurred and is continuing (after notice and
expiration of applicable cure periods), Tenant may assign this Lease or sublet
any portion of the Premises (hereinafter collectively referred to as a
"Permitted Transfer") to (i) a parent or subsidiary of Tenant, or an entity
under common control with Tenant, (ii) an entity into which Tenant is merged or
consolidated, (iii) an entity which acquires substantially all of Tenant's
assets (collectively, any entity described in (i), (ii) and (iii) is deemed a
"Tenant Affiliate"), if Tenant (a) notifies Landlord at least ten (10) business
days prior to the Permitted Transfer, (b) provides Landlord with information
satisfactory to Landlord to determine that the net worth of the successor entity
is equal to or greater than the net worth of Tenant both as of the Commencement
Date and at the time immediately prior to such transfer or assignment, and (c)
furnishes Landlord with a written document executed by such assignee or
subtenant (including any Tenant Affiliate) in which such entity assumes all of
Tenant's obligations under this Lease. No Permitted Transfer shall release
Tenant from any of its obligations hereunder, nor result in any change in the
permitted "uses" of the Premises.
B. Landlord's Consent. Landlord will not unreasonably withhold its
------------------
consent to any proposed assignment or subletting. It shall be reasonable for
Landlord to withhold its consent to any assignment or sublease if (i) Tenant is
in default under this Lease, (ii) the proposed assignee or sublessee is a Tenant
in the Project or an affiliate of such a Tenant or a party that Landlord has
identified as a prospective Tenant in the Project, (iii) the financial
responsibility, nature of business, and character of the proposed assignee or
subtenant are not all reasonably satisfactory to Landlord, (iv) in the
reasonable judgment of Landlord the purpose for which the assignee or subtenant
intends to use the Premises (or a portion thereof) is not in keeping with
Landlord's standards for the Building or are in violation of the terms of this
Lease or any other leases in the Project, or (v) the proposed assignee or
subtenant is a government entity. The foregoing shall not exclude any other
reasonable basis for Landlord to withhold its consent.
C. Procedure. Tenant shall notify Landlord of any proposed
---------
assignment or sublease at least thirty (30) days prior to its proposed effective
date. The notice shall include the name and address of the proposed assignee or
subtenant, its corporate affiliates in the case of a corporation and its
partners in a case of a partnership, an execution copy of the proposed
assignment or sublease agreement, and sufficient information to permit Landlord
to determine the financial responsibility and character of the proposed assignee
or subtenant. As a condition to any effective assignment of this Lease, the
assignee shall execute and deliver in form satisfactory to Landlord at least
fifteen (15) days prior to the effective date of the assignment, an assumption
of all of the obligations of Tenant under this Lease. As a condition to any
effective sublease, subtenant shall execute and deliver in form satisfactory to
Landlord at least fifteen (15) days prior to the effective date of the sublease,
an agreement to comply with all of Tenant's obligations under this Lease, and at
Landlord's option, an agreement (except for the economic obligations which
subtenant will undertake directly to Tenant) to attorn to Landlord under the
terms of the sublease in the event this Lease terminates before the sublease
expires.
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D. Change of Management or Ownership. Any transfer of the direct or
---------------------------------
indirect power to affect the management or policies of Tenant or direct or
indirect change in 49% or more of the ownership interest in Tenant shall
constitute an assignment of this Lease.
E. Excess Payments. If Tenant shall assign this Lease or sublet any
---------------
part of the Premises for consideration in excess of the pro-rata portion of Rent
applicable to the space subject to the assignment or sublet, then Tenant shall
pay to Landlord as Additional Rent 50% of any such excess immediately upon
receipt; provided that prior to sharing such excess rent with Landlord, Tenant
shall be entitled to reimburse itself for all reasonable leasing commissions,
attorneys' fees and tenant improvement costs which were specifically and
reasonably incurred in connection with such assignment of this Lease or sublet
of the Premises.
F. Recapture. Landlord may, by giving written notice to Tenant
---------
within thirty (30) days after receipt of Tenant's notice of assignment or
subletting, terminate this Lease with respect to the space described in Tenant's
notice, as of the effective date of the proposed assignment or sublease and all
obligations under this Lease as to such space shall expire except as to any
obligations that expressly survive any termination of this Lease.
19. CONVEYANCE BY LANDLORD. If Landlord shall at any time transfer its
----------------------
interest in the project or this Lease, Landlord shall be released of any
obligations occurring after such transfer, except the obligation to return to
Tenant any security deposit not delivered to its transferee, and Tenant shall
look solely to Landlord's successors for performance of such obligations. This
Lease shall not be affected by any such transfer.
20. ESTOPPEL CERTIFICATE. Each party shall, within ten (10) days of
--------------------
receiving a request from the other party, execute, acknowledge in recordable
form, and deliver to the other party or its designee a certificate stating,
subject to a specific statement of any applicable exceptions, that the Lease as
amended to date is in full force and effect, that the Tenant is paying Rent and
other charges on a current basis, and that to the best of the knowledge of the
certifying party, the other party has committed no uncured defaults and has no
offsets or claims. The certifying party may also be required to state the date
of commencement of payment of Rent, the Commencement Date, the Termination Date,
the Base Rent, the current Operating Cost Share Rent and Tax Share Rent
estimates, the status of any improvements required to be completed by Landlord,
the amount of any security deposit, and such other matters as may be reasonably
requested. Failure to deliver such statement within the time required shall be
conclusive evidence against the non-certifying party that this Lease, with any
amendments identified by the requesting party, is in full force and effect, that
there are no uncured defaults by the requesting party, that not more than one
month's Rent has been paid in advance, that the non-certifying party has not
paid any security deposit, and that the non-certifying party has no claims or
offsets against the requesting party.
21. LEASE DEPOSIT. Tenant shall deposit with Landlord on the date Tenant
-------------
executes and delivers this Lease to Landlord the cash sums set forth in the
Schedule for both Prepaid Rent, Security Deposit (collectively, the "Lease
Deposit"). The Prepaid Rent shall be applied by Landlord against the first full
month's Base Rent payment obligation hereunder. The Security Deposit shall be
held by Landlord during the Term as security for the performance of all of
Tenant's obligations hereunder. Notwithstanding the foregoing, Landlord agrees
that a
27
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portion of the Security Deposit, not to exceed $200,433.00 may be in the form of
a "Letter of Credit", provided that the Letter of Credit shall (i) be in the
form of an unconditional and irrevocable letter of credit which is acceptable to
Landlord, (ii) name Landlord as a beneficiary, (iii) expressly allow Landlord to
draw upon it (including partial withdrawals) at any time from time to time by
delivering to the issuer written certification that Landlord is entitled to draw
thereunder as a result of Tenant's default hereunder, (iv) be drawable on an
FDIC-insured financial institution satisfactory to Landlord, (v) be redeemable
in the state of California in one of the nine counties comprises the San
Francisco-Oakland-San Jose area (the "Bay Area"), (vi) allow partial draws, and
(vii) be transferable to any successor to Landlord's interest in this Lease at
no cost to Landlord. As of the Commencement Date, and at all times during the
Term, the sum of the amount drawable under the Letter of Credit and the cash
portion of the Security Deposit held by Landlord shall be equal or greater than
the total amount of the Security Deposit as set forth in the Schedule. If Tenant
does not provide Landlord with a substitute Letter of Credit complying with all
of the requirements hereof at least thirty (30) days before the stated
expiration date of the current Letter of Credit, then Landlord shall have the
right to draw upon the current Letter of Credit and hold the funds drawn as part
of the Security Deposit. In the event Landlord notifies Tenant in writing that
the bank which issued the Letter of Credit has become financially unacceptable
(e.g., the bank is under investigation by governmental authorities, has filed
bankruptcy or reorganization proceedings, or has closed two or more of its
branches in the Bay Area), then Tenant shall have thirty (30) days to provide
Landlord with a substitute Letter of Credit complying with all of the
requirements hereof. The cash portion of the Security Deposit and the Letter of
Credit are collectively referred to herein as the "Security Deposit". In the
event Tenant initially pays the entire Security Deposit to Landlord in cash,
then Landlord agrees after it receives a Letter of Credit which satisfies the
requirements set forth above to promptly refund to Tenant an amount equal to the
lesser of (i) the amount of the Letter of Credit, or (ii) $204,208.00. If Tenant
defaults under this Lease, Landlord may apply all or any part of the Security
Deposit for the payment of any Rent or other sum in default, the repair of any
damage to the Premises caused by Tenant or the payment of any other amount which
Landlord may spend or become obligated to spend by reason of Tenant's default or
to compensate Landlord for any other loss or damage which Landlord may suffer by
reason of Tenant's default to the full extent permitted by law. Tenant hereby
waives any restriction on the use or application of the Security Deposit by
Landlord as set forth in California Civil Code Section 1950.7. To the extent any
portion of the Security Deposit is used, Tenant shall within five (5) days after
demand from Landlord restore the deposit to its full amount. Landlord may keep
the Security Deposit in its general funds and shall not be required to pay
interest to Tenant on the deposit amount. If Tenant shall perform all of its
obligations under this Lease and return the Premises to Landlord at the end of
the Term, Landlord shall return all of the remaining Security Deposit to Tenant
within thirty (30) days after the end of the Term. The Security Deposit shall
not serve as an advance payment of Rent or a measure of Landlord's damages for
any default under this Lease.
If Landlord transfers its interest in the Project or this Lease, Landlord
may transfer the Security Deposit to its transferee. Upon such transfer,
Landlord shall have no further obligation to return the Security Deposit to
Tenant, and Tenant's right to the return of the Security Deposit shall apply
solely against Landlord's transferee.
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22. FORCE MAJEURE. Landlord shall not be in default under this Lease to
-------------
the extent Landlord is unable to perform any of its obligations on account of
any prevention, delay, stoppage due to strikes, lockouts, inclement weather,
labor disputes, inability to obtain labor, materials, fuels, energy or
reasonable substitutes therefor, governmental restrictions, regulations,
controls, actions or inaction, civil commotion, fire or other acts of God,
national emergency, or any other cause of any kind beyond the reasonable control
of Landlord (except financial inability) (collectively "Force Majeure").
-------------
23. TENANT'S PERSONAL PROPERTY AND TRADE FIXTURES. In addition to any
---------------------------------------------
statutory lien, Tenant hereby grants to Landlord a line against and a security
interest in all of Tenant's personal property and trade fixtures now or
hereafter located within the Premises as additional security for performance of
all of Tenant's obligations under this Lease. Tenant may replace such personal
property and fixtures with items of equal or better quality, but shall not
otherwise remove them from the Premises without the consent of Landlord until
all of the obligations of Tenant under this Lease have been performed. This
Lease constitutes a security agreement creating a security interest in such
property in favor of Landlord, subject only to the liens of existing creditors,
and Landlord may at any time file this Lease as a financing statement under the
Uniform Commercial Code of the state in which the Project is located.
Alternatively, if requested to do so by Landlord, Tenant shall execute and
deliver to Landlord within ten (10) days of such request a Form UCC-1 Financing
Statement wherein Landlord is the secured party and Tenant is the debtor.
24. NOTICES. All notices, consents, approvals and similar communications
-------
to be given by one party to the other under this Lease, shall be given in
writing, mailed or personally delivered as follows:
A. Landlord. To Landlord as follows:
--------
CarrAmerica Realty Corporation
1810 Gateway Drive, Suite 150
San Mateo, California 94404
Attn: Market Officer
with a copy to:
CarrAmerica Realty Corporation
1850 K Street, N.W., Suite 500
Washington, D.C. 20006
Attn: Lease Administration
29
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or to such other person at such other address as Landlord may designate by
notice to Tenant.
B. Tenant. To Tenant as follows:
------
Numerical Technologies, Inc.
2630 Walsh Avenue
Santa Clara, CA 95051
Attn: Grace K. Fujiwara
or to such other person at such other address as Tenant may designate by
notice to Landlord.
Mailed notices shall be sent by United States certified or registered mail,
or by a reputable national overnight courier service, postage prepaid. Mailed
notices shall be deemed to have been given on the earlier of actual delivery or
three (3) business days after posting in the United States mail in the case of
registered or certified mail, and one business day in the case of overnight
courier.
25. QUIET POSSESSION. So long as Tenant shall perform all of its
----------------
obligations under this Lease, Tenant shall enjoy peaceful and quiet possession
of the Premises against any party claiming through the Landlord, subject to all
of the terms of this Lease.
26. REAL ESTATE BROKER. Tenant represents to Landlord that Tenant has not
------------------
dealt with any real estate broker with respect to this Lease except for any
broker(s) listed in the Schedule, and no other broker is in any way entitled to
any broker's fee or other payment in connection with this Lease. Tenant shall
indemnify and defend Landlord against any claims by any other broker or third
party for any payment of any kind in connection with this Lease.
27. MISCELLANEOUS.
-------------
A. Successors and Assigns. Subject to the limits on Tenant's
----------------------
assignment contained in Section 18, the provisions of this Lease shall be
binding upon and inure to the benefit of all successors and assigns of Landlord
and Tenant.
B. Date Payments Are Due. Except for payments to be made by Tenant
---------------------
under this Lease which are due upon demand or which are due in advance (such as
Base Rent), Tenant shall pay to Landlord any amount for which Landlord renders a
statement of account within ten (10) days of Tenant's receipt of Landlord's
statement.
C. Meaning of "Landlord," "Re-Entry," "including" and "Affiliate".
-------------------------------------------------------------
The term "Landlord" means only the owner of the Project and the lessor's
--------
interest in this Lease from time to time. The words "re-entry" and "re-enter"
are not restricted to their technical legal meaning. The words "including" and
similar words shall mean "without limitation." The word "affiliate" shall mean a
person or entity controlling, controlled by or under common control with the
applicable entity. "Control" shall mean the power directly or indirectly, by
-------
contract or otherwise, to direct the management and policies of the applicable
entity.
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D. Time of the Essence. Time is of the essence of each provision of
-------------------
this Lease.
E. No Option. This document shall not be effective for any purpose
---------
until it has been executed and delivered by both parties; execution and delivery
by one party shall not create any option or other right in the other party.
F. Severability. The unenforceability of any provision of this
------------
Lease shall not affect any other provision.
G. Governing Law. This Lease shall be governed in all respects by
-------------
the laws of the state in which the Project is located, without regard to the
principles of conflicts of laws.
H. Lease Modification. Tenant agrees to modify this Lease in any
------------------
way requested by a mortgagee which does not cause increased expense to Tenant or
otherwise materially adversely affect Tenant's interests under this Lease.
I. No Oral Modification. No modification of this Lease shall be
--------------------
effective unless it is a written modification signed by both parties.
J. Landlord's Right to Cure. If Landlord breaches any of its
------------------------
obligations under this Lease, Tenant shall notify Landlord in writing and shall
take no action respecting such breach so long as Landlord promptly begins to
cure the breach and diligently pursues such cure to its completion. Landlord may
cure any default by Tenant; any expenses incurred shall become Additional Rent
due from Tenant on demand by Landlord.
K. Captions. The captions used in this Lease shall have no effect
--------
on the construction of this Lease.
L. Authority. Landlord and Tenant each represents to the other that
---------
it has full power and authority to execute and perform this Lease.
M. Landlord's Enforcement of Remedies. Landlord may enforce any of
----------------------------------
its remedies under this Lease either in its own name or through an agent.
N. Entire Agreement. This Lease, together with all Appendices,
----------------
constitutes the entire agreement between the parties. No representations or
agreements of any kind have been made by either party which are not contained in
this Lease.
O. Landlord's Title. Landlord's title shall always be paramount to
----------------
the interest of the Tenant, and nothing in this Lease shall empower Tenant to do
anything which might in any way impair Landlord's title.
P. Light and Air Rights. Landlord does not grant in this Lease any
--------------------
rights to light and air in connection with Project. Landlord reserves to itself,
the Land, the Building below the improved floor of each floor of the Premises,
the Building above the ceiling of each floor of the Premises, the exterior of
the Premises and the areas on the same floor outside the
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Premises, along with the areas within the Premises required for the installation
and repair of utility lines and other items required to serve other tenants of
the Building.
Q. Singular and Plural. Wherever appropriate in this Lease, a
-------------------
singular term shall be construed to mean the plural where necessary, and a
plural term the singular. For example, if at any time two parties shall
constitute Landlord or Tenant, then the relevant term shall refer to both
parties together.
R. No Recording by Tenant. Tenant shall not record in any public
----------------------
records any memorandum or any portion of this Lease.
S. Exclusivity. Landlord does not grant to Tenant in this Lease any
-----------
exclusive right except the right to occupy its Premises.
T. No Construction Against Drafting Party. The rule of construction
--------------------------------------
that ambiguities are resolved against the drafting party shall not apply to this
Lease.
U. Survival. All obligations of Landlord and Tenant under this
--------
Lease shall survive the termination of this Lease.
V. Rent Not Based on Income. No Rent or other payment in respect of
------------------------
the Premises shall be based in any way upon net income or profits from the
Premises. Tenant may not enter into or permit any sublease or license or other
agreement in connection with the Premises which provides for a rental or other
payment based on net income or profit.
W. Building Manager and Service Providers. Landlord may perform any
--------------------------------------
of its obligations under this Lease through its employees or third parties hired
by the Landlord.
X. Late Charge and Interest on Late Payments. Without limiting the
-----------------------------------------
provisions of Section 13.A, if Tenant fails to pay any installment of Rent or
other charge to be paid by Tenant pursuant to this Lease within five (5)
business days after the same becomes due and payable, then Tenant shall pay a
late charge equal to the greater of two percent (2%) of the amount of such
payment or $250. In addition, interest shall be paid by Tenant to Landlord on
any late payments of Rent from the date due until paid at the rate provided in
Section 2.D(2). Such late charge and interest shall constitute Additional Rent
due and payable by Tenant to Landlord upon the date of payment of the delinquent
payment referenced above.
Y. Tenant's Financial Statements. Within ten (10) days after
-----------------------------
Landlord's written request therefor, Tenant shall deliver to Landlord the
current financial statements of Tenant, and financial statements of the two (2)
years prior to the current financial statements year, with an opinion of a
certified public accountant, including a balance sheet and profit and loss
statement for the most recent prior year, all prepared in accordance with
generally accepted accounting principles consistently applied.
Z. Attorneys Fees. If either party defaults in the performance of
--------------
any terms, covenants, agreements or conditions contained in this Lease and
Landlord places enforcement of this Lease or the collection of rent due or to
become due hereunder, or recovery of possession of
32
<PAGE>
the Premises in the hands of any attorney, or either party files suit upon the
same, the non-prevailing party agrees to pay the prevailing party's reasonable
attorneys' fees and expenses.
AA. Consents. Except where expressly provided herein to the contrary,
--------
whenever a party's consent or approval is required hereunder, such consent or
approval shall not be unreasonably withheld, delayed or conditioned.
28. UNRELATED BUSINESS INCOME. If Landlord is advised by its counsel at
-------------------------
any time that any part of the payments by Tenant to Landlord under this Lease
may be characterized as unrelated business income under the United States
Internal Revenue Code and its regulations, then Tenant shall enter into any
amendment proposed by Landlord to avoid such income, so long as the amendment
does not require Tenant to make more payments or accept fewer services from
Landlord, than this Lease provides.
29. HAZARDOUS SUBSTANCES.
--------------------
A. Prohibition Against Hazardous Substances. Tenant shall not cause
----------------------------------------
or permit any Hazardous Substances to be brought upon, produced, stored, used,
discharged or disposed of in or near the Project unless Landlord has consented
to such storage or use in its sole discretion. Any handling, transportation,
storage, treatment, disposal or use of any Hazardous Substances in or about the
Project by Tenant, its agents, employees, contractors or invitees shall strictly
comply with all applicable Governmental Requirements. Tenant shall indemnify,
defend and hold Landlord harmless from and against any liabilities, losses,
claims, damages, penalties, fines, attorneys' fees and court costs, remediation
costs, investigation costs and any other expenses which result from or arise out
of the use, storage, treatment, transportation, release, or disposal of any
Hazardous Substances on or about the Project by Tenant, its agents, employees,
contractors or invitees. If any lender or governmental agency shall require
testing for Hazardous Substances in the Premises, Tenant shall pay for such
testing. Tenant acknowledges receipt of that certain Updated Phase I
Environmental Assessment Report (Orchard Number 606) for the Project dated
September 23, 1996, prepared by ATC Environmental Inc. for Metropolitan Life
Insurance Company and Orchard Properties.
B. "Hazardous Substances". means any hazardous or toxic substances,
---------------------
materials or waste which are or become regulated by any local government
authority, the state in which the Project is located or the United States
government, including those substances described in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. Section 6901 et seq., any other applicable federal, state or
-- ----
local law, and the regulations adopted under these laws.
C. Prior Contamination. If Tenant can demonstrate to the reasonable
-------------------
satisfaction of Landlord that a release of Hazardous Substances occurred on the
Premises prior to the date on which Tenant took possession of the Premises and
that such release was not the result of the activities of Tenant or its
employees, agents, subtenants, licensees, contractors, subcontractors or
invitees ("Prior Contamination"), then Landlord agrees that it shall not seek to
recover from Tenant (either directly or as part of the Included Operating Costs)
any costs
33
<PAGE>
incurred by Landlord in connection with such Prior Contamination (including any
investigation, remediation and disposal costs associated therewith.
30. EXCULPATION. Landlord shall have no personal liability under this
-----------
Lease; its liability shall be limited to its interest in the Building and shall
not extend to any other property or assets of the Landlord. In no event shall
any officer, director, employee, agent, shareholder, partner, member or
beneficiary of Landlord be personally liable for any of Landlord's obligations
hereunder.
31. OPTION TO EXTEND. Subject to the terms and conditions set forth below,
----------------
Tenant may at its option extend the Term of this Lease for one (1) period of
three (3) years. Such period is called the "Renewal Term". The Renewal Term
shall be upon the same terms contained in this Lease, except that (i) Landlord
shall have no obligation to provide Tenant with any Tenant Improvement Allowance
in connection with such Renewal Term, (ii) the Base Rent during the Renewal Term
shall be calculated as set forth below, and (iii) any reference in the Lease to
the "Term" of the Lease shall be deemed to include the Renewal Term and apply
thereto, unless it is expressly provided otherwise. Tenant shall have no
additional extension options.
A. The Base Rent during the Renewal Term shall be the greater of (i)
the Base Rent applicable to the last month prior to the Renewal Term, or (ii)
the Market Rate (defined hereinafter) for such space for a term commencing on
the first day of the Renewal Term. "Market Rate" shall mean the then prevailing
market rate for a comparable term commencing on the first day of the Renewal
Term for tenants of comparable size and creditworthiness for comparable space in
the Building and other first class office buildings of comparable age with
similar projects in the vicinity of the Building.
B. To exercise any option, Tenant must deliver a binding notice to
Landlord not sooner than ten (10) months nor later than six (6) months prior to
the expiration of the initial Term of this Lease. Thereafter, the Market Rate
for the Renewal Term for the entire Renewal Term, including, if applicable,
periodic rental increases, shall be calculated pursuant to Subsection C below
and Landlord shall inform Tenant of the Market Rate. Such calculations shall be
final and shall not be recalculated at the actual commencement of such Renewal
Term. If Tenant fails to timely give its notice of exercise, Tenant will be
deemed to have waived its option to extend.
C. Market Rate shall be determined as follows:
(i) If Tenant provides Landlord with its binding notice of
exercise pursuant to Subsection B above, then prior to the commencement date of
such Renewal Term Landlord and Tenant shall commence negotiations to agree upon
the Market Rate. If Landlord and Tenant are unable to reach agreement within
twenty-one (21) days, then the Market Rate shall be determined in accordance
with (ii) below.
(ii) If Landlord and Tenant are unable to reach agreement on the
Market Rate within said twenty-one (21) day period, then within seven (7) days,
Landlord and Tenant shall each simultaneously submit to the other in a sealed
envelope its good faith estimate of the Market Rate. If the higher of such
estimates is not more than one hundred five percent
34
<PAGE>
(105%) of the lower, then the Market Rate shall be the average of the two.
Otherwise, the dispute shall be resolved by arbitration in accordance with (iii)
below.
(iii) Within seven (7) days after the exchange of estimates, the
parties shall select as an arbitrator an independent MAI appraiser with at least
five (5) years of experience in appraising office space in the metropolitan area
in which the Project is located (a "Qualified Appraiser"). If the parties cannot
agree on a Qualified Appraiser, then within a second period of seven (7) days,
each shall select a Qualified Appraiser and within ten (10) days thereafter the
two appointed Qualified Appraisers shall select a third Qualified Appraiser and
the third Qualified Appraiser shall be the sole arbitrator. If one party shall
fail to select a Qualified Appraiser within the second seven (7) day period,
then the Qualified Appraiser chosen by the other party shall be the sole
arbitrator. The Qualified Appraiser, however selected, shall be a person who has
not previously acted in any capacity for either Landlord or Tenant (or an Tenant
Affiliate, or any of their subsidiaries or related entities). All of the
relevant information used by Landlord or Tenant to prepare their final offers
shall be delivered to the Qualified Appraiser.
(iv) Within twenty-one (21) days after submission of the matter
to the arbitrator, the arbitrator shall determine the Market Rate, provided in
no event shall the Market Rate be less than the lower of or more than the higher
of the two final offers submitted by Landlord and Tenant. The arbitrator shall
notify Landlord and Tenant of its decision, which shall be final and binding. If
the arbitrator believes that expert advice would materially assist him, the
arbitrator may retain one or more qualified persons to provide expert advice.
Landlord and Tenant shall each bear one-half (1/2) of the fees of the Qualified
Appraiser and the expenses of the appraisal process, including the fees of any
expert witnesses retained by the Qualified Appraiser. Notwithstanding the
foregoing, each party shall pay the fees of its respective counsel and the fees
of any witness called by that party.
D. Tenant's option to extend is personal to Tenant and may not be
exercised or assigned, voluntarily or involuntarily, by or to any person or
entity other than Tenant, without Landlord's prior written consent, which
Landlord may withhold in its sole and absolute discretion. Tenant's option to
extend this Lease is subject to the conditions that: (i) on the date that Tenant
delivers its binding notice exercising an option to extend, Tenant is not in
default under this Lease after the expiration of any applicable notice and cure
periods, and (ii) Tenant shall not have assigned the Lease, or sublet any
portion of the Premises under a sublease which is effective at any time during
the final twelve (12) months of the initial Term.
35
<PAGE>
E. After the Market Rate has been established (whether by Landlord
and Tenant or the Qualified Appraiser), Landlord and Tenant shall execute an
amendment to this Lease to confirm the same.
IN WITNESS WHEREOF, the parties hereto have executed this Lease.
LANDLORD:
CARRAMERICA REALTY CORPORATION,
a Maryland corporation
By: Richard F. Katchuk
------------------
Print Name: Richard F. Katchuk
Print Title: Chief Financial Officer
Date of Execution: 6-21-99
-------
TENANT:
NUMERICAL TECHNOLOGIES, INC.,
a California corporation
By: /s/ Yagyensh C. Pati
Print Name: __________________________________
Print Title: __________________________________
Date of Execution: _____________________________
By: ____________________________________________
Print Name: __________________________________
Print Title: __________________________________
Date of Execution: _____________________________
[EXHIBIT OMITTED]
36
<PAGE>
EXHIBIT B
RULES AND REGULATIONS
1. Tenant shall not place anything, or allow anything to be placed near
the glass of any window, door, partition or wall which may, in Landlord's
judgment, appear unsightly from outside of the Project.
2. The Project directory, if any, shall be used by Landlord to display
names and locations of tenants in the Project. No tenant shall use or make any
changes to such directories without Landlord's prior written consent.
3. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by Tenant or used by Tenant for any purposes
other than for ingress to and egress from the Premises, unless Tenant is the
sole occupant of the Building. Tenant shall lend its full cooperation to keep
such areas free from all obstruction and in a clean and sightly condition and
shall move all supplies, furniture and equipment as soon as received directly to
the Premises and move all such items and waste being taken from the Premises
(other than waste customarily removed by employees of the Building) directly to
the shipping platform at or about the time arranged for removal therefrom.
Neither Tenant nor any employee or invitee of Tenant shall go upon the roof of
the Project.
4. The toilet rooms, urinals, wash bowls and other apparatuses shall
not be used for any purposes other than that for which they were constructed,
and no foreign substance of any kind whatsoever shall be thrown therein, and to
the extent caused by Tenant or its employees or invitees, the expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by Tenant.
5. Tenant shall not cause any unnecessary janitorial labor or services
by reason of Tenant's carelessness or indifference in the preservation of good
order and cleanliness.
6. Tenant shall not install or operate any refrigerating, heating or
air conditioning apparatus, or carry on any mechanical business without the
prior written consent of Landlord; use the Premises for housing, lodging or
sleeping purposes; or permit preparation or warming of food in the Premises
(warming of coffee and individual meals with employees and guests excepted).
Tenant shall not occupy or use the Premises or permit the Premises to be
occupied or used for any purpose, act or thing which is in violation of any
Governmental Requirement or which may be dangerous to persons or property.
7. Tenant shall not bring upon, use or keep in the Premises or the
Project any kerosene, gasoline or inflammable or combustible fluid or material,
or any other articles deemed hazardous to persons or property, or use any method
of heating or air conditioning other than that supplied by Landlord.
8. Landlord shall have sole power to direct electricians as to where
and how telephone and other wires are to be introduced. No boring or cutting for
wires is to be allowed
1
<PAGE>
without the consent of Landlord. The location of telephones, call boxes and
other office equipment affixed to the Premises shall be subject to the approval
of Landlord.
9. No additional locks shall be placed upon any doors, windows or
transoms in or to the Premises. Tenant shall not change existing locks or the
mechanism thereof. Upon termination of the Lease, Tenant shall deliver to
Landlord all keys and passes for offices, rooms, parking lot and toilet rooms
which shall have been furnished Tenant.
In the event of the loss of keys so furnished, Tenant shall pay Landlord
therefor. Tenant shall not make, or cause to be made, any such keys and shall
order all such keys solely from Landlord and shall pay Landlord for any keys in
addition to the two sets of keys originally furnished by Landlord for each lock.
10. Tenant shall not install linoleum, tile, carpet or other floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by Landlord.
11. No furniture, packages, supplies, equipment or merchandise will be
received in the Project or carried up or down in the freight elevator, except
between such hours and in such freight elevator as shall be designated by
Landlord. Tenant shall not take or permit to be taken in or out of other
entrances of the Building, or take or permit on other elevators, any item
normally taken in or out through the trucking concourse or service doors or in
or on freight elevators.
12. Without the prior written consent of Landlord, Tenant shall not use
the name of the Project or any picture of the Project in connection with, or in
promoting or advertising the business of, Tenant, except Tenant may use the
address of the Project as the address of its business.
13. Tenant shall cooperate fully with Landlord to assure the most
effective operation of the Premises' or the Project's heating and air
conditioning. If Landlord provides HVAC: Tenant shall refrain from attempting to
adjust any controls, other than room thermostats installed for Tenant's use.
Tenant shall keep all corridor and exterior doors and windows closed, and during
periods which outside temperatures exceed 90 degrees F dry bulb Tenant shall
close all blinds and turn off any unnecessary equipment.
14. Tenant assumes full responsibility for protecting the Premises from
theft, robbery and pilferage, which may arise from a cause other than Landlord's
negligence, which includes keeping doors locked and other means of entry to the
Premises closed and secured.
15. Peddlers, solicitors and beggars shall be reported to the office of
the Project or as Landlord otherwise requests.
16. Tenant shall not advertise the business, profession or activities
of Tenant conducted in the Project in any manner which violates the letter or
spirit of any code of ethics adopted by any recognized association or
organization pertaining to such business, profession or activities.
17. No bicycle (except in those areas which may be designated for
bicycles by Landlord) or other vehicle and no animals or pets shall be allowed
in the Premises, halls, freight
2
<PAGE>
docks, or any other parts of the Building, except that FOUR or fewer dogs will
be allowed to accompany employees within the Premises so long as they do not
cause a disturbance to other occupants of the Building. Tenant shall not make or
permit any noise, vibration or odor to emanate from the Premises, or do anything
therein tending to create, or maintain, a nuisance, or do any act tending to
injure the reputation of the Building.
18. Tenant acknowledges that Building security problems may occur which
may require the employment of extreme security measures in the day-to-day
operation of the Project.
Accordingly:
(a) Landlord may, at any time, or from time to time, or for regularly
scheduled time periods, as deemed advisable by Landlord and/or its agents, in
their sole discretion, require that persons entering or leaving the Project or
the Property identify themselves to watchmen or other employees designated by
Landlord, by registration, identification or otherwise.
(b) Tenant agrees that it and its employees will cooperate fully with
Project employees in the implementation of any and all security procedures.
(c) Such security measures shall be the sole responsibility of
Landlord, and Tenant shall have no liability for any action taken by Landlord in
connection therewith, it being understood that Landlord is not required to
provide any security procedures and shall have no liability for such security
procedures or the lack thereof.
19. Tenant shall not do or permit the manufacture, sale, purchase, use
or gift of any fermented, intoxicating or alcoholic beverages without obtaining
written consent of Landlord.
20. Tenant shall not disturb the quiet enjoyment of any other tenant.
22. No equipment, mechanical ventilators, awnings, special shades or
other forms of window covering shall be permitted either inside or outside the
windows of the Premises without the prior written consent of Landlord, and then
only at the expense and risk of Tenant, and they shall be of such shape, color,
material, quality, design and make as may be approved by Landlord.
23. Tenant shall not during the term of this Lease canvas or solicit other
tenants of the Building for any purpose.
24. Tenant shall not install or operate any phonograph, musical or
sound- producing instrument or device, radio receiver or transmitter, TV
receiver or transmitter, or similar device in the Building or Project Common
Areas, nor install or operate any antenna, aerial, wires or other equipment
inside or outside the Building, nor operate any electrical device from which may
3
<PAGE>
emanate electrical waves which may interfere with or impair radio or television
broadcasting or reception from or in the Building or elsewhere, without in each
instance the prior written approval of Landlord. The use thereof, if permitted,
shall be subject to control by Landlord to the end that others shall not be
disturbed.
25. Tenant shall promptly remove all rubbish and waste from the Premises.
26. Tenant shall not exhibit, sell or offer for sale, Rent or exchange
in the Premises or at the Project any article, thing or service, except those
ordinarily embraced within the use of the Premises specified in Section 6 of
this Lease, without the prior written consent of Landlord.
27. If required by Landlord, Tenant shall list all furniture, equipment
and similar articles Tenant desires to remove from the Premises or the Building
and deliver a copy of such list to Landlord and procure a removal permit from
Landlord (or the Project manager) authorizing Building employees to permit such
articles to be removed.
28. Tenant shall not overload any floors in the Premises or any public
corridors or elevators in the Building.
29. Tenant shall not do any painting in the Premises, or mark, paint,
cut or drill into, drive nails or screws into, or in any way deface any part of
the Premises or the Building, outside or inside, without the prior written
consent of Landlord.
30. Whenever Landlord's consent, approval or satisfaction is required
under these Rules, then unless otherwise stated, any such consent, approval or
satisfaction must be obtained in advance, such consent or approval may be
granted or withheld in Landlord's sole discretion, and Landlord's satisfaction
shall be determined in its sole judgment.
31. Tenant and its employees shall cooperate in all fire drills conducted
by Landlord in the Building.
4
<PAGE>
EXHIBIT C
TENANT IMPROVEMENT AGREEMENT
This Tenant Improvement Agreement ("Agreement") is an integral part of the Lease
("Lease") relating to the Premises (as defined in the Lease). Capitalized terms
used in this Agreement not otherwise defined herein shall have the meaning given
such terms in the Lease. Landlord and Tenant agree as follows with respect to
the Tenant Improvements, if any, to be installed in the Premises:
1. INITIAL TENANT IMPROVEMENTS. Landlord shall select a general contractor
("Contractor"), to construct the initial interior tenant improvements (the
"Tenant Improvements") in the Premises in accordance with the drawing prepared
by Ambiance Associates ("Architect"), dated June 10, 1999, which was approved by
Tenant and Landlord (the "Preliminary Plans"), and which are further described
in Exhibit C-1 attached hereto.
-----------
Landlord shall caused the final plans and construction drawings ("Final Plans")
to be prepared, at no cost to Tenant, by the Architect based on the Preliminary
Plans. After the completion of such Final Plans, Landlord shall submit the same
to Tenant for Tenant's review and approval, which approval shall not be
unreasonably withheld or delayed so long as such Final Plans are consistent with
the Preliminary Plans. Following the approval of the Final Plans by Tenant,
Landlord shall cause the Tenant Improvements to be constructed within the
Premises on a "turn-key" basis in accordance with the Final Plans at no cost to
Tenant, provided that Tenant shall be solely responsible for all costs
associated with any Change Orders (as defined below) requested by Tenant.
Landlord shall use commercially reasonable efforts (which efforts shall not
include incurring any overtime or other special charges) to cause the Tenant
Improvements to be substantially completed in accordance with the approved Final
Plans in a timely fashion, subject to delays caused by tenant and Force Majeure
(as defined in the Lease). Tenant acknowledges and agrees that the Commencement
Date shall not be affected by any Tenant Delays (as defined below).
Landlord, or an agent of Landlord, shall provide project management services in
connection with the construction of the Tenant Improvements and the Change
Orders (hereinafter defined).
2. CHANGE ORDERS. If, prior to the Commencement Date, Tenant shall require
improvements or changes (individually or collectively, "Change Orders") to the
Final Plans, Tenant shall deliver to Landlord for its approval plans and
specifications for such Change Orders. If Landlord does not approve of the plans
for Change Orders, Landlord shall advise Tenant of the revisions required.
Tenant shall revise and redeliver the plans and specifications to Landlord
within five (5) business days of Landlord's advice or Tenant shall be deemed to
have abandoned its request for such Change Orders. Tenant shall pay all costs
associated with the Change Orders, including the preparations and revisions of
the Final Plans, and the construction of all Change Orders, within thirty (30)
days of Tenant's receipt of Landlord's invoice for the same.
1
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3. SUBSTANTIAL COMPLETION. As used herein and in the Lease, the term
"Substantial Completion of the Tenant Improvements" shall mean the date on which
the Tenant Improvements are sufficiently complete in accordance with the
approved Final Plans so that (i) a certificate of occupancy or other
governmental approval necessary for the Premises to be legally occupied can be
issued, and (ii) Tenant may reasonable commence using the Premises for the use
permitted under the Lease. Tenant agrees and acknowledges that the Substantial
Completion of the Tenant Improvements may occur notwithstanding the fact that
(i) neither a temporary or final certificate of occupancy for the Premises was
issued, and (ii) Landlord has yet to repair any punch list items noted by Tenant
so long as such punch list items do not materially interfere with Tenant's use
and occupancy of the Premises. Tenant shall note all punch list items within
thirty (30) days of the Substantial Completion of the Tenant Improvements.
Landlord shall commence the repair of any punch list items within ten (10) days
of such notice from Tenant.
4. TENANT DELAYS. For purposes of this Agreement and the Lease, the following
events shall constitute delays caused by Tenant (a "Tenant Delay"):
(a) Tenant's request for Change Orders whether or not any such Change
Orders are actually performed; or
(b) Contractor's performance of any Change Orders; or
(c) Tenant's request for materials, finishes or installations
requiring unusually long lead times; or
(d) Tenant's delay in reviewing, revising or approving plans and
specifications beyond the periods set forth in the Performance Schedule; or
(e) Tenant's delay in providing information critical to the normal
progression of the project. Tenant shall provide such information as soon as
reasonably possible, but in no event longer than the time period specified
herein, or if no time period is specified, one week after receipt of such
request for information from the Landlord; or
(f) Tenant's delay in making payments to Landlord for costs of the
Tenant Improvements and/or Change Orders in excess of the Tenant Improvement
Allowance; or
(g) Any other act or omission by Tenant, its agents, contractors or
persons employed by any of such persons, including Tenant's delay in execution
this Lease.
If any of the foregoing Tenant Delays occur, then Landlord shall cause
Landlord's Architect to certify the date on which the Tenant Improvements would
have been Substantially Completed but for such Tenant Delay, then such date
shall constitute the Commencement Date for all purposes hereunder and Landlord
and Tenant shall execute the Commencement Date Confirmation, confirming such
date.
5. ACCESS BY TENANT PRIOR TO COMMENCEMENT OF TERM. Landlord at its discretion
may permit Tenant and its agents to enter the Premises prior to the Commencement
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Date to prepare the Premises for Tenant's use and occupancy. Any such permission
shall constitute a license only, conditioned upon Tenant's;
(a) working in harmony with Landlord and Landlord's agents, contractors,
workmen, mechanics and suppliers and with other tenants and occupants of the
Building;
(b) obtaining in advance Landlord's approval of the contractors proposed
to be used by Tenant and depositing with Landlord in advance of any work (i)
security satisfactory to Landlord for the completion thereof, and (ii) the
contractor's affidavit for the proposed work and the waivers of lien from the
contractor and all subcontractors and suppliers of material; and
(c) furnishing Landlord with such insurance as Landlord may require
against liabilities which may arise out of such entry.
Landlord shall have the right to withdraw such license for any reason upon
twenty-four (24) hours' written notice to Tenant. Landlord shall not be liable
in any way for any injury, loss or damage which may occur to any of Tenant's
property or installations in the Premises prior to the Commencement Date. Tenant
shall protect, defend, indemnify and save harmless Landlord from all
liabilities, costs, damages, fees and expenses arising out of the activities of
Tenant or its agents, contractors, suppliers or workmen in the Premises or the
Building. Any entry and occupation permitted under this Section shall be
governed by all terms of the Lease.
6. MISCELLANEOUS.
Terms used in this Exhibit C shall have the meanings assigned to them in the
---------
Lease, and the Lease and the terms of this Exhibit C are subject to the terms
---------
of the Lease, as amended by the Lease.
[EXHIBIT OMITTED]
3
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EXHIBIT D
COMMENCEMENT DATE CONFIRMATION
Landlord: CarrAmerica Realty Corporation, a Maryland corporation
Tenant: Numerical Technologies, Inc., a California corporation
This Commencement Date Confirmation is made by Landlord and Tenant pursuant
to that certain Lease dated as of June 15, 1999 (the "Lease") for certain
premises known as 70 Plumeria Drive, San Jose, California in the project
commonly known as Valley Centre I (the "Premises"). This Confirmation is made
pursuant to Item 11 of the Schedule to the Lease.
1. Lease Commencement Date, Termination Date. Landlord and Tenant hereby
-----------------------------------------
agree that the Commencement Date of the Lease is __________, _________, and the
Termination Date of the Lease is ______________________, ___________.
2. Acceptance of Premises. Tenant has inspected the Premises and affirms
----------------------
that the Premises is acceptable in all respects in its current "as is"
condition.
3. Incorporation. This Confirmation is incorporated into the Lease, and
-------------
forms an integral part thereof. This Confirmation shall be construed and
interpreted in accordance with the terms of the Lease for all purposes.
TENANT:
NUMERICAL TECHNOLOGIES, INC.,
a California corporation
By:_______________________________________
Print Name: ______________________________
Print Title: _____________________________
LANDLORD:
CARRAMERICA REALTY CORPORATION,
a Maryland corporation
By: ______________________________________
Print Name: ______________________________
Print Title: _____________________________
1
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EXHIBIT E
LANDLORD'S SIGNAGE STANDARDS
Attached you will find the signage standards for the following sign type:
EXTERIOR (PERMANENT) PAGE #
Entrance Identification 1
Primary Directional 2
Secondary Directional 3
Primary Tenant Identification 4
Building Address 5
Building Entry Logo Application 6
Driveway Entrance/Welcome 7
Miscellaneous 8
EXTERIOR (TEMPORARY)
Site/Leasing Sign 9
INTERIOR (PERMANENT)
Elevator (Corporate Identification) 10
Directory Identification 11
Room Identification 12
Tenant Plaque 13
Suite Identification 14
Suite Directional 15
Reception Area Sign 16
<PAGE>
Exterior Signage Standards
Sign Type A
Product: 10'-0" wide by 5'-0" high by 8" deep double-sided, fabricated aluminum
panel with polyurethane enamel paint finish and applied graphics. Park name to
be 3/4" thick white acrylic letters with paint finish. Address to be 1/2" thick
white acrylic letters with paint finish. Secondary copy to be applied vinyl
lettering. Sign to be indirectly illuminated with wall-washing light fixtures
set flush to grade.
Finish: Upper panel to be painted gray to match Pratt & Lambert 12312 "Steel
Wool." Band to be painted white. Base to be painted maroon to match Pratt &
Lambert #1047 "Garnet." Reveals to be painted blue to match PMS 293c. All copy
to be white. On white band, "Carr" to be 3M "Intense Blue" #3650-47. "America"
to be 3M "Black" #3650-12. "A CarrAmerica Office Property" to be 3M "Medium
Gray" #3650-31. All painted surfaces to be primed and painted with a semi-glass
finish.
Type Style: All copy to be Times Roman, size and format as illustrated.
Alternate type face selection to be CarrAmerica Text. Artwork for CarrAmerica
logo will be provided in a digital format [Mac and PC formats are available].
Mounting: Panel to be permanently attached to an engineered concrete footing,
below grade.
Illumination: Indirect, ground illuminated by Kim Direct Burial/Sign Lighter -
250 w. T-4 Quartz Lamp [or approved equivalent].
[CHART OMITTED]
1
<PAGE>
Exterior Signage Standards
[Illegible]
Sign Type D
Product: 2'-9" wide by 6'-0" high by 6" deep single-sided, non-illuminated,
fabricated aluminum pylon with polyurethane enamel paint finish and applied
computer-cut, vinyl graphics.
Finish: Upper panel to be painted gray to match Pratt & Lambert [Illegible]2312
"Steel Wool." Band to be painted white. Base to be painted maroon to match Pratt
& Lambert #1047 "Garnet." Reveals to be painted blue to match PMS 293c. All copy
to be white. All painted surfaces to be primed and painted with a semi-glass
finish.
Type Style: All copy to be Times Roman, size and format as illustrated. Narrow
to match illustration below.
MOUNTING: Panel to be permanently attached to an engineered concrete footing,
below grade, with concealed mechanical fasteners.
ILLUMINATION: Non-illuminated
[CHART OMITTED]
2
<PAGE>
[Illegible]
Exterior Signage Standards
Sign Type E
Product: 2'-9" wide by 4`-4" high by 6" deep single-sided, non-illuminated,
fabricated aluminum pylon with polyurethane enamel paint finish and applied
computer-cut, vinyl graphics.
Finish: Upper panel to be painted gray to match Pratt & Lambert. [Illegible]1312
"Steel Wool." Band to be painted white. Base to be painted maroon to match Pratt
& Lambert #1047 "Garnet." Reveals to be printed blue to match PMS 293c. All copy
to be white. All painted surfaces to be primed and painted with a semi-glass
finish.
Type Style: All copy to be Times ROman, size and format as illustrated. Arrow to
match illustration below.
Mounting: Panel to be permanently attached to an engineered concrete footing,
below grade, with concealed mechanical fasteners.
Illumination: Non-Illuminated
[CHART OMITTED]
3
<PAGE>
[Illegible]
Exterior Signage Standards
Sign Type B
Product: 10'-0" wide by 5'-0" high by 12" deep double-sided, fabricated aluminum
panel with polyurethane enamel paint finish and applied graphics. Indirectly
illuminated with wall-washing fixtures set finish to grade.
Finish: Upper panel to be painted gray to match Pratt & Lambert [Illegible]312
"Steel Wool." Band to be painted white. Base to be painted maroon to match Pratt
& Lambert #1047 "Garnet." Reveals to be printed blue to match PMS 293c. All copy
to be white. All painted [Illegible]faces to be primed and painted with a
semi-glass finish.
Type Style: Tenant Logos/Logotypes.
Mounting: Panel to be permanently attached to an engineered concrete footing,
below grade, with cancealed mechanical fasteners.
Illumination: Indirect, ground illuminated by Kim Direct Burial/Sign Lighter -
250 w. T-4 Quartz Lamp for equivalent).
[CHART OMITTED]
4
<PAGE>
Sign Type Q: Building Address
Product: 3/16" thick stainless steel numerals applied to existing mounted metal
fascio.
Finish: Letters to be polished smooth on the face and all sides to have
sandblast finish.
Typestyle: Numerals to be Times Roman Bold. Size and format as [Illegible]cated
Mounting: Numerals stud mount to existing painted metal fascio and secure with
silicone adhesive.
[CHART OMITTED]
5
<PAGE>
[Illegible]n Standards
Logo Application at Entry Doors
Product: 1 1/2" and 3/4" surface-applied, computer-cut, opaque, adhesive-backed
vinyl graphics. Lettering to be pre-spaced, dual letters. Clear background
decals are not acceptable.
Finish: "Carr" to be 3M "Intense Blue" #7725-47. "America" to be Black"
#7725-12. "A CarrAmerica Office Property" to be White" #7725-10.
Type Style: Artwork for CarrAmerica logo will be provided in a [Illegible]
format (Mac and PC formats are available). Tagline to be New Roman Italic. Copy
to be flush left, size and format as indicated below. Letter spacing to be light
but not touching. Note: CarrAmerica is one word with a capital "C" and "A".
Mounting: Vinyl applies to first surface (exterior face) of glass sidelight with
equal spacing to left and right of logo. A maximum of two per entry should be
used as illustrated below. If mullion or other architectural feature does not
allow for placement at 5'-0" to baseline of logo, place as near to this location
as possible, working with the geometry and aestetics of the building entry.
Clean glass with ammonia-based window cleaner and allow to dry thoroughly prior
to installation.
[CHART OMITTED]
6a
<PAGE>
CarrAmerica
Douglas/Gallagher
[Illegible]n Standards
Exterior Logo Plaque - Bronze
Product: 7.1/2" by 7 1/2" by 1/8" thick bronze plaque with [Illegible]-etched
graphics and 45" beveled edge.
Finish: "Carr" to be infilled blue to match PMS 293c. "America" tagline to be
infilled black. Face of sign to be #6 satin finish horizontal grain. Beveled
edge to be mirror polished, Bronze [Illegible]to be Muntz Metal, alloy 280.
Clear-coat for exterior location. All graphics to be infilled with
chip-resistant glass [Illegible]ning enamel.
Type Style: Artwork for CarrAmerica logo will be provided in a [Illegible]d
format (Mac and PC formats are available). Supporting [Illegible]to be Times
Italic, size and format as illustrated.
Mounting: Applies to exterior face of stone building with metal studs and
appropriate silastic adhesive.
[CHART OMITTED]
6b
<PAGE>
CarrAmerica
Douglas/Gallagher
[Illegible]Standards
Exterior Logo Plaque-Bronze
Notes on previous page.
[CHART OMITTED]
6c
<PAGE>
[CHART OMITTED]
Welcome Signage
- ---------------
2'- 0" by 2'- 0" by 1/4" thick painted aluminum faceplate with vinyl graphics
mounted to 3" square painted aluminum post. Border and post to be building
accent color or medium gray to match P&L 2246. Face to be dark gray to match P&L
2312. Copy to be white. Stripe to be blue to match PMS 293C. White signature
band to have gray copy with standard blue/black corporate logo.
7
<PAGE>
Exterior Signage Standards
[Illegible]
Sign Type G
Product: 1'-0" wide by 6'-0" by 1'-0" deep four sided, non-illuminated,
[Illegible]ated aluminum pylon with polyurethane enamel paint finish and
[Illegible]d computer cut, vinyl graphics.
Finish: Upper panel to be painted gray to match Pratt & Lambert [Illegible]2.
Base to be painted to match building accent color. Reveals to painted blue to
match PMS 293c. All copy to be matte while. All [Illegible]d surfaces to be
primed and painted with a semi-glass finish.
Type Style: All copy to be Times Roman, Times Bold and Times Italic, size and
format as illustrated.
Mounting: Panel to be permanently attached to an engineered concrete looting,
below grade, with concealed mechanical fasteners.
Illumination: Non-illuminated
[CHART OMITTED]
8a
<PAGE>
Exterior Signage Standards
[Illegible]
Sign Type H
Product: 12'-6" x 1'-4" x .080" painted pan breaked, aluminum panel [Illegible]
applied vinyl graphics attached to 1" square framework.
Finish: Upper panel to be painted gray to match Pratt & Lambert [Illegible]312.
Stripe to be painted white. Base to be painted Maroon to match [Illegible]f &
Lambert #1047. All copy to be white. All painted surfaces to be primed and
painted with a semi-glass finish.
Type Style: All copy to be Times Roman and Times Bold, size and format as
illustrated.
Mounting: Concealed frame to be permanently mounted to concrete with hilti
bolts. Sign panel to be mounted to frame with fasteners painted out to match
face.
Illumination: Non-illuminated.
Note: Replaces existing signage in same location.
[CHART OMITTED]
8b
<PAGE>
[Illegible]
Exterior Signage Standards
Sign Type I
Product: 18" x 20" .080" painted aluminum panel with applied vinyl graphics.
Finish: Upper panel to be painted gray to match Pratt & Lambert [Illegible]12.
Stripe to be painted white. Base to be painted maroon to match [Illegible] &
Lambert #1047. All copy to be white. All painted surfaces to be primeded and
painted with a semi-glass finish.
Type Style: All copy to be Times Roman, size and format as illustrated.
Mounting: Sign panel to be bolted through face, into concrete wall. Paint out
head of fastener to match sign face
Illumination: Non-illuminated
Note: Replaces existing signage in same location. All existing signs to be
removed or painted over. Owner to confirm if painting and sign removal are part
of sign fabricator's package.
[CHART OMITTED]
8c
<PAGE>
[Illegible]
Exterior Signage Standards
Sign Type J
Product: 18" x 20" .080" Reserved Parking Sign, [See previous drawing),
handicapped parking sign, or standard regulatory sign mounted to 3" square
painted aluminum post with dimensional reveal.
Finish: Upper panel to be painted gray to match Pratt & Lambert [Illegible]312.
Stripe to be painted white. Base to be painted maroon to match Pratt & Lambert
#1047. Posts to be painted gray to match Pratt & Lambert #2312. Reveals to be
painted blue to match PMS 293. All [Illegible]dy to be white. All painted
surfaces to be primed and painted with a semi-glass finish.
Type Style: All copy to be Times Roman, size and, format as illustrated.
Mounting: Concealed frame to be permanently mounted to concrete with hilti
bolts. Sign panel to be mounted to frame with fasteners painted out to match
face.
Illumination: Non-illuminated
Note: Replaces existing signage in same location.
[CHART OMITTED]
8d
<PAGE>
[Illegible]
Exterior Signage Standards
Sign Type K
Product: 12" x 48" x .080" painted pan breaked, aluminum panel with applied
vinyl graphics attached to 1" square framework.
Finish: Upper panel to be painted gray to match Pratt & Lambert [Illegible]312.
Stripe to be painted white. Base to be painted Maroon to match Pratt & Lambert
#1047. All copy to be white. All painted surfaces to be primed and painted with
a semi-glass finish.
Type Style: All copy to be Times Roman and Times Bold, size and format as
illustrated.
Mounting: Concealed frame to be permanently mounted to concrete with hiliti
bolts. Sign panel to be mounted to frame with fasteners painted out to match
face.
Illumination: Non-illuminated
Note: Replaces existing signage in same location.
[CHART OMITTED]
8e
<PAGE>
LEASING SIGNAGE
[Illegible] appropriate signage to identify it immediately as a CarrAmerica
property. All signage should use only approved visual elements, so that the
consistency of the visual message reinforces the presence of CarrAmerica's
properties in the marketplace.
Signage works the same way that advertising does without the additional cost of
media. Because of this, it is probably the most inexpensive and valuable
advertising available.
[Illegible]
Size: 10 x 8 feet.
Materials: Framed 1/2 inch MDO plywood, enamel primer, enamel paint, white
vinyl.
Color: Top bar--black; vertical band--white; logo--Pantone 293 (blue) and black;
copy panel background--Pantone 293 (blue); bar under property name--black;
copy--white.
Logo: Measures 75 1/4 inches long.
Typography: Property name--7 1/4 inches tall CarrAmerica Display 8 Bold;
internet address--4 1/2 inches tall CarrAmerica Display 8 Regular; text--6
inches tall CarrAmerica Display B Regular and Bold.
[CHART OMITTED]
9a
<PAGE>
LEASING SIGNAGE
[Illegible] vertical sign
Size: 8 x 10 feet.
Materials: Framed 1/2 inch MDO plywood, enamel primer, enamel paint, white
vinyl.
Color: Top bar--black; vertical band--white; logo--Pantone 293 (blue) and black;
copy panel background--Pantone 293 (blue); bar under property name--black;
copy--white.
Logo; Measures 75 1/4 inches long.
Typography: Property name--7 1/4 inches tall CarrAmerica Display B Bold;
Internet address--4 1/2 inches tall CarrAmerica Display B Regular; text--6
inches tall CarrAmerica Display B Regular and Bold.
[CHART OMITTED]
9b
<PAGE>
LEASING SIGNAGE
Banner
Size: 22 x 4 feet.
Materials: Enamel receptive 12 ounce white vinyl, enamel gloss paint.
Color: Logo--Pantone 293 (blue) and black; phone number--black.
Logo: Measures 19 1/2 inches tall.
Typography: Phone numbers--15 1/2 inches tall CarrAmerica Display B Bold.
[CHART OMITTED]
9c
<PAGE>
LEASING SIGNAGE
The following exhibits are to be used as a guide to produce retail and/or office
space leasing window signage. They define the design and material standards but
the components may need to be modified to accommodate the various sizes and
numbers of windows.
Retail Window Sign A.
Materials: Black and blue vinyl adhesive letters and graphics applied to window
exterior, white paint applied to window Interior.
Color: Logo--Pantone 293 (blue) and black; exterior squares--black; Interior
squares--Pantone 293 (blue); text--Pantone 293 (blue).
Logo: Size is determined by the horizontal measurement which is indicated by the
dotted lines.
Typography: All text--Times (New) Roman Italic; size is determined by the
horizontal measurement which is indicated by the dashed lines.
[CHART OMITTED]
9d
<PAGE>
LEASING SIGNAGE
Window Sign B
Materials: Black and blue vinyl adhesive letters and graphics applied to window
exterior, white paint applied to window interior.
Color: Logo--Pantone 293 (blue) and black; exterior squares--black; Interior
squares--Pantone 293 (blue); text--Pantone 293 (blue).
Logo: Size is determined by the horizontal measurement which is indicated by the
dotted lines.
Typography: All text--Times (New) Roman Italic; size is determined by the
horizontal measurement which is indicated by the dashed lines.
[CHART OMITTED]
9e
<PAGE>
terior Sign Standards
Sign Type: P.1
Product: 7 1/2" by 3 3/4" by 1/8" thick stainless steel plaque with
[Illegible]etched graphics and 45" beveled edge.
Finish:"Carr" to be infilled blue to match PMS 293c. "America" tagline to be
infilled black. Face of sign to be #6 satin finish horizontal grain. Beveled
edge to be mirror polished. Provide [Illegible]302 or 304 established by the
American Iron and Steel [Illegible] (AISI), in addition, comply with ASTM A 167.
All graphics infilled with chip-resistant glass screening enamel.
Type Style: Artwork for CarrAmerica logo will be provided in a [Illegible]format
(Mac and PC formats are available).
Mounting: Applies to interior face of elevator cab wall with double-sided tape
and appropriate silastic adhesive.
[CHART OMITTED]
10a
<PAGE>
[Illegible]terior Sign Standards
Sign Type: P.2
Product: 7 1/2" by 3 3/4" by 1/8" thick bronze plaque with etched graphics and
45" beveled edge.
Sign Type: "Carr" to be infilled blue to match PMS 293c. "America" tagline to be
infilled black. Face of sign to be #6 satin finish horizontal grain. Beveled
edge to be mirror polished. Bronze [Illegible]to be Muntz Metal, alloy 280.
Clear-coat for interior location. All graphics to be infilled with
chip-resistant gloss [Illegible]ing enamel.
Type Style: Artwork for CarrAmerica logo will be provided in a [Illegible]
format (Mac and PC formats are available).
Mountings: Applies to interior face of elevator cab wall with double-sided tape
and appropriate silastic adhesive.
[CHART OMITTED]
10b
<PAGE>
[Illegible]terior Sign Standards
Sign Type: P.3
Product: 7 1/2" by 7 1/2" by 1/8" thick stainless steel plaque with etched
graphics and 45degree beveled edge.
Finish: "Carr" to be infilled blue to match PMS 293c. "America" tagline to be
infilled black. Face of sign to be #6 satin finish horizontal grain. Beveled
edge to be mirror polished. Provide [Illegible]302 or 304 established by the
American Iron and Steel [Illegible]: (AISI), in addition, comply with ASTM A
167. All graphics infilled with chip-resistant gloss screening enamel.
Type Style: Artwork for CarrAmerica logo will be provided in a [Illegible]
format (Mac and PC formats are available).
Mounting: Applies to interior face of elevator cab wall with double-sided tape
and appropriate silastic adhesive.
[CHART OMITTED]
10c
<PAGE>
[Illegible]terior Sign Standards
Sign Type: P.4
Product: 7 1/2" by 7 1/2" by 1/8" thick bronze plaque with etched graphics and
45degree beveled edge.
Finish: "Carr" to be infilled blue to match PMS 293c. "America" tagline to be
infilled black. Face of sign to be #6 satin finish horizontal grain. Beveled
edge to be mirror polished. Bronze [Illegible]to be Muntz Metal, alloy 280.
Clear-coat for interior location. All graphics to be infilled with chip-
resistant gloss [Illegible]ning enamel.
Type Style: Artwork for CarrAmerica logo will be provided in a [Illegible]l
format (Mac and PC formats are available).
Mounting: Applies to interior face of elevator cab wall with double-sided tape
and appropriate silastic adhesive.
[CHART OMITTED]
10d
<PAGE>
[Illegible]terior Sign Standards
Sign Type: P.5
Product: 7 1/2" by 3 3/4" by 1/8" thick stainless steel plaque with etched
graphics and 45" beveled edge.
Finish: "Carr" to be infilled blue to match PMS 293c. "America" tagline to be
infilled black. Face of sign to be #6 satin finish horizontal grain. Beveled
edge to be mirror polished. Provide [Illegible]02 or 304 established by the
American Iron and Steel [Illegible][AISI], in addition, comply with ASTM A 167.
All graphics infilled with chip-resistant glass screening enamel.
Type Style: Artwork for CarrAmerica logo will be provided in a [Illegible]
format (Mac and PC formats are available).
Mounting: Applies to interior face of elevator cab wall with double-sided tape
and appropriate silastic adhesive.
[CHART OMITTED]
10e
<PAGE>
[Illegible]terior Sign Standards
Sign Type: P.6
Product: 7 1/2" by 3 3/4" by 1/8" thick bronze plaque with [Illegible] etched
graphics and 45degree beveled edge.
Finish: "Carr" to be infilled blue to match PMS 293c. "America" tagline to be
infilled black. Face of sign to be #6 satin finish horizontal grain. Beveled
edge to be mirror polished. Bronze to be Muntz Metal, alloy 280. Clear-coat for
Interior [Illegible]ation. All graphics to be infilled with chip-resistant glass
etching enamel.
Type Style: Artwork for CarrAmerica logo will be provided in a [Illegible]
format (Mac and PC formats are available).
Mounting: Applies to interior face of elevator cab wall with double-sided tape
and appropriate silastic adhesive.
[CHART OMITTED]
10f
<PAGE>
[Illegible]terior Sign Standards
Sign Type: P.7
Product: 7 1/2" by 7 1/2" by_1/8" thick stainless steel plaque with
[Illegible]o-etched graphics and 45degree beveled edge.
Finishh: "Carr" to be infilled blue to match PMS 293c. "America" tagline to be
infilled black. Face of sign to be #6 satin finish [Illegible]horizontal grain.
Beveled edge to be mirror polished. Provide [Illegible]s 302 or 304 established
by the American Iron and Steel Institute [AIS], in addition, comply with ASTM A
167. All graphics [Illegible] infilled with chip-resistant glass screening
enamel.
Type style: Artwork for CarrAmerica logo will be provided in a [Illegible]al
format (Mac and PC formats are available).
Mounting: Applies to interior face of elevator cab wall with double-sided tape
and appropriate silastic adhesive.
[CHART OMITTED]
10g
<PAGE>
[Illegible]terior Sign Standards
Sign Type: P.8
Product: 7 1/2" by 7 1/2" by 1/8" thick bronze plaque with [Illegible]etched
graphics and 45degree beveled edge.
Finish: "Carr" to be infilled blue to match PMS 293c. "America" tagline to be
infilled black. Face of sign to be #6 satin finish [Illegible]horizontal grain.
Beveled edge to be mirror polished. Bronze [Illegible]to be Muntz Metal, alloy
280. Clear-coat for Interior location. All graphics to be infilled with chip-
resistant glass [Illegible]ing enamel.
Type Style: Artwork for CarrAmerica logo will be provided in a [Illegible]
format (Mac and PC formats are available).
Mounting: Applies to interior face of elevator cab wall with double-sided tape
and appropriate silastic adhesive.
[CHART OMITTED]
10h
<PAGE>
[Illegible]terior Sign Standards
Directory Strips - CarrAmerica
Product:
[Illegible]ear-illuminated directory strips. Size and fabrication to match
existing directory format (ie: negative strip, engraved plastic.)
Finish:
Background to be black with white copy or to match existing standard.
Letter Style:
Body copy and phone numbers to match existing. CarrAmerica logo to be reproduced
from digital file provided by designer at time of fabrication.
Mounting:
n/a
[CHART OMITTED]
11a
<PAGE>
[Illegible] Sign Standards
Directory Strips - CarrAmerica/CRES
Product:
[Illegible]ear-illuminated directory strips. Size and fabrication to match
existing directory format (ie: negative strip, engraved plastic.)
Finish:
Background to be black with white copy or to match existing standard.
Letter Style:
Body copy and phone numbers to match existing. CarrAmerica/CRES logo to be
reproduced from digital file provided by designer at time of fabrication. Note:
CRES logline is not proportional to Corporate standards. Cres tagline to be
increased to match line length of CarrAmerica.
Mounting:
n/a
[CHART OMITTED]
11b
<PAGE>
[Illegible]terior Signage Standards
Sign Type L: Room Identification
Product: 8" by 8" by 1/4" thick laminated acrylic plaque with [Illegible]d
photopolymer on the lower panel and applied woodgrain [Illegible]ate face on the
accent strip. Graphics to be silkscreened on the [Illegible]panel and painted
raised lettering on the lower panel.
Finish: Upper panel to be painted cream to match Pratt & Lambert [Illegible]5.
Band to be woodgrain laminate, Nevamar ARP Fine [Illegible]ore, Textured #
W-8-351T. Lower panel to be painted warm to match Pratt & Lambert #2304. Reveals
to be painted blue to [Illegible]PMS 293c. Copy on upper panel to be warm gray
to match Pratt Lambert #2304. Copy on lower panel to be cream to match Pratt &
Lambert #2275. Braille to be painted to match background color. All [Illegible]d
surfaces to be have a semi-gloss finish.
Type Style: All copy to be Times Roman and Times Italic, size and format as
illustrated. Fabricator is responsible for all Grade 2 Braille translations.
Mounting: Plaque attaches to wall on latch side of door. Plaque mounts 4" from
jamb at 60" from floor to centerline of plaque.
[CHART OMITTED]
12A
<PAGE>
[Illegible]terior Signage Standards
Sign Type L: Room Identification, continued
Alternate layouts are illustrated below.
[CHART OMITTED]
12B
<PAGE>
[Illegible]terior Signage Standards
Sign Type M: Tenant Plaque
Product: 12" by 12" by 3/8" thick plaque composed of laminated [Illegible]lic,
aluminum and woodgrain laminant panels. Upper panel to be aluminum with photo
etched graphics with paint infill. Accent band to polished aluminum. Lower panel
to be acrylic with applied woodgrain laminant face and applied dimensional
numerals/braille. [Illegible]als to be painted.
Finish: Upper panel to be fine grain satin finish aluminum with a horizontal
grain. Accent band to be polished aluminum. Base to be woodgrain laminate,
Nevamar ARP Fine Sycamore, Textured # W-8-[Illegible]T. Reveals to be painted
blue to match PMS 293c. All copy and [Illegible]le to be black. Painted reveals
to be have a semi-glass finish.
Type Style: All copy to be Times Roman, size and format as illustrated.
Fabricator is responsible for all Grade 2 Braille translations.
Mounting: Plaque attaches to wall on latch side of door. Plaque mounts 4" from
jamb at 60" from floor to centerline of plaque. If plaques mounts to glass
sidelight, provide 1/16" thick satin finish aluminum back-up plate on inside
face of glass to conceal adhesives:
[CHART OMITTED]
13
<PAGE>
[Illegible]terior Signage Standards
Sign Type N: Suite Identification, Option A
Product: 3/16" thick stainless steel letters, Braille strip to be 1/8" acrylic
with photopolymer face. Braille strip to be painted warm gray to match Pratt &
Lambert 2304.
Finish: Letters to be polished smooth on the face and all sides to have
[Illegible]fine sandblast finish. Braille strip to have semi-gloss polyurethane
enamel paint finish.
Type Style: Copy and numerals to be Times Roman. Size and format
[Illegible]indicated.
Mounting: Letters and plate adhere to wall surface with double stick tape and
silicone adhesive. Refer to mounting heights and locations.
Note: Copy aligns Rush left for left opening doors and flush right for right
opening doors.
[CHART OMITTED]
14
<PAGE>
[[Illegible]
Sign Type O: Suite Directional
Product: 12" by 12" by 3/8" thick plaque composed of laminated acrylic, aluminum
and woodgrain laminant panels. Changable strips to aluminum with photo etched
graphics with paint infill. Accent band [Illegible] polished aluminum. Lower
panel to be acrylic with applied [Illegible]grain laminant face. Reveals to be
painted.
Finish: Upper panel strips to be fine grain satin finish aluminum with
horizontal grain. Accent band to be polished aluminum. Base to be woodgrain
laminate to match Nevamar ARP Fine Sycamore, Textured # [Illegible]351T. Reveals
to be painted blue to match PMS 293c. All copy to [Illegible]ock. Painted
reveals to be have a semi-glass finish.
Type Style: All copy to be Times Raman, size and format as illustrated.
Mounting: Plaque attaches to wall at 60" from floor to centerline of plaque.
[CHART OMITTED]
15
<PAGE>
[Illegible]terior Signage Standards
February 14, 1997
CarrAmerica Identification at Reception Desk
Product: 8" initial cap height by 3/8" thick cut out black acrylic letters with
polyurethane enamel paint finish.
Finish: Face and returns of "Carr" to be painted blue to match PMS 293c. Face
[Illegible]d returns of "America" to be painted black. Painted surfaces to be
primed and printed with a semi-glass finish.
Type Style: CarrAmerica logo to be provided as a digital file in either mac or
pc format. Overall length indicated is approximate. Do not alter spacing or
proportions of digital file.
Mounting: Install with 1/16" thick double-sided foam tape and silicone adhesive
to wall behind reception desk at height indicated. Fabricator to provide
[Illegible]unce template for installation.
Alternate: For dark colored walls, including dark paint finishes, dark wood
veneers, dark stone or other dark colored wall materials where the preferred
standard blue and black letters will not read, the following two alternates may
be considered.
Alternate Product: 8" Initial cap height by 3/8" thick cut out aluminum or
bronze letters. Select aluminum or bronze based on existing, predominant
interior metalwork. Bronze alloy to be Muntz Metal, alloy 280.
Alternate Finish: Face of "Carr" to be #4 Satin finish, horizontal grain. Face
of "America" to be #8 mirror polished. Returns of all letters to have a fine
grain sandblast finish. All letters to be clear-coated for interior use.
Alternate Mounting: Pin mount, flush to wall and adhere with silicone adhesive
at location indicated behind reception desk. Fabricator to provide pounce
template for installation.
[CHART OMITTED]
Note: An 8" cop height is the suggested standard size. If you feel that your
lobby area warrants consideration of special size, please contact Corporate
Communications.
16
<PAGE>
CARRAMERICA REALTY CORPORATION
2346 Bering Drive
San Jose, California 95131
Phone 408.544.9660
Fax 408.544.9669
www.carramerica.com
December 27, 1999
CARRAMERICA
Ms. Grace Fujiwara
Numerical Technologies
70 Plumeria
San Jose, CA 95134
Re: 2000 NEW MONTHLY ESTIMATED OPERATING EXPENSES
70 PLUMERIA, SAN JOSE
Dear Ms. Fujiwara:
Enclosed please find 2000 Operating Expense Prepayment Schedule and 2000
Estimated Operating Expenses Backup. The total amount due to CarrAmerica for
2000 Estimated Operating Expenses is $ 10,723.62.
-----------
The monthly amount and charges commenced as follows:
70 PLUMERIA EFFECTIVE: JANUARY 1, 2000 MONTHLY AMOUNT: $ 10,723.62
Your account will be charged to reflect the total amount due according to the
attached invoice. Please refer to it for a detailed breakdown.
Please remit your payment at your earliest convenience to the following:
CARRAMERICA REALTY CORPORATION
T/A VALLEY CENTRE
P.O. BOX 198291
ATLANTA, GEORGIA 30384-8291
If you have any questions or concerns with the above mentioned and attached
information, please do not hesitate to contact me directly.
Sincerely,
CARRAMERICA REALTY CORPORATION
/s/ Signature Illegible
Lisa Huntress
Assistant Property Manager
cc: Iris Jimenez, Property Manager
Lease File
<PAGE>
CARRAMERICA.
NUMERICAL TECHNOLOGIES, INC.
SUITE 70
70 PLUMERIA/2720 ORCHARD PARKWAY
SAN JOSE, CA 95134 December 27, 1999
2000 OPERATING EXPENSE PREPAYMENT
ADJUSTMENT TO MONTHLY RENT
Estimated 2000 Operating Expenses
Excluding Management Fee and Real Estate Tax: $ 130,786.68
Proportionate Share: X 49.2500%
Estimated Share Of 2000 Operating Expenses: 64,412.44
Months in Estimated Billing Cycle: / 12
Estimated Monthly Operating Expense: $ 5,367.70
Estimated 2000 Management Fee $ 28,699.52
Proportionate Share: X 49.2500%
Estimated Share of Management Fee 14,134.51
Months in Billing Cycle / 12
Estimated Monthly Management Fee: $ 1,177.88
Estimated 2000 Real Estate Tax: 101,800.00
Proportionate Share: X 49.2500%
Estimated Share Of 2000 Real Estate Tax: 50,136.50
Months in Estimated Billing Cycle: / 12.00
Estimated Monthly Real Estate Taxes: 4,178.04
NEW MONTHLY OPERATING EXPENSE PREPAYMENT
EFFECTIVE: JANUARY 1, 2000 $ 10,723.62
---------------
Please update your records to reflect this new Monthly Operating Expense
Prepayment. This amount
Will not change again until you are notified by us.
<PAGE>
CARRAMERICA.
70 Plumeria/2720 Orchard Parkway
SCHEDULE OF 2000 ESTIMATED OPERATING EXPENSES - January 1 through December 31
Weighted Average Occupancy = 100.00%
<TABLE>
<CAPTION>
As If
CarrAmerica Total 100%
<S> <C> <C> <C>
MANAGEMENT
Management Commissions 33,358.00 33,358.00 33,358.00
Leasing Commissions 0.00 0.00 0.00
Telephone 468.00 468.00 468.00
Office 15,389.00 15,389.00 15,389.00
TOTAL MANAGEMENT: 49,215.00 49,215.00 49,215.00
PAYROLL
Payroll 2,826.00 2,826.00 2,826.00
Payroll Security 0.00 0.00 0.00
Payroll Taxes 258.00 258.00 258.00
Benefits 349.00 349.00 349.00
TOTAL PAYROLL: 3,433.00 3,433.00 3,433.00
UTILITIES
Electricity, Net 3,276.00 3,276.00 3,276.00
Water & Sewer, Net 0.00 0.00 0.00
Lighting, Heating and Cooling System Retrofits 7,956.00 7,956.00 7,956.00
Fuel 0.00 0.00 0.00
TOTAL UTILITIES: 11,232.00 11,232.00 11,232.00
OPERATING SERVICES
Porter Supplies 0.00 0.00 0.00
Janitorial Contract, Net 0.00 0.00 0.00
Security 0.00 0.00 0.00
Access Control 0.00 0.00 0.00
Window Cleaning 936.00 936.00 936.00
Trash Removal 390.00 390.00 390.00
Food Court Expenses 0.00 0.00 0.00
Plaza Expenses 7,208.00 7,208.00 7,208.00
Exterminating 1,591.00 1,591.00 1,591.00
Uniforms 0.00 0.00 0.00
Landscaping 36,923.00 36,923.00 36,923.00
Other Services 0.00 0.00 0.00
TOTAL OPERATING SERVICES: 47,048.00 47,048.00 47,048.00
REPAIRS AND MAINTENANCE
Building and Grounds, Net 13,577.00 13,577.00 13,577.00
Garage/Parking 468.00 468.00 468.00
Heating and Cooling 234.00 234.00 234.00
Electrical 1,365.00 1,365.00 1,365.00
Painting & Wallcovering 1,560.00 1,560.00 1,560.00
Plumbing 507.00 507.00 507.00
Elevators 0.00 0.00 0.00
Floor Coverings 0.00 0.00 0.00
TOTAL REPAIRS AND MAINTENANCE: 17,711.00 17,711.00 17,711.00
TAXES, INSURANCE, AND PROFESSIONAL FEES
Consultants - Passthrough 0.00 0.00 0.00
Real Estate Tax 101,800.00 101,800.00 101,800.00
Tax Appeal Expenses 0.00 0.00 0.00
Vault Rental 0.00 0.00 0.00
Owners Association 234.00 234.00 234.00
Professional & Cons Fees 0.00 0.00 0.00
Legal - Operating 468.00 468.00 468.00
Insurance 5,195.00 5,195.00 5,195.00
Other Passthrough 0.00 0.00 0.00
TOTAL TAXES, INSURANCE, AND PROFESSIONAL FEES: 107,697.00 107,697.00 107,697.00
TOTAL OPERATING EXPENSES: $ 236,336.00 $ 236,336.00 $ 236,336.00
</TABLE>
<PAGE>
CARRAMERICA.
70 Plumeria / 2720 Orchard Parkway
SCHEDULE OF 2000 ESTIMATED OPERATING EXPENSES - JANUARY 1 THROUGH DECEMBER 31
WEIGHTED AVERAGE OCCUPANCY = 100.00%
CARRAMERICA Total
Other Costs
Amortized Capital Expenditures 29,608.68
Salaries above the level of Building Manager 0.00
<PAGE>
EXHIBIT 10.6
LEASE
THIS LEASE IS MADE ON THE TENTH DAY OF MAY, 1990, BY AND BETWEEN LOS GATOS
BUSINESS PARK, A CALIFORNIA LIMITED PARTNERSHIP (HEREINAFTER CALLED "LESSOR"),
AND TRANSCRIPTION ENTERPRISES, LIMITED, A CALIFORNIA CORPORATION (HEREINAFTER
CALLED "LESSEE").
IN CONSIDERATION OF THE MUTUAL PROMISES HEREIN CONTAINED, THE PARTIES AGREE AS
FOLLOWS:
1. Premises. Lessor leases to Lessee, and Lessee leases from Lessor, upon the
--------
terms and conditions herein set forth, those certain Premises ("Premises")
situated in the City of Los Gatos, County of Santa Clara, California, as
outlined in Exhibit "A" attached hereto and described as follows:
approximately 2,394 square feet of a larger 22,272 square foot building
located at 101 Albright Way, Los Gatos, California.
2. Term. The term of this Lease shall be for three (3) years, commencing on
----
August 1, 1990, and ending on July 31, 1993, unless sooner terminated
pursuant to any provision hereof.
3. Rent. Lessee shall pay to Lessor rent for the Premises of Two Thousand,
----
Eight Hundred Seventy-Three and 00/100 Dollars ($2,873.00) per month in
lawful money of the United States of America. Rent shall be paid without
deduction or offset, prior notice, or demand, at such place as may be
designated from time to time by Lessor as follows: $2,873.00 shall be paid
upon execution of the Lease, which sum represents the amount of the first
month's rent. If Lessee is not in default of any provision of this Lease,
this sum, without interest thereon, shall be applied toward the rent due
for the last month of the term of this Lease or the extended term, pursuant
to any extension of the initial term in accordance with the provisions of
this Lease. Pursuant to Paragraph 5 of this Lease Agreement, a deposit of
$2,490 shall be made by Lessee and held by Lessor. The deposit shall be
paid upon execution of the Lease. $2,873.00 shall be paid on August 1,
1990, and in advance on the first (1st) day of each succeeding calendar
month until July 31, 1993. Rent for any period during the term hereof which
is for less than one (1) full month shall be a pro-rata portion of the
monthly rent payment. Lessee acknowledges that late payment by Lessee to
Lessor of rent or any other payment due Lessor will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of such costs being
extremely difficult and impracticable to fix. Such costs include, without
limitation, processing and accounting charges, and late charges that may be
imposed on Lessor by the terms of any encumbrance and note secured by any
encumbrance covering the Premises. Therefore, if any installment of rent or
other payment due from Lessee is not received by Lessor within five (5)
days following the date it is due and payable, Lessee shall pay to Lessor
an additional sum of ten percent (10%) of the overdue amount as a late
charge. The parties agree that this late charge represents a fair and
reasonable estimate of the costs that Lessor will incur by reason of late
payment by Lessee. Acceptance of any late charge shall not constitute a
waiver of Lessee's default with respect to the overdue amount, nor prevent
Lessor from exercising any of the other rights and remedies available to
Lessor.
If, for any reason whatsoever, Lessor cannot deliver possession of the
Premises on the commencement date set forth in Paragraph 2 above, this
Lease shall not be void or voidable, nor shall Lessor be liable to Lessee
for any loss or damage resulting therefrom; but in such event,
1
<PAGE>
Lessee shall not be obligated to pay rent until possession of the Premises
is tendered to Lessee and the commencement and termination dates of this
Lease shall be revised to conform to the date of Lessor's delivery of
possession. In the event that Lessor shall permit Lessee to occupy the
Premises prior to the commencement date of the term, such occupancy shall
be subject to all of the provisions of this Lease, including the obligation
to pay rent at the same monthly rate as that prescribed for the first month
of the Lease term.
4. Option to Extend Term. In no event shall the monthly rent for any extended
---------------------
term be less than the monthly rent paid immediately prior to such extended
term.
5. Security Deposit. Lessor acknowledges that Lessee has deposited with
----------------
Lessor a Security Deposit in the sum of Two Thousand, Eight Hundred
Seventy-Three and 00/100 Dollars ($2,490.00) to secure the full and
faithful performance by Lessee of each term, covenant, and condition of
this Lease. If Lessee shall at any time fail to make any payment or fail to
keep or perform any term, covenant, or condition on its part to be made or
performed or kept under this Lease, Lessor may, but shall not be obligated
to and without waiving or releasing Lessee from any obligation under this
Lease, use, apply, or retain the whole or any part of said Security Deposit
(a) to the extent of any sum due to Lessor; or (b) to compensate Lessor for
any loss, damage, attorneys' fees or expense sustained by Lessor due to
Lessee's default. In such event, Lessee shall, within five (5) days of
written demand by Lessor, remit to Lessor sufficient funds to restore the
Security Deposit to its original sum. No interest shall accrue on the
Security Deposit. Should Lessee comply with all the terms, covenants, and
conditions of this Lease and, at the end of the term of this Lease, leave
the Premises in the condition required by this Lease, then said Security
Deposit or any balance thereof, less any sums owing to Lessor, shall be
returned to Lessee within fifteen (15) days after the termination of this
Lease and vacancy of the Premises by Lessee. Lessor can maintain the
Security Deposit separate and apart from Lessor's general funds, or can
co-mingle the Security Deposit with the Lessor's general and other funds.
6. Use of the Premises. The Premises shall be used exclusively for the purpose
-------------------
of computer software marketing and engineering normal and customary to the
industry.
Lessee shall not use or permit the Premises, or any part thereof, to
be used for any purpose or purposes other than the purpose for which the
Premises are hereby leased; and no use shall be made or permitted to be
made of the Premises, nor acts done, which will increase the existing rate
of insurance upon the building in which the Premises are located, or cause
a cancellation of any insurance policy covering said building, or any part
thereof, nor shall Lessee sell or permit to be kept, used, or sold, in or
about the Premises, any article which may be prohibited by the standard
form of fire insurance policies. Lessee shall not commit or suffer to be
committed any waste upon the Premises or any public or private nuisance or
other act or thing which may disturb the quiet enjoyment of any other
tenant in the building in which the Premises are located; nor, without
limiting the generality of the foregoing, shall Lessee allow the Premises
to be used for any improper, immoral, unlawful, or objectionable purpose.
Lessee shall not place any harmful liquids in the drainage system of
the Premises or of the building of which the Premises form a part. No waste
materials or refuse shall be dumped upon or permitted to remain upon any
part of the Premises outside of the building proper except in trash
containers placed inside exterior enclosures designated for that purpose by
Lessor, or inside the building proper where designated by Lessor. No
materials, supplies, equipment, finished or semi-finished products, raw
materials, or articles of any nature shall be stored upon or permitted to
remain on any portion of the Premises outside of the building proper.
Lessee shall
2
<PAGE>
comply with all the covenants, conditions, and/or restrictions ("C.C. &
R.'s") affecting the Premises.
Lessee shall abide by all laws, ordinances, and statutes, as they now
exist or may hereafter be enacted by legislative bodies having jurisdiction
thereof, relating to its use and occupancy of the Premises.
7. Taxes and Assessments.
---------------------
A. Lessee shall pay before delinquency any and all taxes, assessments,
license fees, and public charges levied, assessed, or imposed upon or
against Lessee's fixtures, equipment, furnishings, furniture,
appliances, and personal property installed or located on or within
the Premises. Lessee shall cause said fixtures, equipment,
furnishings, furniture, appliances, and personal property to be
assessed and billed separately from the real property of Lessor. If
any of Lessee's said personal property shall be assessed with Lessor's
real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement from
Lessor setting forth the taxes applicable to Lessee's property.
B. All property taxes or assessments levied or assessed or hereafter
levied or assessed by any governmental authority against the Premises
or any portion of such taxes or assessments which becomes due or
accrued during the term of this Lease shall be paid by Lessor. Lessee
shall reimburse Lessor for Lessee's proportionate share of such taxes
or assessments within ten (10) days of receipt of Lessor's invoice
demanding such payment. Lessee's liability hereunder shall be prorated
to reflect the commencement and termination dates of this Lease.
8. Insurance.
---------
A. Indemnity. Lessee agrees to indemnify and defend Lessor against and
---------
hold Lessor harmless from any and all demands, claims, causes of
action, judgments, obligations, or liabilities, and all reasonable
expenses incurred in investigating or resisting the same (including
reasonable attorneys' fees) on account of, or arising out of, the
condition, use, or occupancy of the Premises. This Lease is made on
the express condition that Lessor shall not be liable for, or suffer
loss by reason of, injury to person or property, from whatever cause,
in any way connected with the condition, use, or occupancy of the
Premises, specifically including, without limitation, any liability
for injury to the person or property of Lessee, its agents, officers,
employees, licensees, and invitees.
B. Liability Insurance. Lessee shall, at its expense, obtain and keep in
-------------------
force during the term of this Lease a policy of comprehensive public
liability insurance insuring Lessor and Lessee, with cross-liability
endorsements, against any liability arising out of the condition, use,
or occupancy of the Premises and all areas appurtenant thereto,
including parking areas. Such insurance shall be in an amount
satisfactory to Lessor of not less than one million dollars
($1,000,000) for bodily injury or death as a result of one occurrence,
and five hundred thousand dollars ($500,000) for damage to property as
a result of any one occurrence. The insurance shall be with companies
approved by Lessor, which approval Lessor agrees not to withhold
unreasonably. Prior to possession, Lessee shall deliver to Lessor a
certificate of insurance evidencing the existence of the policy which
(1) names
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Lessor an additional insured, (2) shall not be canceled or altered
without thirty (30) days' prior written notice to Lessor, (3) insures
performance of the indemnity set forth in Section A of Paragraph 9,
and (4) coverage is primary and any coverage by Lessor is in excess
thereto.
C. Property Insurance. Lessor shall obtain and keep in force during the
------------------
term of this Lease a policy or policies of insurance (including
earthquake and flood coverage) covering loss or damage to the
Premises, in the amount of the full replacement value thereof. Lessee
shall pay to Lessor its pro-rata share of the cost of said insurance
within ten (10) days of Lessee's receipt of Lessor's invoice demanding
such payment.
D. Lessee hereby releases Lessor, and its partners, officers, agents,
employees, and servants, from any and all claims, demands, loss,
expense, or injury to the Premises or to the furnishings, fixtures,
equipment, inventory, or other property of Lessee in, about, or upon
the Premises, which is caused by or results from perils, events, or
happenings which are the subject of insurance in force at the time of
such loss.
9. Utilities. Lessee shall pay for all water, gas, light, heat, power,
---------
electricity, telephone, trash removal, landscaping, sewer charges, and all
other services, including normal and customary property management fees,
supplied to or consumed on the Premises. In the event that any such
services are billed directly to Lessor, then Lessee shall reimburse Lessor
for such expenses within ten (10) days of Lessee's receipt of Lessor's
invoice demanding payment.
10. Repairs and Maintenance.
-----------------------
A. Subject to provisions of Paragraph 15, Lessor shall keep and maintain
the roof, paving, structural elements, landscaping, irrigation, and
exterior walls of the building in which the Premises are located in
good order and repair. Lessee shall reimburse Lessor for its
proportionate share of said expenses within ten (10) days of Lessee's
receipt of Lessor's invoice demanding payment. If, however, any
repairs or maintenance is required because of an act or omission of
Lessee or its agents, employees, or invitees, Lessee shall pay to
Lessor upon demand one hundred percent (100%) of the costs of such
repair and maintenance.
B. Except as expressly provided in Subparagraph A above, Lessee shall, at
its sole cost, keep and maintain the entire Premises and every part
thereof, including, without limitation, the windows, window frames,
plate glass, glazing, truck doors, doors, all door hardware, interior
of the Premises, interior walls and partitions, and the electrical,
plumbing, lighting, heating, and air conditioning systems in good and
sanitary order, condition, and repair. Lessee shall, at its own
expense, for the duration of this Lease, retain a service company,
approved by Lessor, to provide routine maintenance and repairs of the
heating, ventilation, and air conditioning systems.
Should Lessee fail to maintain the Premises or make repairs
required of Lessee hereunder forthwith upon notice from Lessor,
Lessor, in addition to all other remedies available hereunder or by
law, and without waiving any alternative remedies, may make the same,
and in that event, Lessee shall reimburse Lessor as additional rent
for the cost of such maintenance or repairs on the next date upon
which rent becomes due. Lessee hereby expressly waives the provision
of Subsection 1 of Section 1932, and Sections 1941
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and 1942 of the Civil Code of California and all rights to make
repairs at the expense of Lessor, as provided in Section 1942 of said
Civil Code.
11. Alterations and Additions. Lessee shall not make, or suffer to be made, any
-------------------------
alterations, improvements, or additions in, on, or about, or to the
Premises or any part thereof, without prior written consent of Lessor and
without a valid building permit issued by the appropriate governmental
authority. Lessor retains, at his sole option, the right to perform all
repairs, alterations, improvements, or additions in, on, about, or to said
Premises or any part thereof. As a condition to giving such consent, Lessor
may require that Lessee agree to remove any such alterations, improvements,
or additions at the termination of this Lease, and to restore the Premises
to their prior condition. Any alteration, addition, or improvement to the
Premises, shall become the property of Lessor upon installation, and shall
remain upon and be surrendered with the Premises at the termination of this
Lease. Lessor can elect, however, within thirty (30) days before expiration
of the term or within five (5) days after termination of the term, to
require Lessee to remove any alterations, additions, or improvements that
Lessee has made to the Premises. If Lessor so elects, Lessee shall restore
the Premises to the condition designated by Lessor in its election, before
the last day of the term, or within thirty (30) days after notice of
election is given, whichever is later. Alterations and additions which are
not to be deemed as trade fixtures including heating, lighting, electrical
systems, air conditioning, partitioning, electrical signs, carpeting, or
any other installation which has become an integral part of the Premises.
In the event that Lessor consents to Lessee's making any alterations,
improvements, or additions, Lessee shall be responsible for the timely
posting of notices of non-responsibility on Lessor's behalf, which shall
remain posted until completion of the alterations, additions, or
improvements. Lessee's failure to post notices of non-responsibility as
required hereunder shall be a breach of this Lease.
If, during the term hereof, any alteration, addition, or change of any
sort through all or any portion of the Premises or of the building of which
the Premises form a part, is required by law, regulation, ordinance, or
order of any public agency, Lessee, at its sole cost and expense, shall
promptly make the same.
12. Acceptance of the Premises and Covenant to Surrender. By entry and taking
----------------------------------------------------
possession of the Premises pursuant to this Lease, Lessee accepts the
Premises as being in good and sanitary order, condition, and repair, and
accepts the Premises in their condition existing as of date of such entry,
and Lessee further accepts any tenant improvements to be constructed by
Lessor, if any, as being completed in accordance with the plans and
specifications for such improvements.
Lessee agrees on the last day of the term hereof, or on sooner
termination of this Lease, to surrender the Premises, together with all
alterations, additions, and improvements which may have been made in, to,
or on the Premises by Lessor or Lessee, unto Lessor in good and sanitary
order, condition, and repair, excepting for such wear and tear as would be
normal for the period of the Lessee's occupancy. Lessee, on or before the
end of the term or sooner termination of this Lease, shall remove all its
personal property and trade fixtures from the Premises, and all property
not so removed shall be deemed abandoned by Lessee. Lessee further agrees
that at the end of the term or sooner termination of this Lease, Lessee, at
its sole expense, shall have the carpets steam cleaned, the walls and
columns painted, the flooring waxed, any damaged ceiling tile replaced, the
windows cleaned, the drapes cleaned, and any damaged doors replaced.
If the Premises are not surrendered at the end of the term or sooner
termination of this Lease, Lessee shall indemnify Lessor against loss or
liability resulting from delay by Lessee in
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so surrendering the Premises, including, without limitation, any claims
made by any succeeding tenant founded on such delay.
13. Default. In the event of any breach of this Lease by the Lessee, or an
-------
abandonment of the Premises by the Lessee, the Lessor has the option of
(1.) removing all persons and property from the Premises and repossessing
the Premises, in which case any of the Lessee's property which the Lessor
removes from the Premises may be stored in a public warehouse or elsewhere
at the cost of, and for the account of, Lessee; or (2.) allowing the Lessee
to remain in full possession and control of the Premises. If the Lessor
chooses to repossess the Premises, the Lease will automatically terminate
in accordance with the provisions of the California Civil Code, Section
1951.2. In the event of such termination of the Lease, the Lessor may
recover from the Lessee: (1.) the worth at the time of award of the unpaid
rent which had been earned at the time of termination, including interest
at the maximum rate an individual is permitted by law to charge; (2.) the
worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds
the amount of such rental loss that the Lessee proves could have been
reasonably avoided, including interest at the maximum rate an individual is
permitted by law to charge; (3.) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time
of award exceeds the amount of such rental loss that the Lessee proves
could be reasonably avoided; and (4.) any other amount necessary to
compensate the Lessor for all the detriment proximately caused by the
Lessee's failure to perform his obligations under the Lease or which, in
the ordinary course of things, would be likely to result therefrom. "The
worth at the time of award," as used in (1.) and (2.) of this Paragraph, is
to be computed by allowing interest at the maximum rate an individual is
permitted by law to charge. "The worth at the time of award," as used in
(3.) of this Paragraph, is to be computed by discounting the amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of
award, plus one percent (1%).
If the Lessor chooses not to repossess the Premises, but allows the
Lessee to remain in full possession and control of the Premises, then, in
accordance with provisions of the California Civil Code, Section 1951.4,
the Lessor may treat the Lease as being in full force and effect, and may
collect from the Lessee all rents as they become due through the
termination date of the Lease, as specified in the Lease. For the purpose
of this paragraph, the following do not constitute a termination of
Lessee's right to possession: (1.) acts of maintenance or preservation, or
efforts to relet the property; (2.) the appointment of a receiver on the
initiative of the Lessor to protect his interest under this Lease.
Lessee shall be liable immediately to Lessor for all costs Lessor
incurs in reletting the Premises, including, without limitation, brokers'
commissions, expenses of remodeling the Premises required by the reletting,
and like costs. Reletting can be for a period shorter or longer than the
remaining term of this Lease. Lessee shall pay to Lessor the rent due under
this Lease on the dates the rent is due, less the rent Lessor receives from
any reletting. No act by Lessor allowed by this Section shall terminate
this Lease unless Lessor notifies Lessee that Lessor elects to terminate
this Lease. After Lessee's default and for as long as Lessor does not
terminate Lessee's right to possession of the Premises, if Lessee obtains
Lessor's consent, Lessee shall have the right to assign of sublet its
interest in this Lease, but Lessee shall not be released from liability.
Lessor's consent to a proposed assignment or subletting shall not be
unreasonably withheld.
If Lessor elects to relet the Premises as provided in this Paragraph,
rent that Lessor receives from reletting shall be applied to the payment
of: (1.) any indebtedness from Lessee to Lessor other than rent due from
Lessee; (2.) all costs, including for maintenance, incurred by
6
<PAGE>
Lessor in reletting; (3.) rent due and unpaid under this Lease. After
deducting the payments referred to in this Paragraph, any sum remaining
from the rent Lessor receives from reletting shall be held by Lessor and
applied in payment of future rent as rent becomes due under this Lease. In
no event shall Lessee by entitled to any excess rent received by Lessor.
If, on the date rent is due under this Lease, the rent received from
reletting is less than the rent due on that date, Lessee shall pay to
Lessor, in addition to the remaining rent due, all costs, including for
maintenance, Lessor incurred in reletting that remain after applying the
rent received from the reletting, as provided in this Paragraph.
Lessor, at any time after Lessee commits a default, can cure the
default at Lessee's cost. If Lessor at any time, by reason of Lessee's
default, pays any sum or does any act that requires the payment of any sum,
the sum paid by Lessor shall be due immediately from Lessee to Lessor at
the time the sum is paid, and if paid at a later date shall bear interest
at the maximum rate an individual is permitted by law to charge form the
date the sum is paid by Lessor until Lessor is reimbursed by Lessee. The
sum, together with interest on it, shall be additional rent.
Rent not paid when due shall bear interest at the maximum rate an
individual is permitted by law to charge from the date due until paid.
14. Destruction. In the event the Premises are destroyed in whole or in part
-----------
from any cause, Lessor may, at its option, (1.) rebuild or restore the
Premises to their condition prior to the damage or destruction or (2.)
terminate the Lease.
If Lessor does not give Lessee notice in writing within thirty (30)
days from the destruction of the Premises of its election either to rebuild
and restore the Premises, or to terminate this Lease, Lessor shall be
deemed to have elected to rebuild or restore them, in which event Lessor
agrees, at its expense, promptly to rebuild or restore the Premises to its
condition prior to the damage or destruction. If Lessor does not complete
the rebuilding or restoration within one hundred eighty (180) days
following the date of destruction (such period of time to be extended for
delays caused by the fault or neglect of Lessee or because of acts of God,
acts of public agencies, labor disputes, strikes, fires, freight embargoes,
rainy or stormy weather, inability to obtain materials, supplies or fuels,
acts of contractors or subcontractors, or delay of the contractors or
subcontractors due to such causes or other contingencies beyond control of
Lessor), then Lessee shall have the right to terminate this Lease by giving
fifteen (15) days prior written notice to Lessor. Lessor's obligation to
rebuild or restore shall not include restoration of Lessee's trade
fixtures, equipment, merchandise, or any improvements, alterations, or
additions made by Lessee to the Premises.
Unless this Lease is terminated pursuant to the foregoing provisions,
this Lease shall remain in full force and effect. Lessee hereby expressly
waives the provisions of Section 1932, Subdivision 2, and Section 1933,
Subdivision 4, of the California Civil Code. In the event that the building
in which the Premises are situated is damaged or destroyed to the extent of
not less than thirty-three and one-third percent (33 1/3%) of the
replacement cost thereof, Lessor may elect to terminate this Lease, whether
the Premises be injured or not.
15. Condemnation. If any part of the Premises shall be taken for any public or
------------
quasi-public use, under any statute of by right of eminent domain, or
private purchase in lieu thereof, and a part thereof remains, which is
susceptible of occupation hereunder, this Lease shall, as to the part so
taken, terminate as of the date title shall vest in the condemnor or
purchaser, and the rent payable hereunder shall be adjusted so that the
Lessee shall be required to pay for the remainder of the term only such
portion of such rent as the value of the part remaining after taking such
bears to the value of the entire Premises prior to such taking. Lessor
shall have the option to terminate
7
<PAGE>
this Lease in the event that such taking causes a reduction in rent payable
hereunder by fifty percent (50%) or more. If all of the Premises or such
part thereof be taken so that there does not remain a portion susceptible
for occupation hereunder, as reasonably necessary for Lessee's conduct of
its business as contemplated in this Lease, this Lease shall thereupon
terminate. If a part of all of the Premises be taken, all compensation
awarded upon such taking shall go to the Lessor, and the Lessee shall have
no claim thereto, and the Lessee hereby irrevocably assigns and transfers
to the Lessor any right to compensation or damages to which the Lessee may
become entitled during the term hereof by reason of the purchase or
condemnation of all or a part of the Premises. Each party waives the
provisions of the Code of Civil Procedure, Section 1265.130, allowing
either party to petition the Superior Court to terminate this Lease in the
event of a partial taking of the Premises.
16. Free from Liens: Lessee shall (1.) pay for all labor and services performed
---------------
for materials used by or furnished to Lessee, or any contractor employed by
Lessee with respect to the Premises, and (2.) indemnify, defend, and hold
Lessor and the Premises harmless and free from any liens, claims, demands,
encumbrances, or judgments created or suffered by reason of any labor or
services performed for materials used by or furnished to Lessee or any
contractor employed by Lessee with respect to the Premises, and (3.) give
notice to Lessor in writing five (5) days prior to employing any laborer or
contractor to perform services related, or receiving materials for use upon
the Premises, and (4.) shall post, on behalf of Lessor, a notice of non-
responsibility in accordance with the statutory requirements of the
California Civil Code, Section 3904; or any amendment thereof. In the event
an improvement bond with a public agency in connection with the above is
required to be posted, Lessee agrees to include Lessor as an additional
obligee.
17. Compliance with Laws. Lessee shall, at its own cost, comply with and
--------------------
observe all requirements of all municipal, county, state, and federal
authority now in force, or which may hereafter be in force, pertaining to
the use and occupancy of the Premises.
18. Subordination. Lessee agrees that this Lease shall, at the option of
-------------
Lessor, be subjected and subordinated to any mortgage, deed of trust, or
other instrument of security, which has been or shall be placed on the land
and building, or land or building of which the Premises form a part, and
this subordination is hereby made effective without any further act of
Lessee or Lessor. The Lessee shall, at any time hereinafter, on demand,
execute any instruments, releases, or other documents that may be required
by any mortgagee, mortgagor, trustor, or beneficiary under any deed of
trust, for the purpose of subjecting or subordinating this Lease to the
lien of any such mortgage, deed of trust, or other instrument of security.
If Lessee fails to execute and deliver any such documents or instruments,
Lessee irrevocably constitutes and appoints Lessor as Lessee's special
attorney-in-fact to execute and deliver any such documents or instruments.
19. Abandonment. Lessee shall not vacate or abandon the Premises at any time
-----------
during the term; and if Lessee shall abandon, vacate, or surrender said
Premises, or be dispossessed by process of law, or otherwise, any personal
property belonging to Lessee and left on the Premises shall be deemed to be
abandoned, at the option of Lessor, except such property as may be
mortgaged to Lessor; provided, however, that Lessee shall not be deemed to
have abandoned or vacated the Premises so long as Lessee continues to pay
all rents as and when due, and otherwise performs pursuant to the terms and
conditions of this Lease.
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20. Assignment and Subletting. Lessee's interest in this Lease is not
-------------------------
assignable, by operation of law or otherwise, nor shall Lessee have the
right to sublet the Premises, transfer any interest of Lessee's therein, or
permit any use of the Premises by another party, without the prior written
consent of Lessor to such assignment, subletting, or transfer of use.
If Lessee is a partnership, a withdrawal or change, voluntary,
involuntary, or by operation of law, of any partner(s) owning fifty percent
(50%) or more of the partnership, of the dissolution of the partnership,
shall be deemed as a voluntary assignment.
If Lessee consists of more than one person, a purported assignment,
voluntary, involuntary, or by operation of law, from one person to the
other or from a majority of persons to the others, shall be deemed a
voluntary assignment.
If Lessee is a corporation, any dissolution, merger, consolidation, or
other reorganization of Lessee, or the sale or other transfer of a
controlling percentage of the capital stock of Lessee, or sale of at least
fifty-one percent (51%) of the value of the assets of Lessee, shall be
deemed a voluntary assignment. The phrase "controlling percentage" means
the ownership of, and the right to vote, stock possessing at least
fifty-one percent (51%) of the total combined voting power of all classes
of Lessee's capital stock issued, outstanding, and entitled to vote for the
election of directors. This Paragraph shall not apply to corporations the
stock of which is traded through an exchange or over the counter.
In the event of any subletting or transfer which is consented to, or
not consented to, by Lessor, a subtenant or transferee agrees to pay monies
or other consideration, whether by increased rent or otherwise, in excess
of or in addition to those provided for herein, then all of such excess or
additional monies or other consideration shall be paid solely to Lessor,
and this shall be one of the conditions to obtaining Lessor's consent.
Lessee immediately and irrevocably assigns to Lessor, as security for
Lessee's obligations under this Lease, all rent from any subletting of all
or a part of the Premises as permitted by this Lease, and Lessor, as
assignee and as attorney-in-fact for Lessee, or a receiver for Lessee
appointed on Lessor's application, may collect such rent and apply it
toward Lessee's obligations under this Lease; except that, until the
occurrence of an act of default by the Lessee, Lessee shall have the right
to collect such rent.
A consent to one assignment, subletting, occupation, or use by another
party shall not be deemed to be a consent to any subsequent assignment,
subletting, occupation, or use by another party. Any assignment or
subletting without such consent shall be void and shall, at the option of
the Lessor, terminate this Lease. Lessor's waiver or consent to any
assignment or subletting hereunder shall not relieve Lessee from any
obligation under this Lease unless the consent shall so provide. If Lessee
requests Lessor to consent to a proposed assignment or subletting, Lessee
shall pay to Lessor, whether or not consent is ultimately given, Lessor's
reasonable attorneys' fees incurred in conjunction with each such request.
21. Parking Charges. Lessee agrees to pay upon demand, based on its percent of
---------------
occupancy of the entire Premises, its pro-rata share of any parking
charges, surcharges, or any other cost hereafter levied or assessed by
local, state, or federal governmental agencies in connection with the use
of the parking facilities serving the Premises, including, without
limitation, parking surcharge imposed by or under the authority of the
Federal Environmental Protection Agency.
22. Insolvency or Bankruptcy. Either (1.) the appointment of a receiver to
------------------------
take possession of all or substantially all of the assets of Lessee, or
(2.) a general assignment by Lessee for the benefit of creditors, or (3.)
any action taken or suffered by Lessee under any insolvency or bankruptcy
act shall constitute a breach of this Lease by Lessee. Upon the happening
of any such event, this
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Lease shall terminate ten (10) days after written notice of termination
from Lessor to Lessee. This section is to be applied consistent with the
applicable state and federal law in effect at the time such event occurs.
23. Lessor Loan or Sale. Lessee agrees promptly following request by Lessor to
-------------------
(1.) execute and deliver to Lessor any documents, including estoppel
certificates presented to Lessee by Lessor, (a.) certifying that this Lease
is unmodified and in full force and effect, or, if modified, stating the
nature of such modification and certifying that this Lease, as so modified,
is in full force and effect and the date to which the rent and other
charges are paid in advance, if any, and (b.) acknowledging that there are
not, to Lessee's knowledge, any uncured defaults on the part of Lessor
hereunder, and (c.) evidencing the status of the Lease as may be required
either by a lender making a loan to Lessor, to be secured by deed of trust
or mortgage covering the Premises, or a purchaser of the Premises from
Lessor, and (2.) to deliver to Lessor the current financial statements of
Lessee with an opinion of a certified public accountant, including a
balance sheet and profit and loss statement, for the current fiscal year
and the two immediately prior fiscal years, all prepared in accordance with
Generally Accepted Accounting Principles consistently applied. Lessee's
failure to deliver an estoppel certificate within three (3) days following
such request shall constitute a default under this Lease and shall be
conclusive upon Lessee that this Lease is in full force and effect and has
not been modified except as may be represented by Lessor. If Lessee fails
to deliver the estoppel certificates within the three (3) days, Lessee
irrevocably constitutes and appoints Lessor as its special attorney-in-fact
to execute and deliver the certificate to any third party.
24. Surrender of Lease. The voluntary or other surrender of this Lease by
------------------
Lessee, or a mutual cancellation thereof, shall not work a merger nor
relieve Lessee of any of Lessee's obligations under this Lease, and shall,
at the option of Lessor, terminate all or any existing Subleases or
Subtenancies, or may, at the option of Lessor, operate as an assignment to
him of any or all such Subleases or Subtenancies.
25. Attorneys' Fees. If, for any reason, any suit be initiated to enforce any
---------------
provision of this Lease, the prevailing party shall be entitled to legal
costs, expert witness expenses, and reasonable attorneys' fees, as fixed by
the court.
26. Notices. All notices to be given to Lessee may be given in writing,
-------
personally, or by depositing the same in the United States mail, postage
prepaid, and addressed to Lessee at the said Premises, whether or not
Lessee has departed from, abandoned, or vacated the Premises. Any notice or
document required or permitted by this Lease to be given Lessor shall be
addressed to Lessor at the address set forth below, or at such other
address as it may have theretofore specified by notice delivered in
accordance herewith:
LESSOR: LOS GATOS BUSINESS PARK
POST OFFICE BOX 10098
PALO ALTO, CALIFORNIA 94303-0854
LESSEE: TRANSCRIPTION ENTERPRISES LIMITED
101 ALBRIGHT WAY
LOS GATOS, CALIFORNIA 95030
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27. Transfer of Security. If any security be given by Lessee to secure the
--------------------
faithful performance of all or any of the covenants of this Lease on the
part of Lessee, Lessor may transfer and/or deliver the security, as such,
to the purchaser of the reversion, in the event that the reversion be sold,
and thereupon Lessor shall be discharged from any further liability in
reference thereto, upon the assumption by such transferee of lessor's
obligations under this Lease.
28. Waiver. The waiver by Lessor or Lessee of any breach of any term,
------
covenant, or condition, herein contained shall not be deemed to be a waiver
of such term, covenant, or condition, or any subsequent breach of the same
or any other term, covenant, or condition herein contained. The subsequent
acceptance of rent hereunder by lessor shall not be deemed to be a waiver
of any preceding breach by Lessee of any term, covenant, or condition of
this Lease, other than the failure of Lessee to pay the particular rental
so accepted, regardless of Lessor's knowledge of such preceding breach at
the time of acceptance of such rent.
29. Holding Over. Any holding over after the expiration of the term or any
------------
extension thereof, with the consent of lessor, shall be construed to be a
tenancy from month-to-month, at a rental of one and one-half (1 1/2) times
the previous month's rental rate per month, and shall otherwise be on the
terms and conditions herein specified, so far as applicable.
30. Covenants, Conditions, and Restrictions. Attached hereto, marked Exhibit
---------------------------------------
"C" and by this reference incorporated as if set out in full, are
Covenants, Conditions, and Restrictions pertaining to Los Gatos Business
Park. As a condition to this Lease, Lessee agrees to abide by all of said
Covenants, Conditions, and Restrictions. Moreover, such reasonable rules
and regulations as may be hereafter adopted by Lessor for the safety, care,
and cleanliness of the Premises and the preservation of good order thereon,
are hereby expressly made a part hereof, and Lessee agrees to obey all such
rules and regulations.
31. Limitation on Lessor's Liability. If Lessor is in default of this Lease,
--------------------------------
and, as a consequence, Lessee recovers a money judgment against Lessor, the
judgment shall be satisfied only out of the proceeds of sale received on
execution of the judgment and levy against the right, title, and interest
of Lessor in the Premises, or in the building, other improvements, and land
of which the Premises are part, and out of rent or other income from such
real property receivable by Lessor or out of the consideration received by
Lessor from the sale or other disposition of all or any part of Lessor's
right, title, and interest in the Premises or in the building, other
improvements, and land of which the Premises are part. Neither Lessor nor
any of the partners comprising the partnership designated as Lessor shall
be personally liable for any deficiency.
11
<PAGE>
32. Miscellaneous.
-------------
A. Time is of the essence of this Lease, and of each and all of its
provisions.
B. The term "building" shall mean the building in which the Premises
are situated.
C. If the building is leased to more than one tenant, then each such
tenant, its agents, officers, employees, and invitees, shall have the
non-exclusive right (in conjunction with the use of the part of the
building leased to such Tenant) to make reasonable use of any
driveways, sidewalks, and parking areas located on the parcel of land
on which the building is situated, except such parking areas as may
from time to time be leased for exclusive use by other Tenant(s).
D. Lessee's such reasonable use of parking areas shall not exceed that
percent of the total parking areas which is equal to the ratio which
floor space of the Premises bears to floor space of the building.
E. The term "assign" shall include the term "transfer."
F. The invalidity or unenforceability of any provision of this Lease
shall not affect the validity or enforceability of the remainder of
this Lease.
G. All parties hereto have equally participated in the preparation of
this Lease.
H. The headings and titles to the Paragraphs of this Lease are not a part
of this Lese and shall have no effect upon the construction or
interpretation of any part thereof.
I. Lessor has made no representation(s) whatsoever to Lessee (express or
implied) except as may be expressly stated in writing in this Lease
instrument.
J. This instrument contains all of the agreements and conditions made
between the parties hereto, and may not be modified orally or in any
other manner than by agreement in writing, signed by all of the
parties hereto or their respective successors in interest.
K. It is understood and agreed that the remedies herein given to Lessor
shall be cumulative, and the exercise of any one remedy by Lessor
shall not be to the exclusion of any other remedy.
L. The covenants and conditions herein contained shall, subject to the
provisions as to assignment, apply to and bind the heirs, successors,
executors, and administrators, and assigns of all the parties hereto;
and all of the parties hereto shall jointly and severally be liable
hereunder.
M. This Lease has been negotiated by the parties hereto and the language
hereof shall not be construed for or against either party.
12
<PAGE>
N. All exhibits to which reference is made are deemed incorporated into
this Lease, whether covenants or conditions, on the part of Lessee
shall be deemed to be both covenants and conditions.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease on the date first
above-written.
LESSOR: LESSEE:
LOS GATOS BUSINESS PARK, TRANSCRIPTION ENTERPRISES LIMITED,
A CALIFORNIA LIMITED PARTNERSHIP A CALIFORNIA CORPORATION
By: /s/ Howard J. White III By: /s/ Kevin MacLean
HOWARD J. WHITE, III AUTHORIZED OFFICER
GENERAL PARTNER
DATE: 7/16/90 DATE: 7/12/90
------- -------
13
<PAGE>
ADDENDUM
TO THAT CERTAIN LEASE DATED MAY 10, 1990, BY AND BETWEEN LOS GATOS BUSINESS
PARK, A CALIFORNIA LIMITED PARTNERSHIP, LESSOR, AND TRANSCRIPTION ENTERPRISES,
LIMITED, A CALIFORNIA CORPORATION, LESSEE.
The following wording is added to the base Lease:
34. First Right of Refusal. Lessor here by grants to Lessee a right of first
----------------------
and second refusal to lease additional space in the building as shown in
Exhibit "B." Lessee shall have three (3) business days after receipt of
Lessor's notification of proposal to accept the same in writing, upon the
--------
identical terms and conditions outlined herein. Failure by Lessee to accept
within three (3) days shall be deemed a rejection. Lessor's notification
shall be defined as Lessor's written offer or proposal to a third party. If
Lessee defaults under this Lease, this right of first refusal shall be null
and void.
35. Option to Extend.
----------------
Lessor hereby grants to Lessee the right to extend the term of this Lease
for one (1) three (3)-year period, provided that:
(i) Lessor receives written notice from Lessee six (6) months prior to the
expiration date of said Lease.
(ii) Lessee is not in default when exercising its option to extend term
or when the option to extend term commences.
Upon receipt by Lessor of Lessee's written notice, Lessor and Lessee shall
have thirty (30) days to agree upon a fair market rental rate. If Lessor
and Lessee are unable to agree within said thirty (30)-day period, this
option to extend term shall be null and void, and neither party hereto
shall have the right to seek Court or other third-party relief. In no event
shall the rent paid during the option to extend term to less than the rent
paid the last month of the original term of the Lease.
All other terms and conditions of the Base Lease remain in full force
and effect.
36. The following wording shall be added to Paragraph 6:
As a material consideration in making this Lease, Lessee reports to Lessor
that it is not now nor shall be a user of toxic or hazardous chemicals. In
the event that Lessee does at some future time use toxic materials, every
legal remedy shall be applicable, and the following paragraph shall apply:
Should, at any time during the term of this Lease, or for a period of five
(5) years after the termination or expiration of this Lease, there be
charges or findings of toxic waste, spillage, or other contaminants found
by a governmental agency to be hazardous and requiring removal or remedial
work of the same, Lessee hereunder shall be assumed responsible for, and
hold Lessor harmless from, all claims, obligations, liabilities, and costs,
including reasonable attorneys' fees,
14
<PAGE>
for the removal, remedial work, or other action required by the
governmental agency so prescribing said action, or any other agency having
jurisdiction unless lessee can demonstrate that such toxic waste, spillage,
or other contaminants may be present on the Premises, Lessor may order a
soils report, or its equivalent, at Lessee's expense. Lessee shall pay such
costs within fifteen (15) days from the date of invoice by Lessor. If any
such toxic waste, spillage, or other contaminants are found upon the
Premises, Lessee shall deposit with Lessor, within fifteen (15) days of
notice from Lessor to Lessee to do so, the amount necessary to remove such
substances and remedy the problem.
AGREED AND ACCEPTED: AGREED AND ACCEPTED:
LESSOR LESSEE
LOS GATOS BUSINESS PARK, TRANSCRIPTION ENTERPRISES LIMITED,
A CALIFORNIA LIMITED PARTNERSHIP A CALIFORNIA CORPORATION
By: /s/ Signature Illegible^^ By: /s/ Signature Illegible^^
HOWARD J. WHITE, III AUTHORIZED OFFICER
GENERAL PARTNER
DATE: 7/16/90 DATE: 7/12/90
------- -------
15
<PAGE>
[EXHIBIT OMITTED]
<PAGE>
[EXHIBIT OMITTED]
<PAGE>
[EXHIBIT OMITTED]
<PAGE>
ADDENDUM II
TO THAT CERTAIN LEASE DATED MAY 10, 1990, BY AND BETWEEN LOS GATOS BUSINESS
PARK, LESSOR, AND TRANSCRIPTION ENTERPRISES, LIMITED, LESSEE.
To that certain Lease the following wording is added:
37. Exercise of Option
------------------
Lessee and Lessor have agreed that Lessee will exercise the Option to
Extend shown in the first Addendum #35, of one (1) three-(3)-year option.
Rent for the option period shall be as follows:
Date Amount
---- ------
8/1/93 - 7/31/96 $2,873.00
All other terms and conditions of the base Lease remain in full force and
effect.
AGREED AND ACCEPTED:
LESSOR LESSEE
Los Gatos Business Park Transcription Enterprises
/s/ Signature Illegible^^ /s/ Signature Illegible^^
Howard J. White, III Authorized Officer
General Partner
Date: 4/12/93 Date: April 8, 1993
------- -------------
<PAGE>
ADDENDUM III
REFERENCE IS MADE TO THAT LEASE BY AND BETWEEN LOS GATOS BUSINESS PARK, LESSOR,
AND TRANSCRIPTION ENTERPRISES, LIMITED, INC., 101-A ALBRIGHT WAY, LOS GATOS,
LESSEE, DATED MAY 10, 1990.
To that certain Lease the following wording is added:
LEASE EXTENSION
- ---------------
Lessor and Lessee have agreed to extend the term of the Lease for a period of
three (3) years, August 1, 1996 and terminating July 31, 1999.
Rent for the extended term shall be as follows:
Period Monthly Rent/NNN
------ ----------------
08/01/96 - 07/31/97 $2,873.00
08/01/97 - 07/31/98 $2,993.00
08/01/98 - 07/31/99 $3,112.00
OPTION TO EXPAND
- ----------------
Lessor shall grant to Lessee the option to lease the additional plus or
minus2,106 square feet known as 101-B Albright Way, as shown on Exhibit D upon
expiration of the existing lease, December 31, 1996. Lessee shall exercise said
option by giving Lessor notice of its intention no later than July 1, 1996.
Should Lessee exercise its option to expand, Lessor and Lessee agree that the
term for both spaces (+/-4,500 square feet) shall be extended four (4) years,
commencing January 1, 1997 and terminating December 31, 2000. Total monthly rent
would be as follows:
Period Monthly Rent/NNN
------ ----------------
01/01/97 - 12/31/97 $5.400.00
01/01/98 - 12/31/98 $5,625.00
01/01/99 - 12/31/99 $5,850.00
01/01/00 - 12/31/00 $6,075.00
Provided that Lessee has exercised its option to expand, Lessor agrees to
provide Lessee with an allowance of $18,000 for mutually agreeable tenant
improvements to be installed by Lessor's contractor.
OPTION TO EXTEND TERM
- ---------------------
Lessor hereby grants to Lessee the right to extend the term of this Lease for
one (1) five (5) year period, provided that:
(i) Lessor receives written notice from Lessee six (6) months prior to the
expiration date of said Lease.
<PAGE>
(ii) Lessee is not in default when exercising its option to extend term
or when the option to extend term commences.
Rent for the option period shall be the then prevailing market rent for similar
buildings in Los Gatos.
All other terms and conditions of the base Lease remain in full force and
effect.
AGREED AND ACCEPTED:
LESSOR LESSEE
Los Gatos Business Park Transcription Enterprises, Ltd.
/s/ Signature Illegible^^ /s/ Signature Illegible^^
Howard J. White, III Authorized Representative
General Partner
Date: 1/30/96 Date: 1/29/96
------- -------
<PAGE>
[EXHIBIT OMITTED]
<PAGE>
ADDENDUM IV
REFERENCE IS MADE TO THAT LEASE BY AND BETWEEN LOS GATOS BUSINESS PARK, LESSOR,
AND TRANSCRIPTION ENTERPRISES, LIMITED, INC., 101-A ALBRIGHT WAY, LOS GATOS,
LESSEE, DATED MAY 10, 1990.
To that certain Lease the following wording is added:
EXPANSION
- ---------
Lessee hereby exercises its option to lease the additional plus or minus2,106
square feet known as 101-B Albright Way, as shown on Exhibit upon expiration of
the existing lease, December 31, 1996. As per the terms of the expansion option,
Lessor and Lessee agree that the term for both spaces (+/-4,500 square feet)
shall be extended four (4) years, commencing January 1, 1997 and terminating
December 31, 2000. Total monthly rent will be as follows:
Period Monthly Rent/NNN
------ ----------------
01/01/97 - 12/31/97 $5,400.00
01/01/98 - 12/31/98 $5,625.00
01/01/99 - 12/31/99 $5,850.00
01/01/00 - 12/31/00 $6,075.00
Lessor agrees to provide Lessee with an allowance of $18,000 for mutually
agreeable tenant improvements to be installed by Lessor's contractor.
All other terms and conditions of the base Lease remain in full force and
effect.
AGREED AND ACCEPTED:
LESSOR LESSEE
Los Gatos Business Park Transcription Enterprises, Ltd.
/s/ Signature Illegible>^^ /s/ Signature Illegible>^^, PRESIDENT
Howard J. White, III Authorized Representative
General Partner
Date:6/26/96 Date: June 21, 1996
------- -------------
<PAGE>
TRANSCRIPTION ENTERPRISES LIMITED
101 ALBRIGHT WAY
LOS GATOS, CA 95032
LIST OF BANK ACCOUNTS
NAME ACCOUNT NUMBER
Merrill Lynch
Fairmont Plaza
50 West San Fernando Street
San Jose, CA 95113 233-07B70
Bank of America
Los Gatos Branch 0142
333 North Santa Cruz Avenue
Los Gatos, CA 95030 01422 31195
ABN AMRO Bank NV
Kloosterwandplein 120
Postbus 28
6040 AA Roermond 52 80 52 659
The Netherlands 52 80 53 841
Boram Bank
ChungAng Branch
85, Da-dong, Chung-gu
Seoul, Korea 002-13-02840-0
<PAGE>
TRANSCRIPTION ENTERPRISES LIMITED
101 ALBRIGHT WAY
LOS GATOS, CA 95032
LIST OF SHAREHOLDERS
--------------------
SHAREHOLDER NAME/ADDRESS NUMBER OF SHARES OF COMMON
------------------------ --------------------------
STOCK OWNED
-----------
Roger Sturgeon 500,000
16490 Lucky Road
Los Gatos, CA 95030
Kevin D. MacLean 250,000
18550 Overlook Road
Los Gatos, CA 95030
Robert and Diana Schuyler 4,000
2235 Westchester Drive
San Jose, CA 95124
Maxine Nation 18,500
3390 Oxford Lane
San Jose, CA 95117
Verna McDonald 4,000
439 Alberto Way #A103
Los Gatos, CA 95032
Mark R. Alamillo 2,000
P.O. Box 542
Spring Valley, CA 91976
Camille Russell-Davis 2,000
2584 Neptune Place
Port Hueneme, CA 93041
Linn Wenger 10,000
207 Pau Hana Drive
Soquel, CA 95073
<PAGE>
SHAREHOLDER NAME/ADDRESS NUMBER OF SHARES OF COMMON
------------------------ --------------------------
STOCK OWNED
-----------
Todd Pegelow 5,000
16369 Skyline Boulevard
Woodside, CA 94062
Monique Cary 2,000
20 Crown Valley Court
Danville, CA 94506
TOTAL OUTSTANDING SHARES 797,500
<PAGE>
TRANSCRIPTION ENTERPRISES LIMITED
101 ALBRIGHT WAY
LOS GATOS, CA 95032
LIST OF OFFICERS AND DIRECTORS
------------------------------
NAME ANNUAL COMPENSATION
---- -------------------
Roger Sturgeon 1999 0
Director, President, Chief Executive Officer 1998 0
1997 0
Kevin D. MacLean 1999 0
Director, Secretary, Treasurer 1998 0
1997 0
Marilyn Diola 1999 0
Director 1998 0
1997 0
<PAGE>
EXHIBIT 10.7
TRANSCRIPTION ENTERPRISES, INC.
EMPLOYMENT AGREEMENT
This Agreement is entered between Transcription Enterprises, Inc., a
Delaware corporation (the "Company"), and Roger Sturgeon (the "Employee") this
1st day of January, 2000 (the "Effective Date").
WHEREAS, upon the effectiveness of the merger of the Company, a wholly
owned subsidiary of Numerical Technologies, Inc., a California corporation, with
Transcription Enterprises Limited, a California corporation (the "Merger"), the
Company will be the surviving entity;
WHEREAS, in connection with the Merger, the parties desire and agree to
enter into an employment relationship by means of this Agreement;
WHEREAS, the consideration for this Agreement is separate and apart from
the consideration for the agreement evidencing the Merger;
NOW THEREFORE in consideration of the promises and mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is mutually covenanted and
agreed by and among the parties as follows:
1. Position and Duties. As of the Effective Date, Employee shall be
-------------------
employed as Fellow of the Company, reporting to Mr. Buno Pati, Chief Executive
Officer of Numerical Technologies, Inc., and assuming and discharging such
responsibilities as are commensurate with Employee's position. Employee shall
have the additional responsibility of ensuring a smooth, efficient and rapid
transition of the Company to its new status as a subsidiary of Numerical
Technologies, Inc. Employee shall perform his duties faithfully and to the best
of Employee's ability and shall devote Employee's full business time and effort
to the performance of Employee's duties hereunder. Additionally, it is
anticipated that Employee will be appointed as a member of the Numerical
Technologies, Inc. Board of Directors as soon as reasonably practicable
following the Effective Date.
2. Term. The term of this Agreement shall commence on the Effective
----
Date and shall terminate two (2) years following the Effective Date.
3. Compensation.
------------
(a) Base Salary. For all services to be rendered by Employee
-----------
pursuant to this Agreement, Employee shall receive an annual base salary of Two
Hundred Five Thousand Dollars ($205,000) payable in accordance with the
Company's normal payroll practices.
(b) Bonus. Employee shall be eligible to receive an annual bonus
-----
for fiscal year 2000 based on the attainment of certain individual and Company
performance objectives mutually
<PAGE>
agreed upon by Employee and the Company. Employee's annual bonus target for
fiscal year 2000 will be Fifty Thousand Dollars ($50,000) for Employee's
achievement of one hundred percent (100%) of all mutually agreed upon
performance objectives. The Company and Employee agree to work together to
establish the individual and Company performance objectives for fiscal year 2000
as soon as practicable following Employee's commencement of employment. The
Board shall have the sole discretion to determine whether the performance
objectives for fiscal year 2000 have been attained. The annual bonus, if any,
for fiscal year 2000 shall be paid on or before March 31, 2001.
(c) Option. As soon as reasonably practicable following the
------
Effective Date, the Company shall recommend that the Employee be granted an
option under the Numerical Technologies, Inc. 1997 Stock Plan (the "Plan") to
purchase up to one hundred fifty thousand (150,000) shares of Numerical
Technologies, Inc. (the "Parent") Common Stock (the "Shares"), at an exercise
price per Share equal to the fair market value per Share on the grant date (the
"Option"). The Option shall be immediately exercisable for all of the Shares on
the date of grant. However, the Shares shall initially be unvested and subject
to repurchase by Parent upon Employee's termination of employment prior to
Employee vesting in such Shares. The Shares shall vest, and the Parent's
repurchase right shall accordingly lapse, in accordance with the following
schedule: fifty percent (50%) of the Shares shall vest on the second anniversary
of the Effective Date, and six and one-quarter percent (6.25%) of the Shares
shall vest at the end of each three (3) month period thereafter, provided
Employee continues in the employment of the Company on each such vesting date.
However, if the Employee's employment is terminated prior to the second
anniversary of the Effective Date by reason of Employee's death or disability
(as defined in the Plan), then the Shares shall become vested on an accelerated
basis, and the Parent's repurchase right shall accordingly lapse, in accordance
with the following schedule: six and one-quarter percent (6.25%) of the Shares
shall vest for each three (3) month period, measured from the Effective Date,
for which Employee completed employment with the Company prior to Employee's
termination by reason of death or disability. The Option shall be subject to the
terms and conditions of the Numerical Technologies, Inc. 1997 Stock Plan and the
stock option agreement evidencing the Option.
4. Other Benefits. Employee shall be entitled to participate in the
--------------
employee benefit plans and programs of the Company, if any, to the extent that
Employee's position, tenure, salary, age, health and other qualifications make
Employee eligible to participate in such plans or programs, subject to the rules
and regulations applicable thereto. The Company reserves the right to cancel or
change the benefit plans and programs it offers to its employees at any time.
5. Expenses. The Company shall reimburse Employee for reasonable travel,
--------
entertainment or other expenses incurred by Employee in the furtherance of or in
connection with the performance of Employee's duties hereunder, in accordance
with the Company's expense reimbursement policy as in effect from time to time.
6. Confidential Information. Employee agrees to maintain the
------------------------
confidentiality of all confidential and proprietary information of the Company
and agrees to enter into the Transcription Enterprises, Inc. Confidential
Information and Inventions Assignment Agreement ("Confidentiality Agreement").
-2-
<PAGE>
7. Arbitration.
-----------
(a) Employee agrees that any dispute or controversy arising out of,
relating to, or in connection with this Agreement, or the interpretation,
validity, construction, performance, breach, or termination thereof, shall be
settled by binding arbitration, to the extent permitted by law, to be held in
Santa Clara, California in accordance with the National Rules for the Resolution
of Employment Disputes then in effect of the American Arbitration Association
(the "Rules"). The arbitrator may grant injunctions or other relief in such
dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits of any
dispute or claim, without reference to rules of conflicts of law. The Employee
hereby consents to the personal jurisdiction of the state and federal courts
located in California for any action or proceeding arising from or relating to
this Agreement or relating to any arbitration in which the parties are
participants.
(c) The parties may apply to any court of competent jurisdiction for
a temporary restraining order, preliminary injunction, or other interim or
conservatory relief, as necessary, without breach of this arbitration agreement
and without abridgment of the powers of the arbitrator.
(d) EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES
ARBITRATION. EMPLOYEE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EMPLOYEE
AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH
THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, TO THE EXTENT PERMITTED BY
LAW, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT
TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL
ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO,
DISCRIMINATION CLAIMS.
8. Right to Advice of Counsel. Employee acknowledges that Employee has
--------------------------
had the right to consult with counsel and is fully aware of Employee's rights
and obligations under this Agreement.
-3-
<PAGE>
9. Successors.
----------
(a) Company's Successors. Any successor to the Company (whether
--------------------
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence of a succession. For all purposes under this Agreement, the term
"Company," as applicable, shall include any successor to the Company's business
and/or assets which executes and delivers the assumption agreement described in
this subsection (a) or which becomes bound by the terms of this Agreement by
operation of law.
(b) Employee's Successors. Without the written consent of the
---------------------
Company, Employee shall not assign or transfer this Agreement or any right or
obligation under this Agreement to any other person or entity. Notwithstanding
the foregoing, the terms of this Agreement and all rights of Employee hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
10. Notice Clause.
-------------
(a) Manner. Any notice hereby required or permitted to be given
------
shall be sufficiently given if in writing and upon mailing by registered or
certified mail, postage prepaid, to either party at the address of such party or
such other address as shall have been designated by written notice by such party
to the other party.
(b) Effectiveness. Any notice or other communication required or
-------------
permitted to be given under this Agreement will be deemed given on the day when
delivered in person, or the third business day after the day on which such
notice was mailed in accordance with Section 11(a).
11. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal substantive laws, but not the choice of law rules,
of the state of California.
12. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement, or any terms hereof, shall not affect the validity or
enforceability of any other provision or term of this Agreement.
13. Integration. This Agreement and the Confidentiality Agreement
-----------
represents the entire agreement and understanding between the parties as to the
subject matter herein and supersedes all prior or contemporaneous agreements
whether written or oral. No waiver, alteration, or modification of any of the
provisions of this Agreement shall be binding unless in writing and signed by
duly authorized representatives of the parties hereto.
14. Taxes. All payments made pursuant to this Agreement shall be subject
-----
to withholding of applicable income and employment taxes.
-4-
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officers, as of the day and
year first above written.
TRANSCRIPTION ENTERPRISES, INC.
By: /s/ Yagyensh C. Pati
-------------------------------
Title: President & CEO
----------------------------
EMPLOYEE:
/s/ Roger Sturgeon
----------------------------------
Roger Sturgeon
-5-
<PAGE>
EXHIBIT 10.8
TRANSCRIPTION ENTERPRISES, INC.
EMPLOYMENT AGREEMENT
This Agreement is entered between Transcription Enterprises, Inc., a
Delaware corporation (the "Company"), and Kevin MacLean (the "Employee") this
1st day of January, 2000 (the "Effective Date").
WHEREAS, upon the effectiveness of the merger of the Company, a wholly
owned subsidiary of Numerical Technologies, Inc., a California corporation, with
Transcription Enterprises Limited, a California corporation (the "Merger"), the
Company will be the surviving entity;
WHEREAS, in connection with the Merger, the parties desire and agree to
enter into an employment relationship by means of this Agreement;
WHEREAS, the consideration for this Agreement is separate and apart from
the consideration for the agreement evidencing the Merger;
NOW THEREFORE in consideration of the promises and mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is mutually covenanted and
agreed by and among the parties as follows:
1. Position and Duties. As of the Effective Date, Employee shall be
-------------------
employed as Vice-President and General Manager of the Company, reporting to Mr.
Buno Pati, Chief Executive Officer of Numerical Technologies, Inc., and assuming
and discharging such responsibilities as are commensurate with Employee's
position. Employee shall have the additional responsibility of ensuring a
smooth, efficient and rapid transition of the Company to its new status as a
subsidiary of Numerical Technologies, Inc. Employee shall perform his duties
faithfully and to the best of Employee's ability and shall devote Employee's
full business time and effort to the performance of Employee's duties hereunder.
2. Term. The term of this Agreement shall commence on the Effective Date
----
and shall terminate two (2) years following the Effective Date.
3. Compensation.
------------
(a) Base Salary. For all services to be rendered by Employee pursuant
-----------
to this Agreement, Employee shall receive an annual base salary of Two Hundred
Thousand Dollars ($200,000) payable in accordance with the Company's normal
payroll practices.
<PAGE>
(b) Commission. For fiscal year 2000, Employee shall be eligible to
----------
receive an annual commission based on the attainment of certain annual revenue
quotas mutually agreed upon by Employee and the Company. Employee's annual
commission target for fiscal year 2000 will be One Hundred Thousand Dollars
($100,000) for Employee's achievement of one hundred percent (100%) of all
mutually agreed upon revenue quotas. The Company and Employee agree to work
together to establish the annual revenue quotas for fiscal year 2000 as soon as
practicable following commencement of employment. The annual commission, if any,
for fiscal year 2000 shall be paid on or before March 31, 2001.
(c) Option. As soon as reasonably practicable following the Effective
------
Date the Company shall recommend that the Employee be granted an option under
the Numerical Technologies, Inc. 1997 Stock Plan (the "Plan") to purchase up to
one hundred fifty thousand (150,000) shares of Numerical Technologies, Inc. (the
"Parent") Common Stock (the "Shares"), at an exercise price per Share equal to
the fair market value per Share on the grant date (the "Option"). The Option
shall be immediately exercisable for all of the Shares on the date of grant.
However, the Shares shall initially be unvested and subject to repurchase by
Parent upon Employee's termination of employment prior to Employee vesting in
such Shares. The Shares shall vest, and the Parent's repurchase right shall
accordingly lapse, in accordance with the following schedule: fifty percent
(50%) of the Shares shall vest on the second anniversary of the Effective Date,
and six and one-quarter percent (6.25%) of the Shares shall vest at the end of
each three (3) month period thereafter, provided Employee continues in the
employment of the Company on each such vesting date. However, if the Employee's
employment is terminated prior to the second anniversary of the Effective Date
by reason of Employee's death or disability (as defined in the Plan), then the
Shares shall become vested on an accelerated basis, and the Parent's repurchase
right shall accordingly lapse, in accordance with the following schedule: six
and one-quarter percent (6.25%) of the Shares shall vest for each three (3)
month period, measured from the Effective Date, for which Employee completed
employment with the Company prior to Employee's termination by reason of death
or disability. The Option shall be subject to the terms and conditions of the
Numerical Technologies, Inc. 1997 Stock Plan and the stock option agreement
evidencing the Option.
4. Other Benefits. Employee shall be entitled to participate in the
--------------
employee benefit plans and programs of the Company, if any, to the extent that
Employee's position, tenure, salary, age, health and other qualifications make
Employee eligible to participate in such plans or programs, subject to the rules
and regulations applicable thereto. The Company reserves the right to cancel or
change the benefit plans and programs it offers to its employees at any time.
5. Expenses. The Company shall reimburse Employee for reasonable travel,
--------
entertainment or other expenses incurred by Employee in the furtherance of or in
connection with the performance of Employee's duties hereunder, in accordance
with the Company's expense reimbursement policy as in effect from time to time.
-2-
<PAGE>
6. Confidential Information. Employee agrees to maintain the
------------------------
confidentiality of all confidential and proprietary information of the Company
and agrees to enter into the Transcription Enterprises, Inc. Confidential
Information and Inventions Assignment Agreement ("Confidentiality Agreement").
7. Arbitration.
-----------
(a) Employee agrees that any dispute or controversy arising out of,
relating to, or in connection with this Agreement, or the interpretation,
validity, construction, performance, breach, or termination thereof, shall be
settled by binding arbitration, to the extent permitted by law, to be held in
Santa Clara, California in accordance with the National Rules for the Resolution
of Employment Disputes then in effect of the American Arbitration Association
(the "Rules"). The arbitrator may grant injunctions or other relief in such
dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction.
(b) The arbitrator(s) shall apply California Law to the merits of any
dispute or claim, without reference to rules of conflicts of law. The Employee
hereby consents to the personal jurisdiction of the state and federal courts
located in California for any action or proceeding arising from or relating to
this Agreement or relating to any arbitration in which the parties are
participants.
(c) The parties may apply to any court of competent jurisdiction for a
temporary restraining order, preliminary injunction, or other interim or
conservatory relief, as necessary, without breach of this arbitration agreement
and without abridgment of the powers of the arbitrator.
(d) EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES
ARBITRATION. EMPLOYEE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EMPLOYEE
AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH
THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, TO THE EXTENT PERMITTED BY
LAW, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EMPLOYEE'S RIGHT
TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL
ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO,
DISCRIMINATION CLAIMS.
8. Right to Advice of Counsel. Employee acknowledges that Employee has
--------------------------
had the right to consult with counsel and is fully aware of Employee's rights
and obligations under this Agreement.
9. Successors.
----------
(a) Company's Successors. Any successor to the Company (whether direct
--------------------
or indirect and whether by purchase, lease, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company's business and/or
assets shall assume the obligations under this
-3-
<PAGE>
Agreement and agree expressly to perform the obligations under this Agreement in
the same manner and to the same extent as the Company would be required to
perform such obligations in the absence of a succession. For all purposes under
this Agreement, the term "Company," as applicable, shall include any successor
to the Company's business and/or assets which executes and delivers the
assumption agreement described in this subsection (a) or which becomes bound by
the terms of this Agreement by operation of law.
(b) Employee's Successors. Without the written consent of the Company,
---------------------
Employee shall not assign or transfer this Agreement or any right or obligation
under this Agreement to any other person or entity. Notwithstanding the
foregoing, the terms of this Agreement and all rights of Employee hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
10. Notice Clause.
-------------
(a) Manner. Any notice hereby required or permitted to be given shall
------
be sufficiently given if in writing and upon mailing by registered or certified
mail, postage prepaid, to either party at the address of such party or such
other address as shall have been designated by written notice by such party to
the other party.
(b) Effectiveness. Any notice or other communication required or
-------------
permitted to be given under this Agreement will be deemed given on the day when
delivered in person, or the third business day after the day on which such
notice was mailed in accordance with Section 11(a).
11. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal substantive laws, but not the choice of law rules,
of the state of California.
12. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement, or any terms hereof, shall not affect the validity or
enforceability of any other provision or term of this Agreement.
13. Integration. This Agreement and the Confidentiality Agreement
-----------
represents the entire agreement and understanding between the parties as to the
subject matter herein and supersedes all prior or contemporaneous agreements
whether written or oral. No waiver, alteration, or modification of any of the
provisions of this Agreement shall be binding unless in writing and signed by
duly authorized representatives of the parties hereto.
14. Taxes. All payments made pursuant to this Agreement shall be subject
-----
to withholding of applicable income and employment taxes.
-4-
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officers, as of the day and year
first above written.
TRANSCRIPTION ENTERPRISES, INC.
By: /s/ Yagyensh C. Pati
-----------------------------------
Title: President & CEO
--------------------------------
EMPLOYEE:
/s/ Kevin MacLean
--------------------------------------
Kevin MacLean
-5-
<PAGE>
EXHIBIT 10.9
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (the "Agreement") is entered into as of
January 1, 2000 by and among Numerical Technologies, Inc., a California
corporation ("Parent"), Transcription Enterprises, Inc., a Delaware corporation
and a wholly owned subsidiary of Parent ("Sub"), Transcription Enterprises
Limited, a California corporation (the "Company") and Roger Sturgeon (the
"Executive").
Background
----------
A. Parent, Sub, the Company, Messrs. Kevin MacLean and Roger Sturgeon
have entered into an Agreement and Plan of Reorganization dated as of December
21, 1999 (the "Reorganization Agreement"), which provides for the merger (the
"Merger") of the Company with and into Sub. Capitalized terms not otherwise
defined in this Agreement have the meanings defined for them in the
Reorganization Agreement.
B. As a condition to the Merger, to preserve the value of the business
being acquired by Parent, the Reorganization Agreement contemplates, among other
things, that the Executive enter into this Agreement effective upon the
Effective Time of the Merger.
NOW THEREFORE, in consideration of the mutual promises made in this
Agreement, Parent, the Company and the Executive agree as follows:
1. Covenant Not to Compete or Solicit.
----------------------------------
(a) For two (2) years after the termination of Executive's employment
with the Surviving Corporation, Parent or any subsidiary thereof (the "Non-
Compete Period"), the Executive shall not directly or indirectly for himself or
on behalf of or in conjunction with any other person, company, partnership,
corporation, business, group or other entity, without the prior written consent
of Parent, engage anywhere in the world in (whether as an employee, consultant,
proprietor, partner, director or otherwise), or have any ownership interest in
(except for ownership of one percent (1%) or less of the outstanding securities
of an entity whose securities are listed on a national securities exchange), or
participate in the financing, operation, management or control of, any firm,
corporation or business or any business unit of any firm or corporation in any
business selling products or services in direct competition with Parent's or the
Surviving Corporation's business of developing, marketing, maintaining,
supporting or servicing of layout design, mask manufacturing, inspection and
direct-write-on-wafer data preparation software or software applications and
services that enable integrated circuit designers and manufacturers to produce
ICs with subwavelength feature sizes (the "Competing Business"), provided that
--------
this Section 1(a) shall not be applicable to the Executive's participation as a
service provider in any division of a firm or corporation which division and
Executive's participation in such division does not relate in any way to the
Competing Business.
<PAGE>
During the Non-Compete Period, the Executive shall not, directly or
indirectly, without the prior written consent of Parent, (i) solicit, encourage
or take any other action which is intended to induce any employee of the
Surviving Corporation or Parent or any subsidiary thereof to terminate his or
her employment with the Surviving Corporation or Parent or any subsidiary
thereof (as the case may be), or (ii) interfere in any manner with the
contractual or employment relationship between the Surviving Corporation and any
employee of the Surviving Corporation or Parent and any employee of Parent or
any subsidiary of the Surviving Corporation or Parent and any employee of any
such subsidiary (collectively, the "Solicitation Restriction"). Notwithstanding
any other provisions contained herein to the contrary, (i) the last day of the
Non-Compete Period shall in no event be later than the third anniversary of the
effective date of the Merger and (ii) this Agreement shall not be applicable
with respect to the Solicitation Restriction or the Executive's participation as
a service provider or holding an equity interest in any successor entity of the
Company or an entity to which all or substantially all of the assets of the
Company is transferred provided that (a) an Event of Default (as defined in
Section 5 of the Promissory Notes issued pursuant to the Reorganization
Agreement) has occurred and is continuing and (b) the Executive has sought
enforcement of the Security Agreement relating to the Promissory Note held by
Executive. The parties acknowledge that Executive owns certain equity interest
as of the date hereof in Rave, Inc., a corporation not involving a Competing
Business.
(b) The covenants contained in the preceding paragraphs shall be
construed as a series of separate covenants, one of each county, city and state
of any geographic area where any business is presently carried on by Parent, the
Surviving Corporation or the Company. Except for geographic coverage, each such
separate covenant shall be identical in terms to the covenant contained in the
preceding paragraphs. If, in any judicial proceeding, a court refuses to
enforce any of such separate covenants (or any part thereof), then such
unenforceable covenant (or such part) shall be eliminated from this Agreement to
the extent necessary to permit the remaining separate covenants (or portions
thereof) to be enforced. In the event that the provisions of this Section 1 are
deemed to exceed the time, geographic or scope limitations permitted by
applicable law, then such provisions shall be reformed to the maximum time,
geographic or scope limitations, as the case may be, permitted by applicable
laws.
(c) The Executive acknowledges that the Executive's covenant not to
compete or solicit contained in this Section 1 is a condition precedent to the
Merger to preserve the value of the business being purchased by Parent pursuant
to the Merger. The Executive further acknowledges that breach of this Section 1
would cause irreparable injury to Parent and the Surviving Corporation and
agrees that in the event of such breach, Parent and the Surviving Corporation
shall each be entitled to seek injunctive relief without the necessity of
proving actual damages.
2. Miscellaneous.
-------------
(a) Severability. If any portion of this Agreement is held by a court
------------
of competent jurisdiction to conflict with any federal, state or local law, such
portion of this Agreement shall be of no force or effect and this Agreement
shall otherwise remain in full force and effect and be construed as if such
portion had not been included in this Agreement.
-2-
<PAGE>
(b) No Assignment. The Executive shall not assign this Agreement or
-------------
any rights or obligations under this Agreement without the prior written consent
of Parent.
(c) Notice. Any notice or other communication required or permitted
------
under this Agreement shall be made in writing and delivered personally to the
other parties or sent by certified or registered mail, return receipt requested
and postage prepaid to the addresses set forth on the signature page hereto or
such other address as any such party shall have furnished to the other parties
in writing in accordance with this Section 2(c).
(d) Entire Agreement. This Agreement contains the entire agreement
----------------
and understanding of the parties and supersedes all prior discussions,
agreements and understandings relating to the subject matter of this Agreement.
This Agreement may not be changed or modified, except by an agreement in writing
executed by Parent and the Executive.
(e) Effectiveness: Term. This Agreement shall become effective upon
-------------------
the Effective Date and shall continue in full force and effect for three (3)
years from its effectiveness.
(f) Other. The waiver of a breach of any term or provision of this
-----
Agreement shall not operate as or be construed to be a waiver of any other
previous or subsequent breach of this Agreement. This Agreement shall be
governed by the laws of the State of California. All captions and section
headings used in this Agreement are for convenient reference only and do not
form a part of this Agreement. This Agreement may be executed in counterparts,
and each counterpart shall have the same force and effect as an original and
shall constitute an effective, binding agreement on the part of each of the
undersigned.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written above.
NUMERICAL TECHNOLOGIES, INC. EXECUTIVE
By: /s/ Yagyensh C. Pati /s/ Roger Sturgeon
--------------------------- ---------------------------
Name: Name:
Title: Address:
Address:
TRANSCRIPTION ENTERPRISES LIMITED
By: /s/ Kevin MacLean
---------------------------
Name: Kevin MacLean
Title: Secretary, Vice President
Address: 18990 Overlook Rd.
Los Gatos, CA 99030
TRANSCRIPTION ENTERPRISES, INC.
By: /s/ Yagyensh C. Pati
---------------------------
Name:
Title:
Address:
[Signature Page to Non-Competition Agreement]
<PAGE>
EXHIBIT 10.10
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (the "Agreement") is entered into as of
January 1, 2000 by and among Numerical Technologies, Inc., a California
corporation ("Parent"), Transcription Enterprises, Inc., a Delaware corporation
and a wholly owned subsidiary of Parent ("Sub"), Transcription Enterprises
Limited, a California corporation (the "Company") and Kevin MacLean (the
"Executive").
Background
----------
A. Parent, Sub, the Company, Messrs. Kevin MacLean and Roger Sturgeon have
entered into an Agreement and Plan of Reorganization dated as of December 21,
1999 (the "Reorganization Agreement"), which provides for the merger (the
"Merger") of the Company with and into Sub. Capitalized terms not otherwise
defined in this Agreement have the meanings defined for them in the
Reorganization Agreement.
B. As a condition to the Merger, to preserve the value of the business
being acquired by Parent, the Reorganization Agreement contemplates, among other
things, that the Executive enter into this Agreement effective upon the
Effective Time of the Merger.
NOW THEREFORE, in consideration of the mutual promises made in this
Agreement, Parent, the Company and the Executive agree as follows:
1. Covenant Not to Compete or Solicit.
----------------------------------
(a) For two (2) years after the termination of Executive's employment
with the Surviving Corporation, Parent or any subsidiary thereof (the "Non-
Compete Period"), the Executive shall not directly or indirectly for himself or
on behalf of or in conjunction with any other person, company, partnership,
corporation, business, group or other entity, without the prior written consent
of Parent, engage anywhere in the world in (whether as an employee, consultant,
proprietor, partner, director or otherwise), or have any ownership interest in
(except for ownership of one percent (1%) or less of the outstanding securities
of an entity whose securities are listed on a national securities exchange), or
participate in the financing, operation, management or control of, any firm,
corporation or business or any business unit of any firm or corporation in any
business selling products or services in direct competition with Parent's or the
Surviving Corporation's business of developing, marketing, maintaining,
supporting or servicing of layout design, mask manufacturing, inspection and
direct-write-on-wafer data preparation software or software applications and
services that enable integrated circuit designers and manufacturers to produce
ICs with subwavelength feature sizes (the "Competing Business"), provided that
--------
this Section 1(a) shall not be applicable to the Executive's participation as a
service provider in any division of a firm or corporation which division and
Executive's participation in such division does not relate in any way to the
Competing Business.
<PAGE>
During the Non-Compete Period, the Executive shall not, directly
or indirectly, without the prior written consent of Parent, (i) solicit,
encourage or take any other action which is intended to induce any employee of
the Surviving Corporation or Parent or any subsidiary thereof to terminate his
or her employment with the Surviving Corporation or Parent or any subsidiary
thereof (as the case may be), or (ii) interfere in any manner with the
contractual or employment relationship between the Surviving Corporation and any
employee of the Surviving Corporation or Parent and any employee of Parent or
any subsidiary of the Surviving Corporation or Parent and any employee of any
such subsidiary (collectively, the "Solicitation Restriction"). Notwithstanding
any other provisions contained herein to the contrary, (i) the last day of the
Non-Compete Period shall in no event be later than the third anniversary of the
effective date of the Merger and (ii) this Agreement shall not be applicable
with respect to the Solicitation Restriction or the Executive's participation as
a service provider or holding an equity interest in any successor entity of the
Company or an entity to which all or substantially all of the assets of the
Company is transferred provided that (a) an Event of Default (as defined in
Section 5 of the Promissory Notes issued pursuant to the Reorganization
Agreement) has occurred and is continuing and (b) the Executive has sought
enforcement of the Security Agreement relating to the Promissory Note held by
Executive.
(b) The covenants contained in the preceding paragraphs shall be
construed as a series of separate covenants, one of each county, city and state
of any geographic area where any business is presently carried on by Parent, the
Surviving Corporation or the Company. Except for geographic coverage, each such
separate covenant shall be identical in terms to the covenant contained in the
preceding paragraphs. If, in any judicial proceeding, a court refuses to
enforce any of such separate covenants (or any part thereof), then such
unenforceable covenant (or such part) shall be eliminated from this Agreement to
the extent necessary to permit the remaining separate covenants (or portions
thereof) to be enforced. In the event that the provisions of this Section 1 are
deemed to exceed the time, geographic or scope limitations permitted by
applicable law, then such provisions shall be reformed to the maximum time,
geographic or scope limitations, as the case may be, permitted by applicable
laws.
(c) The Executive acknowledges that the Executive's covenant not to
compete or solicit contained in this Section 1 is a condition precedent to the
Merger to preserve the value of the business being purchased by Parent pursuant
to the Merger. The Executive further acknowledges that breach of this Section 1
would cause irreparable injury to Parent and the Surviving Corporation and
agrees that in the event of such breach, Parent and the Surviving Corporation
shall each be entitled to seek injunctive relief without the necessity of
proving actual damages.
2. Miscellaneous.
-------------
(a) Severability. If any portion of this Agreement is held by a court
------------
of competent jurisdiction to conflict with any federal, state or local law, such
portion of this Agreement shall be of no force or effect and this Agreement
shall otherwise remain in full force and effect and be construed as if such
portion had not been included in this Agreement.
(b) No Assignment. The Executive shall not assign this Agreement or
-------------
any rights or obligations under this Agreement without the prior written consent
of Parent.
-2-
<PAGE>
(c) Notice. Any notice or other communication required or permitted
------
under this Agreement shall be made in writing and delivered personally to the
other parties or sent by certified or registered mail, return receipt requested
and postage prepaid to the addresses set forth on the signature page hereto or
such other address as any such party shall have furnished to the other parties
in writing in accordance with this Section 2(c).
(d) Entire Agreement. This Agreement contains the entire agreement
----------------
and understanding of the parties and supersedes all prior discussions,
agreements and understandings relating to the subject matter of this Agreement.
This Agreement may not be changed or modified, except by an agreement in writing
executed by Parent and the Executive.
(e) Effectiveness: Term. This Agreement shall become effective upon
-------------------
the Effective Date and shall continue in full force and effect for three (3)
years from its effectiveness.
(f) Other. The waiver of a breach of any term or provision of this
-----
Agreement shall not operate as or be construed to be a waiver of any other
previous or subsequent breach of this Agreement. This Agreement shall be
governed by the laws of the State of California. All captions and section
headings used in this Agreement are for convenient reference only and do not
form a part of this Agreement. This Agreement may be executed in counterparts,
and each counterpart shall have the same force and effect as an original and
shall constitute an effective, binding agreement on the part of each of the
undersigned.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written above.
NUMERICAL TECHNOLOGIES, INC. EXECUTIVE
By: /s/ Yagyensh C. Pati /s/ Kevin MacLean
-------------------------------- ---------------------------------------
Name: Name:
Title: Address:
Address:
TRANSCRIPTION ENTERPRISES LIMITED
By: /s/ Roger Sturgeon
--------------------------------
Name: Roger Sturgeon
Title: President
Address: 16990 Lucky Road
Los Gatos, CA 95030
TRANSCRIPTION ENTERPRISES, INC.
By: /s/ Yagyensh C. Pati
--------------------------------
Name:
Title:
Address:
[Signature Page to Non-Competition Agreement]
-4-
<PAGE>
EXHIBIT 10.11
NUMERICAL TECHNOLOGIES, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT -- EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
William H. Davidow
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Date of Grant: November 1, 1999
Vesting Commencement Date: June 24, 1998
Exercise Price per Share: $1.50
Total Number of Shares Granted: 100,000
Total Exercise Price: $150,000.00
Type of Option: Incentive Stock Option
-----
X Nonstatutory Stock Option
-----
Term/Expiration Date: Ten Years/November 1, 2009*
- ---------------
* Or earlier, pursuant to the termination period set forth below.
Exercise and Vesting Schedule:
-----------------------------
This Option is exercisable immediately, in whole or in part, and shall vest
according to the following vesting schedule:
One-fourth (1/4th) of the Shares subject to the Option shall vest twelve
months after the Vesting Commencement Date, and one-sixteenth (1/16th) of the
Shares subject to the Option shall vest on the last day of each three month
anniversary thereafter, subject to your continuing to be a Service Provider on
such dates. Notwithstanding the foregoing, if the Company merges with or into
another entity, sells all or substantially all of its assets, or enters into any
other similar transaction or reorganization as a result of which the
shareholders of the Company immediately prior to such transaction will not hold
at least 50% of the voting power of the surviving, purchasing or continuing
entity, as applicable (taking into account any securities issued to the
shareholders of the Company in the transaction) (a "Change of Control
Transaction"), then the Option shall become fully vested and exercisable
simultaneously with the closing of the Change of Control Transaction (or, in the
case of a merger, as of any earlier date that is necessary to permit the
Optionee, if he exercises the Option in whole or in part, to receive the same
per Share merger consideration (to the extent of Optioned Shares acquired upon
exercise) that will be paid to the other holders of Shares). The Board shall
notify the Optionee at least fifteen (15) days prior to the closing of a Change
of Control Transaction (or at such earlier time as the Board, in its reasonable
judgment, deems necessary to give effect to the intent of this provision), and
such notification shall include a statement as to whether or not the Option will
be assumed by the surviving or purchasing entity or whether an equivalent, fully
vested, substitute option will be provided by such entity.
<PAGE>
Termination Period:
------------------
You may exercise this Option for thirty days after you cease to be a
Service Provider. Upon your death or disability, this Option may be exercised
for one year after you cease to be a Service Provider. In no event may you
exercise this Option after the Term/Expiration Date as provided above.
II. AGREEMENT
---------
1. Grant of Option. The Plan Administrator of the Company hereby grants to
---------------
the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 14(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option as defined in
Section 422 of the Code. Nevertheless, to the extent that it exceeds the
$100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option. This Option shall be exercisable during its term in
------------------
accordance with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) Subject to subsections 2(a)(ii) and 2(a)(iii) below, this
Option shall be exercisable cumulatively according to the vesting schedule set
forth in the Notice of Grant. Alternatively, at the election of the Optionee,
this option may be exercised in whole or in part at any time as to Shares which
have not yet vested. For purposes of this Stock Option Agreement, Shares subject
to the Option shall vest based on continued employment of Optionee with the
Company. Vested Shares shall not be subject to the Company's repurchase right
(as set forth in the Restricted Stock Purchase Agreement, attached hereto as
Exhibit C-1).
- -----------
(ii) As a condition to exercising this Option for unvested Shares,
the Optionee shall execute the Restricted Stock Purchase Agreement.
(iii) This Option may not be exercised for a fraction of a Share.
(b) Method of Exercise. This Option shall be exercisable by delivery of
------------------
an exercise notice in the form attached as Exhibit A (the "Exercise Notice")
---------
which shall state the election to exercise the Option, the number of Shares with
respect to which the Option is being exercised, and such other representations
and agreements as may be required by the Company. The Exercise Notice
-2-
<PAGE>
shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by the aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
3. Optionee's Representations. In the event the Shares have not been
--------------------------
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as Exhibit
-------
B.
- -
4. Lock-Up Period. Optionee hereby agrees that, if so requested by the
--------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall be by
-----------------
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or
(d) surrender of other Shares which, (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised Shares.
6. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon
-3-
<PAGE>
such exercise or the method of payment of consideration for such shares would
constitute a violation of any Applicable Law.
7. Non-Transferability of Option. This Option may not be transferred in any
-----------------------------
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by Optionee. The terms of the
Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
9. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A
TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there will be
---------------
no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(b) Exercise of ISO Following Disability. If the Optionee ceases to be
------------------------------------
an Employee as a result of a disability that is not a total and permanent
disability as defined in Section 22(e)(3) of the Code, to the extent permitted
on the date of termination, the Optionee must exercise an ISO within three
months of such termination for the ISO to be qualified as an ISO.
(c) Exercise of Nonstatutory Stock Option. There may be a regular
-------------------------------------
federal income tax liability upon the exercise of a Nonstatutory Stock Option.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
Employee or a former Employee, the Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(d) Disposition of Shares. In the case of an NSO, if Shares are held for
---------------------
at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and at least two years after the Date of Grant, any gain
realized on disposition of the Shares will also be treated as long-term capital
gain for federal income
-4-
<PAGE>
tax purposes. If Shares purchased under an ISO are disposed of within one year
after exercise or two years after the Date of Grant, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the difference between the Exercise Price and the lesser
of (i) the Fair Market Value of the Shares on the date of exercise, or (ii) the
sale price of the Shares. Any additional gain will be taxed as capital gain,
short-term depending on the period that the ISO Shares were held.
(e) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (i) the date two years after the Date of Grant, or (ii) the
date one year after the date of exercise, the Optionee shall immediately notify
the Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
(f) Section 83(b) Election for Unvested Shares Purchased Pursuant to
----------------------------------------------------------------
Options. With respect to the exercise of an Option for unvested Shares, an
- -------
election may be filed by the Optionee with the Internal Revenue Service, within
------
30 days of the purchase of the Shares, electing pursuant to Section 83(b) of the
- -------
Code to be taxed currently on any difference between the purchase price of the
Shares and their Fair Market Value on the date of purchase. In the case of a
Nonstatutory Stock Option, this will result in a recognition of taxable income
to the Optionee on the date of exercise, measured by the excess, if any, of the
fair market value of the Shares, at the time the Option is exercised over the
purchase price for the Shares. Absent such an election, taxable income will be
measured and recognized by Optionee at the time or times on which the Company's
Repurchase Option lapses. In the case of an Incentive Stock Option, such an
election will result in a recognition of income to the Optionee for alternative
minimum tax purposes on the date of exercise, measured by the excess, if any, of
the fair market value of the Shares, at the time the option is exercised, over
the purchase price for the Shares. Absent such an election, alternative minimum
taxable income will be measured and recognized by Optionee at the time or times
on which the Company's Repurchase Option lapses. Optionee is strongly encouraged
to seek the advice of his or her own tax consultants in connection with the
purchase of the Shares and the advisability of filing of the Election under
Section 83(b) of the Code. A form of Election under Section 83(b) is attached
hereto as Exhibit C-5 for reference.
-----------
OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY AND NOT THE
COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF OPTIONEE
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON OPTIONEE'S
BEHALF.
10. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of California.
-5-
<PAGE>
11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
OPTIONEE: NUMERICAL TECHNOLOGIES, INC.
/s/ William H. Davidow /s/ Yagyensh C. Pati
- -------------------------------- ----------------------------------
Signature By
WILLIAM H. DAVIDOW PRES. & CEO
- -------------------------------- ----------------------------------
Print Name Title
85 ROBLES DR.
- --------------------------------
WOODSIDE, CA 94062
- --------------------------------
Residence Address
-6-
<PAGE>
EXHIBIT A
1997 STOCK PLAN
EXERCISE NOTICE
Numerical Technologies, Inc.
2630 Walsh Avenue
Santa Clara, CA 95051
Attention: Secretary
1. Exercise of Option. Effective as of today, November 2, 1999, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
100,000 shares of the Common Stock (the "Shares") of Numerical Technologies,
Inc. (the "Company") under and pursuant to the 1997 Stock Plan (the "Plan") and
the [ ] Incentive [X] Nonstatutory Stock Option Agreement dated November 1,
1999 (the "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the full
-------------------
purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as evidenced by
---------------------
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by Optionee or
--------------------------------
any transferee (either being sometimes referred to herein as the "Holder") may
be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall deliver
---------------------------
to the Company a written notice (the "Notice") stating: (i) the Holder's bona
fide intention to sell or otherwise transfer such Shares; (ii) the name of each
proposed purchaser or other transferee
<PAGE>
("Proposed Transferee"); (iii) the number of Shares to be transferred to each
Proposed Transferee; and (iv) the bona fide cash price or other consideration
for which the Holder proposes to transfer the Shares (the "Offered Price"), and
the Holder shall offer the Shares at the Offered Price to the Company or its
assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty (30)
----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder,elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the option
-------
of the Company or its assignee(s), in cash (by check), by cancellation of all or
a portion of any outstanding indebtedness of the Holder to the Company (or, in
the case of repurchase by an assignee, to the assignee), or by any combination
thereof within 30 days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee. If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
-2-
<PAGE>
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares upon 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 Securities and Exchange Commission under the
Securities Act of 1933, as amended.
6. Tax Consultation. Optionee understands that Optionee may suffer adverse
----------------
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax consultants
Optionee deems advisable in connection with the purchase or disposition of the
Shares and that Optionee is not relying on the Company for any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN
THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF
THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
-3-
<PAGE>
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
8. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
9. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Administrator shall be final and binding on
all parties.
10. Governing Law; Severability. This Agreement is governed by the internal
---------------------------
substantive laws, but not the choice of law rules, of California.
11. Entire Agreement. The Plan and Option Agreement are incorporated herein
----------------
by reference. This Agreement, the Plan, the Restricted Stock Purchase Agreement,
the Option Agreement and the Investment Representation Statement constitute the
entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee.
Submitted by: Accepted by:
OPTIONEE: NUMERICAL TECHNOLOGIES, INC.
/s/ William H. Davidow /s/ Yagyensh C. Pati
- --------------------------------- -------------------------------
Signature By
William H. Davidow Pres. & CEO
- --------------------------------- -------------------------------
Print Name Its
Address: Address:
- ------- -------
85 Robles Dr. 2630 Walsh Avenue
- --------------------------------- Santa Clara, CA 95051
Woodside, CA 94062
- ---------------------------------
11/2/99
------------------------------
Date Received
-4-
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE : William H. Davidow
COMPANY : NUMERICAL TECHNOLOGIES, INC.
SECURITY : COMMON STOCK
AMOUNT : 100,000 Shares
DATE : November 2, 1999
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, and any other legend
required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to
<PAGE>
the satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the Optionee,
the exercise will be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or
such longer period as any market stand-off agreement may require) the Securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including: (1) the resale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, (3) the amount of Securities being
sold during any three month period not exceeding the limitations specified in
Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
/s/ W. H. Davidow
-------------------------------------
Date: Nov. 2, 1999
--------------------------------
-2-
<PAGE>
EXHIBIT C-1
-----------
NUMERICAL TECHNOLOGIES, INC.
1997 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between William H. Davidow (the "Purchaser") and
Numerical Technologies, Inc. (the "Company") as of November 2, 1999.
RECITALS
--------
(1) Pursuant to the exercise of the stock option granted to Purchaser under
the Company's 1997 Stock Plan (the "Plan") and pursuant to the Stock Option
Agreement (the "Option Agreement") dated November 2, 1999 by and between the
Company and Purchaser with respect to such grant, which Plan and Option
Agreement are hereby incorporated by reference, Purchaser has elected to
purchase 100,000 of those shares which have not become vested under the
-------
vesting schedule set forth in the Option Agreement ("Unvested Shares"). The
Unvested Shares and the shares subject to the Option Agreement which have become
vested are sometimes collectively referred to herein as the "Shares".
(2) As required by the Option Agreement, as a condition to Purchaser's
election to exercise the option, Purchaser must execute this Restricted Stock
Purchase Agreement, which sets forth the rights and obligations of the parties
with respect to Shares acquired upon exercise of the Option.
1. Repurchase Option.
-----------------
(a) If Purchaser's status as a Service Provider is terminated for any
reason, including for cause, death, and disability, the Company shall have the
right and option to purchase from Purchaser, or Purchaser's personal
representative, as the case may be, all of the Purchaser's Unvested Shares as of
the date of such termination at the price paid by the Purchaser for such Shares
(the "Repurchase Option").
(b) Upon the occurrence of a termination, the Company may exercise its
Repurchase Option by delivering personally or by registered mail, to Purchaser
(or his transferee or legal representative, as the case may be), within ninety
(90) days of the termination, a notice in writing indicating the Company's
intention to exercise the Repurchase Option and setting forth a date for closing
not later than thirty (30) days from the mailing of such notice. The closing
shall take place at the Company's office. At the closing, the holder of the
certificates for the Unvested Shares being transferred shall deliver the stock
certificate or certificates evidencing the Unvested Shares, and the Company
shall deliver the purchase price therefor.
<PAGE>
(c) At its option, the Company may elect to make payment for the
Unvested Shares to a bank selected by the Company. The Company shall avail
itself of this option by a notice in writing to Purchaser stating the name and
address of the bank, date of closing, and waiving the closing at the Company's
office.
(d) If the Company does not elect to exercise the Repurchase Option
conferred above by giving the requisite notice within ninety (90) days following
the termination, the Repurchase Option shall terminate.
(e) The Repurchase Option shall terminate in accordance with the
Vesting Schedule in Optionee's Option Agreement.
2. Transferability of the Shares; Escrow.
-------------------------------------
(a) Purchaser hereby authorizes and directs the secretary of the
Company, or such other person designated by the Company, to transfer the
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) To insure the availability for delivery of Purchaser's Unvested
Shares upon repurchase by the Company pursuant to the Repurchase Option under
Section 1, Purchaser hereby appoints the secretary, or any other person
designated by the Company as escrow agent, as its attorney-in-fact to sell,
assign and transfer unto the Company, such Unvested Shares, if any, repurchased
by the Company pursuant to the Repurchase Option and shall, upon execution of
this Agreement, deliver and deposit with the secretary of the Company, or such
other person designated by the Company, the share certificates representing the
Unvested Shares, together with the stock assignment duly endorsed in blank,
attached hereto as Exhibit C-2. The Unvested Shares and stock assignment shall
-----------
be held by the secretary in escrow, pursuant to the Joint Escrow Instructions of
the Company and Purchaser attached as Exhibit C-3 hereto, until the Company
-----------
exercises its purchase right as provided in Section 1, until such Unvested
Shares are vested, or until such time as this Agreement no longer is in effect.
As a further condition to the Company's obligations under this Agreement, the
spouse of the Purchaser, if any, shall execute and deliver to the Company the
Consent of Spouse attached hereto as Exhibit C-4. Upon vesting of the Unvested
-----------
Shares, the escrow agent shall promptly deliver to the Purchaser the certificate
or certificates representing such Shares in the escrow agent's possession
belonging to the Purchaser, and the escrow agent shall be discharged of all
further obligations hereunder; provided, however, that the escrow agent shall
nevertheless retain such certificate or certificates as escrow agent if so
required pursuant to other restrictions imposed pursuant to this Agreement.
(c) The Company, or its designee, shall not be liable for any act it
may do or omit to do with respect to holding the Shares in escrow and while
acting in good faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and the
Exercise Notice executed by the Purchaser with respect to any
<PAGE>
Unvested Shares purchased by Purchaser and shall acknowledge the same by signing
a copy of this Agreement.
3. Ownership, Voting Rights, Duties. This Agreement shall not affect in any
--------------------------------
way the ownership, voting rights or other rights or duties of Purchaser, except
as specifically provided herein.
4. Legends. The share certificate evidencing the Shares issued hereunder
-------
shall be endorsed with the following legend (in addition to any legend required
under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
5. Adjustment for Stock Split. All references to the number of Shares and
--------------------------
the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
6. Notices. Notices required hereunder shall be given in person or by
-------
registered mail to the address of Purchaser shown on the records of the Company,
and to the Company at their respective principal executive offices.
7. Survival of Terms. This Agreement shall apply to and bind Purchaser and
-----------------
the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
8. Section 83(b) Election. Purchaser hereby acknowledges that he or she has
----------------------
been informed that, with respect to the exercise of an Option for unvested
Shares, an election may be filed by the Purchaser with the Internal Revenue
Service, within 30 days of the purchase of the Shares, electing pursuant to
--------------
Section 83(b) of the Code to be taxed currently on any difference between the
purchase price of the Shares and their Fair Market Value on the date of
purchase. In the case of a Nonstatutory Stock Option, this will result in a
recognition of taxable income to the Purchaser on the date of exercise, measured
by the excess, if any, of the fair market value of the Shares, at the time the
Option is exercised over the purchase price for the Shares. Absent such an
election, taxable income will be measured and recognized by Purchaser at the
time or times on which the Company's Repurchase Option lapses. In the case of an
Incentive Stock Option, such an election will result in a recognition of income
to the Purchaser for alternative minimum tax purposes on the date of exercise,
measured by the excess, if any, of the fair market value of the Shares, at the
time the option is exercised, over the purchase price for the Shares. Absent
such an election, alternative minimum taxable income will be measured and
recognized by Purchaser at the time or times on which the Company's Repurchase
Option lapses. Purchaser is strongly encouraged to seek the advice of his or her
own tax consultants in connection with the purchase of the Shares and the
advisability of filing of the Election under Section 83(b) of the Code. A form
of Election under Section 83(b) is attached hereto as Exhibit C-5 for reference.
-----------
-3-
<PAGE>
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND NOT
THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASER'S
BEHALF.
9. Representations. Purchaser has reviewed with his own tax advisors the
---------------
federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. Purchaser is relying solely on such
advisors and not on any statements or representations of the Company or any of
its agents. Purchaser understands that he (and not the Company) shall be
responsible for his own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
10. Governing Law. This Agreement shall be governed by the internal
-------------
substantive laws, but not the choice of law rules, of California.
Purchaser represents that he has read this Agreement and is familiar with
its terms and provisions. Purchaser hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set
forth above.
"COMPANY"
NUMERICAL TECHNOLOGIES, INC
/s/ Yagyensh C. Pati
-----------------------------------
By
PRES. & CEO
-----------------------------------
Title
"PURCHASER"
/s/ W. H. Davidow
-----------------------------------
Signature
WILLIAM H. DAVIDOW
-----------------------------------
Printed Name
###-##-####
-----------------------------------
Soc. Sec. No.
Address:
-------
85 ROBLES DRIVE
-----------------------------------
WOODSIDE, CA 94062
-----------------------------------
-5-
<PAGE>
EXHIBIT C-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto Numerical Technologies, Inc. (__________) shares of the Common
Stock of Numerical Technologies, Inc. standing in my name of the books of said
corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint ________________________ to transfer the said
stock on the books of the within named corporation with full power of
substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement between Numerical Technologies, Inc. and the
undersigned dated ______________, 19__.
Dated: _______________, 19__
Signature:
--------------------------------
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
"repurchase option," as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT C-3
-----------
JOINT ESCROW INSTRUCTIONS
Nov. 2, 1999
Numerical Technologies, Inc.
2630 Walsh Avenue
Santa Clara, CA 95051
Attention: Secretary
Dear:
As Escrow Agent for both Numerical Technologies, Inc. (the "Company"), and
the undersigned purchaser of stock of the Company (the "Purchaser"), you are
hereby authorized and directed to hold the documents delivered to you pursuant
to the terms of that certain Restricted Stock Purchase Agreement ("Agreement")
between the Company and the undersigned, in accordance with the following
instructions:
1. In the event the Company and/or any assignee of the Company (referred to
collectively for convenience herein as the "Company") exercises the Company's
repurchase option set forth in the Agreement, the Company shall give to
Purchaser and you a written notice specifying the number of shares of stock to
be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company. Purchaser and the Company hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities.
<PAGE>
Subject to the provisions of this paragraph 3, Purchaser shall exercise all
rights and privileges of a stockholder of the Company while the stock is held by
you.
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's repurchase option.
Within 120 days after cessation of Purchaser's continuous employment by or
services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's repurchase
option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked only
by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
-2-
<PAGE>
11. You shall be entitled to employ such legal counsel and other experts as
you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Numerical Technologies, Inc.
2630 Walsh Avenue
Santa Clara, CA 95051
Attention: Secretary
PURCHASER:
ESCROW AGENT: Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
-3-
<PAGE>
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by the internal
substantive laws, but not the choice of law rules, of California.
NUMERICAL TECHNOLOGIES, INC.
/s/ Yagyensh C. Pati
------------------------------------
By
PRES. & CEO
------------------------------------
Title
PURCHASER
/s/ W. H. DAVIDOW
-----------------------------------
Signature
WILLIAM H. DAVIDOW
-----------------------------------
Typed or Printed Name
ESCROW AGENT
WILSON SONSINI GOODRICH & ROSATI
-----------------------------------
By
-----------------------------------
Title
-4-
<PAGE>
EXHIBIT C-4
-----------
CONSENT OF SPOUSE
-----------------
I, , spouse of William H. Davidow , have read
-------------------- ---------------------
and approve the foregoing Agreement. In consideration of granting of the right
to my spouse to purchase shares of Numerical Technologies, Inc. , as set forth
---------------------------
in the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect
to the exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in said Agreement
or any shares issued pursuant thereto under the community property laws or
similar laws relating to marital property in effect in the state of our
residence as of the date of the signing of the foregoing Agreement.
Dated: November 2, 1999
------------- --
Sonja A. Davidow
--------------------------------
her Attorney in fact
W. H. Davidow
<PAGE>
EXHIBIT C-5
-----------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Sections 55 and 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
or alternative minimum taxable income, as the case may be, for the current
taxable year the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: William H. Davidow TAXPAYER: SPOUSE: Sonja Davidow
ADDRESS: 85 Robles Drive
Woodside, CA. 94062
IDENTIFICATION NO.: TAXPAYER: ###-##-#### SPOUSE: ###-##-####
TAXABLE YEAR: 1999
2. The property with respect to which the election is made is described as
follows: 100,000 shares (the "Shares") of the Common Stock of
--------------
Numerical Technologies Inc. (the "Company").
- ---------------------------
3. The date on which the property was transferred is: Nov 2 , 1999.
-------- --
4. The property is subject to the following restrictions:
The Shares may not be transferred and are subject to forfeiture under the
terms of an agreement between the taxpayer and the Company. These restrictions
lapse upon the satisfaction of certain conditions contained in such agreement.
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, of
such property is: $ 1.50 per share.
--------------
6. The amount (if any) paid for such property is: $ 1.50 per share.
--------------
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: Nov. 2, 1999 William H. Davidow
---------- -- ------------------------------------
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: Nov. 2, 1999 Sonja A. Davidow by
---------- -- ------------------------------------
her Attorney in fact
W. H. Davidow
<PAGE>
EXHIBIT 10.12
NUMERICAL TECHNOLOGIES, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT -- EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
Richard Mora
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Date of Grant: May 26, 1999
Vesting Commencement Date: May 26, 1999
Exercise Price per Share: $0.75
Total Number of Shares Granted: 130,000
Total Exercise Price: $97,500.00
Type of Option: Incentive Stock Option
-----
X Nonstatutory Stock Option
-----
Term/Expiration Date: Ten Years/May 26, 2009*
_______________
* Or earlier, pursuant to the termination period set forth below.
Exercise and Vesting Schedule:
-----------------------------
This Option is exercisable immediately, in whole or in part, and shall vest
according to the following vesting schedule:
One-fourth (1/4th) of the Shares subject to the Option shall vest twelve
months after the Vesting Commencement Date, and one-sixteenth (1/16th) of the
Shares subject to the Option shall vest on the last day of each three month
anniversary thereafter, subject to your continuing to be a Service Provider on
such dates.
<PAGE>
Change of Control; Constructive Termination:
-------------------------------------------
Notwithstanding the provisions of Section 12(c) of the Plan, if the Company
merges with or into another entity, sells all or substantially all of its
assets, or enters into any other similar transaction or reorganization
(including without limitation, a sale of stock of the Company) as a result of
which the shareholders of the Company immediately prior to such transaction will
not hold at least 50% of the voting power of the surviving, purchasing or
continuing entity, as applicable (taking into account any securities issued to
the shareholders of the Company in the transaction) (a "Change of Control
Transaction"), then on the six month anniversary of the Change of Control
Transaction (the "Anniversary Date") fifty percent (50%) of the Shares subject
to the Option which have not vested as of the Anniversary Date shall become
fully vested and exercisable. The Board shall notify the Optionee at least
fifteen (15) days prior to the closing of a Change of Control Transaction, and
such notification shall include a statement as to whether or not the Option will
be assumed by the surviving or purchasing entity or whether an equivalent
substitute option will be provided by such entity.
Following an assumption or substitution of the Option in connection with a
Change of Control Transaction, if the Optionee's status as an Employee of the
successor corporation is terminated by the successor corporation as a result of
an Involuntary Termination (as defined below) within twelve months following the
Change of Control Transaction, the Optionee shall fully vest in and have the
right to exercise the Option as to all of the Shares, including Shares as to
which the Option would not otherwise be vested or exercisable.
Any of the following events shall constitute an "Involuntary Termination":
(i) without the Optionee's express written consent, a significant reduction of
the Optionee's duties, authority and responsibilities, relative to the
Optionee's duties, authority and responsibilities as in effect immediately prior
to the Change of Control Transaction; (ii) the Optionee not serving in the
capacity as Chief Financial Officer of the surviving, purchasing or continuing
entity, as applicable, following a Change of Control Transaction, (iii) a
material reduction in the base salary of the Optionee as in effect immediately
prior to the Change of Control Transaction; (iv) a material reduction in the
kind or level of employee benefits, including bonuses, to which the Optionee was
entitled immediately prior to the Change of Control Transaction with the result
that the Optionee's overall benefits package is significantly reduced; (v) the
relocation of the Optionee to a facility or a location more than sixty (60)
miles from the Optionee's then present location, without the Optionee's express
written consent; (vi) any purported termination of the Optionee which is not
effected for Disability or for Cause (as defined below), or any purported
termination for which the grounds relied upon are not valid; (vii) or any act or
set of facts or circumstances which would, under California case law or statute,
constitute a constructive termination of the Optionee.
"Cause" shall mean (i) any act of personal dishonesty taken by the Optionee
in connection with his responsibilities as a Service Provider and intended to
result in substantial personal enrichment of the Optionee, (ii) Optionee's
conviction of a felony, (iii) a willful act by the Optionee which constitutes
gross misconduct and which is injurious to the Successor Corporation, and (iv)
following delivery to the Optionee of a written demand for performance from the
Successor Corporation which describes the basis for the Successor Corporation's
belief that the Optionee has not substantially performed his duties,
-2-
<PAGE>
continued violations by the Optionee of the Optionee's obligations to the
Successor Corporation which are demonstrably willful and deliberate on the
Optionee's part.
Termination Period:
------------------
You may exercise this Option for thirty days after you cease to be a
Service Provider. Upon your death or disability, this Option may be exercised
for one year after you cease to be a Service Provider. In no event may you
exercise this Option after the Term/Expiration Date as provided above.
II. AGREEMENT
---------
1. Grant of Option. The Plan Administrator of the Company hereby grants
---------------
to the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 14(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) Subject to subsections 2(a)(ii) and 2(a)(iii) below, this
Option shall be exercisable cumulatively according to the vesting schedule set
forth in the Notice of Grant. Alternatively, at the election of the Optionee,
this option may be exercised in whole or in part at any time as to Shares which
have not yet vested. For purposes of this Stock Option Agreement, Shares subject
to the Option shall vest based on continued employment of Optionee with the
Company. Vested Shares shall not be subject to the Company's repurchase right
(as set forth in the Restricted Stock Purchase Agreement, attached hereto as
Exhibit E-1).
- -----------
(ii) As a condition to exercising this Option for unvested
Shares, the Optionee shall execute the Restricted Stock Purchase Agreement.
(iii) This Option may not be exercised for a fraction of a Share.
-3-
<PAGE>
(b) Method of Exercise. This Option shall be exercisable by delivery
------------------
of an exercise notice in the form attached as Exhibit A (the "Exercise Notice")
---------
which shall state the election to exercise the Option, the number of Shares with
respect to which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company.
The Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares. This Option shall be deemed to be exercised
upon receipt by the Company of such fully executed Exercise Notice accompanied
by the aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
3. Optionee's Representations. In the event the Shares have not been
--------------------------
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as Exhibit
-------
B.
- --
4. Lock-Up Period. Optionee hereby agrees that, if so requested by the
--------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall be
-----------------
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash;
(b) check;
(c) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan;
(d) surrender of other Shares which, (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of
-4-
<PAGE>
surrender, and (ii) have a Fair Market Value on the date of surrender equal to
the aggregate Exercise Price of the Exercised Shares; or
(e) with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as Exhibit D, in the
amount of the aggregate Exercise Price of the Exercised Shares together with the
execution and delivery by the Optionee of the Security Agreement attached hereto
as Exhibit C. The Note shall bear interest at the "applicable federal rate"
prescribed under the Code and its regulations at time of purchase, and shall be
secured by a pledge of the Shares purchased by the Note pursuant to the Security
Agreement.
6. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
9. Tax Consequences. Set forth below is a brief summary as of the date
----------------
of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD
CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there will
---------------
be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(b) Exercise of ISO Following Disability. If the Optionee ceases to
------------------------------------
be an Employee as a result of a disability that is not a total and permanent
disability as defined in Section 22(e)(3) of the Code, to the extent permitted
on the date of termination, the Optionee must exercise an ISO within three
months of such termination for the ISO to be qualified as an ISO.
(c) Exercise of Nonstatutory Stock Option. There may be a regular
-------------------------------------
federal income tax liability upon the exercise of a Nonstatutory Stock Option.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if
-5-
<PAGE>
any, of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price. If Optionee is an Employee or a former Employee, the Company
will be required to withhold from Optionee's compensation or collect from
Optionee and pay to the applicable taxing authorities an amount in cash equal to
a percentage of this compensation income at the time of exercise, and may refuse
to honor the exercise and refuse to deliver Shares if such withholding amounts
are not delivered at the time of exercise.
(d) Disposition of Shares. In the case of an NSO, if Shares are held
---------------------
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and at least two years after the Date of Grant, any gain
realized on disposition of the Shares will also be treated as long-term capital
gain for federal income tax purposes. If Shares purchased under an ISO are
disposed of within one year after exercise or two years after the Date of Grant,
any gain realized on such disposition will be treated as compensation income
(taxable at ordinary income rates) to the extent of the difference between the
Exercise Price and the lesser of (i) the Fair Market Value of the Shares on the
date of exercise, or (ii) the sale price of the Shares. Any additional gain
will be taxed as capital gain, short-term depending on the period that the ISO
Shares were held.
(e) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (i) the date two years after the Date of Grant, or (ii) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
(f) Section 83(b) Election for Unvested Shares Purchased Pursuant to
----------------------------------------------------------------
Options. With respect to the exercise of an Option for unvested Shares, an
- -------
election may be filed by the Optionee with the Internal Revenue Service, within
------
30 days of the purchase of the Shares, electing pursuant to Section 83(b) of the
- -------
Code to be taxed currently on any difference between the purchase price of the
Shares and their Fair Market Value on the date of purchase. In the case of a
Nonstatutory Stock Option, this will result in a recognition of taxable income
to the Optionee on the date of exercise, measured by the excess, if any, of the
fair market value of the Shares, at the time the Option is exercised over the
purchase price for the Shares. Absent such an election, taxable income will be
measured and recognized by Optionee at the time or times on which the Company's
Repurchase Option lapses. In the case of an Incentive Stock Option, such an
election will result in a recognition of income to the Optionee for alternative
minimum tax purposes on the date of exercise, measured by the excess, if any, of
the fair market value of the Shares, at the time the option is exercised, over
the purchase price for the Shares. Absent such an election, alternative minimum
taxable income will be measured and recognized by Optionee at the time or times
on which the Company's Repurchase Option lapses. Optionee is strongly
encouraged to seek the advice of his or her own tax consultants in connection
with the purchase of the Shares and the advisability of filing of the Election
under Section 83(b) of the Code. A form of Election under Section 83(b) is
attached hereto as Exhibit C-5 for reference.
-----------
-6-
<PAGE>
OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY AND NOT
THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF OPTIONEE
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON OPTIONEE'S
BEHALF.
10. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of California.
11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
-7-
<PAGE>
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
OPTIONEE: NUMERICAL TECHNOLOGIES, INC.
/s/ Richard Mora /s/ Yagyensh C. Pati
- --------------------------- -----------------------------
Signature By
Richard Mora President & CEO
- --------------------------- -----------------------------
Print Name Title
13327 Pierce Rd.
- ---------------------------
Saratoga, CA 95070
- ---------------------------
Residence Address
-8-
<PAGE>
EXHIBIT A
---------
1997 STOCK PLAN
EXERCISE NOTICE
Numerical Technologies, Inc.
2630 Walsh Avenue
Santa Clara, CA 95051
Attention: Secretary
1. Exercise of Option. Effective as of today, May 26, 1999, the
------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
130,000 shares of the Common Stock (the "Shares") of Numerical Technologies,
Inc. (the "Company") under and pursuant to the 1997 Stock Plan (the "Plan") and
the [ ] Incentive [X] Nonstatutory Stock Option Agreement dated May 26, 1999
(the "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as evidenced
---------------------
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by Optionee
--------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee
<PAGE>
("Proposed Transferee"); (iii) the number of Shares to be transferred to each
Proposed Transferee; and (iv) the bona fide cash price or other consideration
for which the Holder proposes to transfer the Shares (the "Offered Price"), and
the Holder shall offer the Shares at the Offered Price to the Company or its
assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
----------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee. If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
-2-
<PAGE>
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares upon 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 Securities and Exchange Commission under the
Securities Act of 1933, as amended.
6. Tax Consultation. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY
THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF
WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH
TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
-3-
<PAGE>
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
8. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
9. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Administrator shall be final and binding on
all parties.
10. Governing Law; Severability. This Agreement is governed by the
---------------------------
internal substantive laws, but not the choice of law rules, of California.
11. Entire Agreement. The Plan and Option Agreement are incorporated
----------------
herein by reference. This Agreement, the Plan, the Restricted Stock Purchase
Agreement, the Option Agreement and the Investment Representation Statement
constitute the entire agreement of the parties with respect to the subject
matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and Optionee.
Submitted by: Accepted by:
OPTIONEE: NUMERICAL TECHNOLOGIES, INC.
/s/ Richard Mora Yagyensh C. Pati
- -------------------------- ----------------------------
Signature By
Richard Mora President & CEO
- -------------------------- ----------------------------
Print Name Its
Address: Address:
- ------- -------
13327 Pierce Rd 2630 Walsh Avenue
- --------------------------
Saratoga, CA 95070 Santa Clara, CA 95051
- --------------------------
---------------------------
Date Received
-4-
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE : RICHARD MORA
COMPANY : NUMERICAL TECHNOLOGIES, INC.
SECURITY : COMMON STOCK
AMOUNT : 130,000 SHARES
DATE : MAY 26, 1999
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, and any other legend
required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to
<PAGE>
the satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the Optionee,
the exercise will be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or
such longer period as any market stand-off agreement may require) the Securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including: (1) the resale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, (3) the amount of Securities being
sold during any three month period not exceeding the limitations specified in
Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that
any such other registration exemption will be available in such event.
Signature of Optionee:
/s/ Richard Mora
----------------------------------
Date: 5/26 , 1999
---------------------------- ----
-2-
<PAGE>
EXHIBIT C
---------
SECURITY AGREEMENT
This Security Agreement is made as of May 26, 1999 between Numerical
Technologies, Inc., a California corporation ("Pledgee"), and Richard Mora
("Pledgor").
Recitals
--------
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated May 26, 1999 (the "Option"), between Pledgor and Pledgee under
Pledgee's 1997 Stock Plan, and Pledgor's election under the terms of the Option
to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased 130,000 shares of Pledgee's Common Stock (the "Shares") at a price of
$0.75 per share, for a total purchase price of $97,500.00. The Note and the
obligations thereunder are as set forth in Exhibit D to the Option.
NOW, THEREFORE, it is agreed as follows:
A. Creation and Description of Security Interest. In consideration of
---------------------------------------------
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number 78, duly endorsed in blank or with executed stock powers, and herewith
delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who
shall hold said certificate subject to the terms and conditions of this Security
Agreement.
The pledged stock (together with an executed blank stock assignment for use
in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledgeholder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
B. Pledgor's Representations and Covenants. To induce Pledgee to enter
---------------------------------------
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(A) Payment of Indebtedness. Pledgor will pay the principal sum of
-----------------------
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
(B) Encumbrances. The Shares are free of all other encumbrances,
------------
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
<PAGE>
(C) Margin Regulations. In the event that Pledgee's Common Stock is
------------------
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207 of
Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to
cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
C. Voting Rights. During the term of this pledge and so long as all
-------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
D. Stock Adjustments. In the event that during the term of the pledge
-----------------
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
E. Options and Rights. In the event that, during the term of this
------------------
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
F. Default. Pledgor shall be deemed to be in default of the Note and of
-------
this Security Agreement in the event:
(A) Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
(B) Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall have
the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee
shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
G. Release of Collateral. Subject to any applicable contrary rules under
---------------------
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder here under upon payments of the principal of the
Note. The number of the pledged Shares which shall be
-4-
<PAGE>
released shall be that number of full Shares which bears the same proportion to
the initial number of Shares pledged hereunder as the payment of principal bears
to the initial full principal amount of the Note.
H. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
I. Term. The within pledge of Shares shall continue until the payment of
----
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
J. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
K. Pledgeholder Liability. In the absence of willful or gross
----------------------
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
L. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
-----------------------------------
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
M. Successors or Assigns. Pledgor and Pledgee agree that all of the
---------------------
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
N. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the internal substantive laws, but not the choice of law rules,
of California.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"PLEDGOR" /s/ Richard Mora
_________________________________
Signature
Richard Mora
_________________________________
Print Name
Address: 13327 Pierce Rd.
_________________________________
Saratoga, CA 95070
_________________________________
"PLEDGEE" NUMERICAL TECHNOLOGIES, INC.
a California corporation
/s/ Yagyensh C. Pati
________________________________
Signature
Yagyensh C. Pati
________________________________
Print Name
President & CEO
________________________________
Title
"PLEDGEHOLDER" ________________________________
Secretary of Numerical Technologies, Inc.
-6-
<PAGE>
EXHIBIT D
---------
NOTE
$97,500.00 Santa Clara, California
May 26, 1999
FOR VALUE RECEIVED, Richard Mora promises to pay to Numerical Technologies,
Inc., a California corporation (the "Company"), or order, the principal sum of
Ninety-Seven Thousand Five Hundred Dollars ($97,500.00), together with interest
on the unpaid principal hereof from the date hereof at the rate of 4.9% per
annum, compounded annually.
Principal and interest shall be due and payable on May 26, 2000. Payment
of principal and interest shall be made in lawful money of the United States of
America.
The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of May 26, 1999.
This Note is secured in part by a pledge of the Company's Common Stock under the
terms of a Security Agreement of even date herewith and is subject to all the
provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorney's fees therein of the holder shall be paid by the
undersigned.
/s/ Richard Mora
------------------------------------
Richard Mora
<PAGE>
EXHIBIT E-1
-----------
NUMERICAL TECHNOLOGIES, INC.
1997 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between Richard Mora (the "Purchaser") and Numerical
Technologies, Inc. (the "Company") as of May 26, 1999.
RECITALS
--------
(1) Pursuant to the exercise of the stock option granted to Purchaser under
the Company's 1997 Stock Plan (the "Plan") and pursuant to the Stock Option
Agreement (the "Option Agreement") dated May 26, 1999 by and between the Company
and Purchaser with respect to such grant, which Plan and Option Agreement are
hereby incorporated by reference, Purchaser has elected to purchase 130,000 of
those shares which have not become vested under the vesting schedule set forth
in the Option Agreement ("Unvested Shares"). The Unvested Shares and the shares
subject to the Option Agreement which have become vested are sometimes
collectively referred to herein as the "Shares".
(2) As required by the Option Agreement, as a condition to Purchaser's
election to exercise the option, Purchaser must execute this Restricted Stock
Purchase Agreement, which sets forth the rights and obligations of the parties
with respect to Shares acquired upon exercise of the Option.
15. Repurchase Option.
-----------------
(a) If Purchaser's status as a Service Provider is terminated for any
reason, including for cause, death, and disability, the Company shall have the
right and option to purchase from Purchaser, or Purchaser's personal
representative, as the case may be, all of the Purchaser's Unvested Shares as of
the date of such termination at the price paid by the Purchaser for such Shares
(the "Repurchase Option").
(b) Upon the occurrence of a termination, the Company may exercise its
Repurchase Option by delivering personally or by registered mail, to Purchaser
(or his transferee or legal representative, as the case may be), within ninety
(90) days of the termination, a notice in writing indicating the Company's
intention to exercise the Repurchase Option and setting forth a date for closing
not later than thirty (30) days from the mailing of such notice. The closing
shall take place at the Company's office. At the closing, the holder of the
certificates for the Unvested Shares
<PAGE>
being transferred shall deliver the stock certificate or certificates evidencing
the Unvested Shares, and the Company shall deliver the purchase price therefor.
(c) At its option, the Company may elect to make payment for the
Unvested Shares to a bank selected by the Company. The Company shall avail
itself of this option by a notice in writing to Purchaser stating the name and
address of the bank, date of closing, and waiving the closing at the Company's
office.
(d) If the Company does not elect to exercise the Repurchase Option
conferred above by giving the requisite notice within ninety (90) days following
the termination, the Repurchase Option shall terminate.
(e) The Repurchase Option shall terminate in accordance with the
Vesting Schedule in Optionee's Option Agreement.
16. Transferability of the Shares; Escrow.
-------------------------------------
(a) Purchaser hereby authorizes and directs the secretary of the
Company, or such other person designated by the Company, to transfer the
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) To insure the availability for delivery of Purchaser's Unvested
Shares upon repurchase by the Company pursuant to the Repurchase Option under
Section 1, Purchaser hereby appoints the secretary, or any other person
designated by the Company as escrow agent, as its attorney-in-fact to sell,
assign and transfer unto the Company, such Unvested Shares, if any, repurchased
by the Company pursuant to the Repurchase Option and shall, upon execution of
this Agreement, deliver and deposit with the secretary of the Company, or such
other person designated by the Company, the share certificates representing the
Unvested Shares, together with the stock assignment duly endorsed in blank,
attached hereto as Exhibit E-2. The Unvested Shares and stock assignment shall
-----------
be held by the secretary in escrow, pursuant to the Joint Escrow Instructions of
the Company and Purchaser attached as Exhibit E-3 hereto, until the Company
-----------
exercises its purchase right as provided in Section 1, until such Unvested
Shares are vested, or until such time as this Agreement no longer is in effect.
As a further condition to the Company's obligations under this Agreement, the
spouse of the Purchaser, if any, shall execute and deliver to the Company the
Consent of Spouse attached hereto as Exhibit E-4. Upon vesting of the Unvested
-----------
Shares, the escrow agent shall promptly deliver to the Purchaser the certificate
or certificates representing such Shares in the escrow agent's possession
belonging to the Purchaser, and the escrow agent shall be discharged of all
further obligations hereunder; provided, however, that the escrow agent shall
nevertheless retain such certificate or certificates as escrow agent if so
required pursuant to other restrictions imposed pursuant to this Agreement.
(c) The Company, or its designee, shall not be liable for any act it
may do or omit to do with respect to holding the Shares in escrow and while
acting in good faith and in the exercise of its judgment.
-2-
<PAGE>
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and the
Exercise Notice executed by the Purchaser with respect to any Unvested Shares
purchased by Purchaser and shall acknowledge the same by signing a copy of this
Agreement.
17. Ownership, Voting Rights, Duties. This Agreement shall not affect in any
--------------------------------
way the ownership, voting rights or other rights or duties of Purchaser, except
as specifically provided herein.
18. Legends. The share certificate evidencing the Shares issued hereunder
-------
shall be endorsed with the following legend (in addition to any legend required
under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
19. Adjustment for Stock Split. All references to the number of Shares and
--------------------------
the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
20. Notices. Notices required hereunder shall be given in person or by
-------
registered mail to the address of Purchaser shown on the records of the Company,
and to the Company at their respective principal executive offices.
21. Survival of Terms. This Agreement shall apply to and bind Purchaser and
-----------------
the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
22. Section 83(b) Election. Purchaser hereby acknowledges that he or she has
----------------------
been informed that, with respect to the exercise of an Option for unvested
Shares, an election may be filed by the Purchaser with the Internal Revenue
Service, within 30 days of the purchase of the Shares, electing pursuant to
Section 83(b) of the Code to be taxed currently on any difference between the
purchase price of the Shares and their Fair Market Value on the date of
purchase. In the case of a Nonstatutory Stock Option, this will result in a
recognition of taxable income to the Purchaser on the date of exercise, measured
by the excess, if any, of the fair market value of the Shares, at the time the
Option is exercised over the purchase price for the Shares. Absent such an
election, taxable income will be measured and recognized by Purchaser at the
time or times on which the Company's Repurchase Option lapses. In the case of an
Incentive Stock Option, such an election will result in a recognition of income
to the Purchaser for alternative minimum tax purposes on the date of exercise,
measured by the excess, if any, of the fair market value of the Shares, at the
time the option is exercised, over the purchase price for the Shares. Absent
such an election, alternative minimum taxable income will be measured and
recognized by Purchaser at the time or times on which the
-3-
<PAGE>
Company's Repurchase Option lapses. Purchaser is strongly encouraged to seek the
advice of his or her own tax consultants in connection with the purchase of the
Shares and the advisability of filing of the Election under Section 83(b) of the
Code. A form of Election under Section 83(b) is attached hereto as Exhibit E-5
-----------
for reference.
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND NOT
THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASER'S
BEHALF.
23. Representations. Purchaser has reviewed with his own tax advisors the
---------------
federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. Purchaser is relying solely on such
advisors and not on any statements or representations of the Company or any of
its agents. Purchaser understands that he (and not the Company) shall be
responsible for his own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
24. Governing Law. This Agreement shall be governed by the internal
-------------
substantive laws, but not the choice of law rules, of California.
Purchaser represents that he has read this Agreement and is familiar with
its terms and provisions. Purchaser hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set
forth above.
"COMPANY"
NUMERICAL TECHNOLOGIES, INC
/s/ Yagyensh C. Pati
------------------------------------
By
Pres. & CEO
------------------------------------
Title
"PURCHASER"
/s/ Richard Mora
-----------------------------------
Signature
Richard Mora
-----------------------------------
Printed Name
###-##-####
-----------------------------------
Soc. Sec. No.
Address:
-------
13327 Pierce Rd.
-----------------------------------
Saratoga, CA 95070
-----------------------------------
-5-
<PAGE>
EXHIBIT E-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto Numerical Technologies, Inc. (__________) shares of the Common
Stock of Numerical Technologies, Inc. standing in my name of the books of said
corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint ____________________ to transfer the said
stock on the books of the within named corporation with full power of
substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement between Numerical Technologies, Inc. and the
undersigned dated ______________, 19__.
Dated: _______________, 19__
Signature: /s/ Richard Mora
-----------------------------
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
"repurchase option," as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT E-3
-----------
JOINT ESCROW INSTRUCTIONS
May 26, 1999
Numerical Technologies, Inc.
80 West Plumeria Drive
San Jose, CA 95134-2134
Attention: Secretary
Dear: ___________:
As Escrow Agent for both Numerical Technologies, Inc. (the "Company"), and
the undersigned purchaser of stock of the Company (the "Purchaser"), you are
hereby authorized and directed to hold the documents delivered to you pursuant
to the terms of that certain Restricted Stock Purchase Agreement ("Agreement")
between the Company and the undersigned, in accordance with the following
instructions:
1. In the event the Company and/or any assignee of the Company (referred to
collectively for convenience herein as the "Company") exercises the Company's
repurchase option set forth in the Agreement, the Company shall give to
Purchaser and you a written notice specifying the number of shares of stock to
be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company. Purchaser and the Company hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a stockholder of the Company while the
stock is held by you.
<PAGE>
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's repurchase option.
Within 120 days after cessation of Purchaser's continuous employment by or
services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's repurchase
option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked only
by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts as
you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
-2-
<PAGE>
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Numerical Technologies, Inc.
80 West Plumeria Drive
San Jose, CA 95134-2134
Attention: Secretary
PURCHASER:
ESCROW AGENT: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
-3-
<PAGE>
18. These Joint Escrow Instructions shall be governed by the internal
substantive laws, but not the choice of law rules, of California.
NUMERICAL TECHNOLOGIES, INC.
/s/ Yagensh C. Pati
------------------------------------
By
Pres. & CEO
------------------------------------
Title
PURCHASER
/s/ Richard Mora
-----------------------------------
Signature
Richard Mora
-----------------------------------
Typed or Printed Name
ESCROW AGENT
WILSON SONSINI GOODRICH & ROSATI
-----------------------------------
By
-----------------------------------
Title
-4-
<PAGE>
EXHIBIT C-4
-----------
CONSENT OF SPOUSE
-----------------
I, Patricia Mora, spouse of Richard Mora, have read and approve the
------------- ------------
foregoing Agreement. In consideration of granting of the right to my spouse to
purchase shares of Numerical Technologies, Inc. as set forth in the Agreement, I
---------------------------
hereby appoint my spouse as my attorney-in-fact in respect to the exercise of
any rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in said Agreement or any shares
issued pursuant thereto under the community property laws or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Agreement.
Dated: May 26, 1999
------- --
/s/ Patricia Mora
-----------------------
<PAGE>
EXHIBIT C-5
-----------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Sections 55 and 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
or alternative minimum taxable income, as the case may be, for the current
taxable year the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: Richard Mora SPOUSE: Patricia Mora
ADDRESS: 13327 Pierce Rd.
Saratoga, CA. 95070
IDENTIFICATION NO.: TAXPAYER: ###-##-#### SPOUSE: ###-##-####
TAXABLE YEAR: 1999
2. The property with respect to which the election is made is described as
follows: 130,000 shares (the "Shares") of the Common Stock of
---------------
Numerical Technologies Inc., (the "Company").
- ----------------------------
3. The date on which the property was transferred is: May 26, 1999.
---------- --
4. The property is subject to the following restrictions:
The Shares may not be transferred and are subject to forfeiture under the
terms of an agreement between the taxpayer and the Company. These restrictions
lapse upon the satisfaction of certain conditions contained in such agreement.
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, of
such property is: $ 97,500.
-------
6. The amount (if any) paid for such property is: $ 97,500.
-------
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: May 26, 1999 /s/ Richard Mora
--------- -- ---------------------------------------
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: May 26, 1999 /s/ Patricia C. Mora
--------- -- ---------------------------------------
<PAGE>
EXHIBIT 10.13
NUMERICAL TECHNOLOGIES, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT -- EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
Richard Mora
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
<TABLE>
<S> <C>
Date of Grant: December 27, 1999
Vesting Commencement Date: December 27, 1999
Exercise Price per Share: $1.50
Total Number of Shares Granted: 145,000
Total Exercise Price: $217,500.00
Type of Option: ______ Incentive Stock Option
X Nonstatutory Stock Option
------
Term/Expiration Date: Ten Years/December 27, 2009*
</TABLE>
_______________
* Or earlier, pursuant to the termination period set forth below.
Exercise and Vesting Schedule:
-----------------------------
This Option is exercisable immediately, in whole or in part, and shall vest
according to the following vesting schedule:
One-fourth (1/4th) of the Shares subject to the Option shall vest twelve
months after the Vesting Commencement Date, and one-sixteenth (1/16th) of the
Shares subject to the Option shall vest on the last day of each three month
anniversary thereafter, subject to your continuing to be a Service Provider on
such dates.
<PAGE>
Change of Control; Constructive Termination:
-------------------------------------------
Notwithstanding the provisions of Section 12(c) of the Plan, if the Company
merges with or into another entity, sells all or substantially all of its
assets, or enters into any other similar transaction or reorganization
(including without limitation, a sale of stock of the Company) as a result of
which the shareholders of the Company immediately prior to such transaction will
not hold at least 50% of the voting power of the surviving, purchasing or
continuing entity, as applicable (taking into account any securities issued to
the shareholders of the Company in the transaction) (a "Change of Control
Transaction"), then on the six month anniversary of the Change of Control
Transaction (the "Anniversary Date") fifty percent (50%) of the Shares subject
to the Option which have not vested as of the Anniversary Date shall become
fully vested and exercisable. The Board shall notify the Optionee at least
fifteen (15) days prior to the closing of a Change of Control Transaction, and
such notification shall include a statement as to whether or not the Option will
be assumed by the surviving or purchasing entity or whether an equivalent
substitute option will be provided by such entity.
Following an assumption or substitution of the Option in connection with a
Change of Control Transaction, if the Optionee's status as an Employee of the
successor corporation is terminated by the successor corporation as a result of
an Involuntary Termination (as defined below) within twelve months following the
Change of Control Transaction, the Optionee shall fully vest in and have the
right to exercise the Option as to all of the Shares, including Shares as to
which the Option would not otherwise be vested or exercisable.
Any of the following events shall constitute an "Involuntary Termination":
(i) without the Optionee's express written consent, a significant reduction of
the Optionee's duties, authority and responsibilities, relative to the
Optionee's duties, authority and responsibilities as in effect immediately prior
to the Change of Control Transaction; (ii) the Optionee not serving in the
capacity as Chief Financial Officer of the surviving, purchasing or continuing
entity, as applicable, following a Change of Control Transaction, (iii) a
material reduction in the base salary of the Optionee as in effect immediately
prior to the Change of Control Transaction; (iv) a material reduction in the
kind or level of employee benefits, including bonuses, to which the Optionee was
entitled immediately prior to the Change of Control Transaction with the result
that the Optionee's overall benefits package is significantly reduced; (v) the
relocation of the Optionee to a facility or a location more than sixty (60)
miles from the Optionee's then present location, without the Optionee's express
written consent; (vi) any purported termination of the Optionee which is not
effected for Disability or for Cause (as defined below), or any purported
termination for which the grounds relied upon are not valid; (vii) or any act or
set of facts or circumstances which would, under California case law or statute,
constitute a constructive termination of the Optionee.
"Cause" shall mean (i) any act of personal dishonesty taken by the Optionee
in connection with his responsibilities as a Service Provider and intended to
result in substantial personal enrichment of the Optionee, (ii) Optionee's
conviction of a felony, (iii) a willful act by the Optionee which constitutes
gross misconduct and which is injurious to the Successor Corporation, and (iv)
following delivery to the Optionee of a written demand for performance from the
Successor Corporation which describes the basis for the Successor Corporation's
belief that the Optionee has not substantially performed his duties,
-2-
<PAGE>
continued violations by the Optionee of the Optionee's obligations to the
Successor Corporation which are demonstrably willful and deliberate on the
Optionee's part.
Termination Period:
------------------
You may exercise this Option for thirty days after you cease to be a
Service Provider. Upon your death or disability, this Option may be exercised
for one year after you cease to be a Service Provider. In no event may you
exercise this Option after the Term/Expiration Date as provided above.
II. AGREEMENT
---------
1. Grant of Option. The Plan Administrator of the Company hereby grants
---------------
to the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 14(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) Subject to subsections 2(a)(ii) and 2(a)(iii) below, this
Option shall be exercisable cumulatively according to the vesting schedule set
forth in the Notice of Grant. Alternatively, at the election of the Optionee,
this option may be exercised in whole or in part at any time as to Shares which
have not yet vested. For purposes of this Stock Option Agreement, Shares subject
to the Option shall vest based on continued employment of Optionee with the
Company. Vested Shares shall not be subject to the Company's repurchase right
(as set forth in the Restricted Stock Purchase Agreement, attached hereto as
Exhibit E-1).
- ------------
(ii) As a condition to exercising this Option for unvested Shares,
the Optionee shall execute the Restricted Stock Purchase Agreement.
(iii) This Option may not be exercised for a fraction of a Share.
-3-
<PAGE>
(b) Method of Exercise. This Option shall be exercisable by delivery
------------------
of an exercise notice in the form attached as Exhibit A (the "Exercise Notice")
---------
which shall state the election to exercise the Option, the number of Shares with
respect to which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company.
The Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares. This Option shall be deemed to be exercised
upon receipt by the Company of such fully executed Exercise Notice accompanied
by the aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
3. Optionee's Representations. In the event the Shares have not been
--------------------------
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as Exhibit
-------
B.
- --
4. Lock-Up Period. Optionee hereby agrees that, if so requested by the
--------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall be
-----------------
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash;
(b) check;
(c) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan;
(d) surrender of other Shares which, (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of
-4-
<PAGE>
surrender, and (ii) have a Fair Market Value on the date of surrender equal to
the aggregate Exercise Price of the Exercised Shares; or
(e) with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as Exhibit D, in the
amount of the aggregate Exercise Price of the Exercised Shares together with the
execution and delivery by the Optionee of the Security Agreement attached hereto
as Exhibit C. The Note shall bear interest at the "applicable federal rate"
prescribed under the Code and its regulations at time of purchase, and shall be
secured by a pledge of the Shares purchased by the Note pursuant to the Security
Agreement.
6. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
9. Tax Consequences. Set forth below is a brief summary as of the date
----------------
of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD
CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there will
---------------
be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(b) Exercise of ISO Following Disability. If the Optionee ceases to
------------------------------------
be an Employee as a result of a disability that is not a total and permanent
disability as defined in Section 22(e)(3) of the Code, to the extent permitted
on the date of termination, the Optionee must exercise an ISO within three
months of such termination for the ISO to be qualified as an ISO.
(c) Exercise of Nonstatutory Stock Option. There may be a regular
-------------------------------------
federal income tax liability upon the exercise of a Nonstatutory Stock Option.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if
-5-
<PAGE>
any, of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price. If Optionee is an Employee or a former Employee, the Company
will be required to withhold from Optionee's compensation or collect from
Optionee and pay to the applicable taxing authorities an amount in cash equal to
a percentage of this compensation income at the time of exercise, and may refuse
to honor the exercise and refuse to deliver Shares if such withholding amounts
are not delivered at the time of exercise.
(d) Disposition of Shares. In the case of an NSO, if Shares are held
---------------------
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and at least two years after the Date of Grant, any gain
realized on disposition of the Shares will also be treated as long-term capital
gain for federal income tax purposes. If Shares purchased under an ISO are
disposed of within one year after exercise or two years after the Date of Grant,
any gain realized on such disposition will be treated as compensation income
(taxable at ordinary income rates) to the extent of the difference between the
Exercise Price and the lesser of (i) the Fair Market Value of the Shares on the
date of exercise, or (ii) the sale price of the Shares. Any additional gain
will be taxed as capital gain, short-term depending on the period that the ISO
Shares were held.
(e) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (i) the date two years after the Date of Grant, or (ii) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
(f) Section 83(b) Election for Unvested Shares Purchased Pursuant to
----------------------------------------------------------------
Options. With respect to the exercise of an Option for unvested Shares, an
- -------
election may be filed by the Optionee with the Internal Revenue Service, within
------
30 days of the purchase of the Shares, electing pursuant to Section 83(b) of the
- -------
Code to be taxed currently on any difference between the purchase price of the
Shares and their Fair Market Value on the date of purchase. In the case of a
Nonstatutory Stock Option, this will result in a recognition of taxable income
to the Optionee on the date of exercise, measured by the excess, if any, of the
fair market value of the Shares, at the time the Option is exercised over the
purchase price for the Shares. Absent such an election, taxable income will be
measured and recognized by Optionee at the time or times on which the Company's
Repurchase Option lapses. In the case of an Incentive Stock Option, such an
election will result in a recognition of income to the Optionee for alternative
minimum tax purposes on the date of exercise, measured by the excess, if any, of
the fair market value of the Shares, at the time the option is exercised, over
the purchase price for the Shares. Absent such an election, alternative minimum
taxable income will be measured and recognized by Optionee at the time or times
on which the Company's Repurchase Option lapses. Optionee is strongly
encouraged to seek the advice of his or her own tax consultants in connection
with the purchase of the Shares and the advisability of filing of the Election
under Section 83(b) of the Code. A form of Election under Section 83(b) is
attached hereto as Exhibit C-5 for reference.
-----------
-6-
<PAGE>
OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY AND NOT
THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF OPTIONEE
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON OPTIONEE'S
BEHALF.
10. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of California.
11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
-7-
<PAGE>
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
OPTIONEE: NUMERICAL TECHNOLOGIES, INC.
- ------------------------ ---------------------------
Signature By
- ------------------------ ---------------------------
Print Name Title
- ------------------------
- ------------------------
Residence Address
-8-
<PAGE>
EXHIBIT A
---------
1997 STOCK PLAN
EXERCISE NOTICE
Numerical Technologies, Inc.
70 West Plumeria Drive
San Jose, CA 95134-2134
Attention: Secretary
1. Exercise of Option. Effective as of today, ___________, 19__, the
------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Numerical Technologies,
Inc. (the "Company") under and pursuant to the 1997 Stock Plan (the "Plan") and
the [ ] Incentive [ ] Nonstatutory Stock Option Agreement dated __________,
19___ (the "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as evidenced
---------------------
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by Optionee
--------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee
<PAGE>
("Proposed Transferee"); (iii) the number of Shares to be transferred to each
Proposed Transferee; and (iv) the bona fide cash price or other consideration
for which the Holder proposes to transfer the Shares (the "Offered Price"), and
the Holder shall offer the Shares at the Offered Price to the Company or its
assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
----------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee. If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
-2-
<PAGE>
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares upon 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 Securities and Exchange Commission under the
Securities Act of 1933, as amended.
6. Tax Consultation. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY
THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF
WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH
TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
-3-
<PAGE>
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
8. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
9. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Administrator shall be final and binding on
all parties.
10. Governing Law; Severability. This Agreement is governed by the
---------------------------
internal substantive laws, but not the choice of law rules, of California.
11. Entire Agreement. The Plan and Option Agreement are incorporated
----------------
herein by reference. This Agreement, the Plan, the Restricted Stock Purchase
Agreement, the Option Agreement and the Investment Representation Statement
constitute the entire agreement of the parties with respect to the subject
matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and Optionee.
Submitted by: Accepted by:
OPTIONEE: NUMERICAL TECHNOLOGIES, INC.
- --------------------- ------------------------
Signature By
- --------------------- ------------------------
Print Name Its
Address: Address:
- ------- -------
- --------------------- 70 West Plumeria Drive
San Jose, CA 95134-2134
- ---------------------
------------------------
Date Received
-4-
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : NUMERICAL TECHNOLOGIES, INC.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, and any other legend
required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to
<PAGE>
the satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the Optionee,
the exercise will be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or
such longer period as any market stand-off agreement may require) the Securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including: (1) the resale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, (3) the amount of Securities being
sold during any three month period not exceeding the limitations specified in
Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that
any such other registration exemption will be available in such event.
Signature of Optionee:
---------------------------
Date: , 19
--------------- ---
-2-
<PAGE>
EXHIBIT C
---------
SECURITY AGREEMENT
This Security Agreement is made as of __________, 1999 between Numerical
Technologies, Inc., a California corporation ("Pledgee"), and Richard Mora
("Pledgor").
Recitals
--------
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated December 27, 1999 (the "Option"), between Pledgor and Pledgee
under Pledgee's 1997 Stock Plan, and Pledgor's election under the terms of the
Option to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased 145,000 shares of Pledgee's Common Stock (the "Shares") at a price of
$1.50 per share, for a total purchase price of $217,500.00. The Note and the
obligations thereunder are as set forth in Exhibit D to the Option.
NOW, THEREFORE, it is agreed as follows:
A. Creation and Description of Security Interest. In consideration of
---------------------------------------------
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number ______, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"),
who shall hold said certificate subject to the terms and conditions of this
Security Agreement.
The pledged stock (together with an executed blank stock assignment for use
in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledgeholder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
B. Pledgor's Representations and Covenants. To induce Pledgee to enter
---------------------------------------
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(A) Payment of Indebtedness. Pledgor will pay the principal sum of
-----------------------
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
(B) Encumbrances. The Shares are free of all other encumbrances,
------------
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
-3-
<PAGE>
(C) Margin Regulations. In the event that Pledgee's Common Stock is
------------------
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207 of
Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to
cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
C. Voting Rights. During the term of this pledge and so long as all
-------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
D. Stock Adjustments. In the event that during the term of the pledge
-----------------
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
E. Options and Rights. In the event that, during the term of this
------------------
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
F. Default. Pledgor shall be deemed to be in default of the Note and of
-------
this Security Agreement in the event:
(A) Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
(B) Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall have
the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee
shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
G. Release of Collateral. Subject to any applicable contrary rules under
---------------------
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder here under upon payments of the principal of the
Note. The number of the pledged Shares which shall be
-4-
<PAGE>
released shall be that number of full Shares which bears the same proportion to
the initial number of Shares pledged hereunder as the payment of principal bears
to the initial full principal amount of the Note.
H. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
I. Term. The within pledge of Shares shall continue until the payment of
----
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
J. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
K. Pledgeholder Liability. In the absence of willful or gross
----------------------
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
L. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
-----------------------------------
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
M. Successors or Assigns. Pledgor and Pledgee agree that all of the
---------------------
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
N. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the internal substantive laws, but not the choice of law rules,
of California.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"PLEDGOR" _________________________________
Signature
_________________________________
Print Name
Address:_________________________
_________________________
"PLEDGEE" NUMERICAL TECHNOLOGIES, INC.
a California corporation
________________________________
Signature
________________________________
Print Name
________________________________
Title
"PLEDGEHOLDER" ________________________________
Secretary of Numerical Technologies, Inc.
-6-
<PAGE>
EXHIBIT D
---------
NOTE
$217,500.00 Santa Clara, California
December 27, 1999
FOR VALUE RECEIVED, Richard Mora promises to pay to Numerical Technologies,
Inc., a California corporation (the "Company"), or order, the principal sum of
Ninety-Seven Thousand Five Hundred Dollars ($217,500.00), together with interest
on the unpaid principal hereof from the date hereof at the rate of 5.74% per
annum, compounded annually.
Principal and interest shall be due and payable on December 27, 2001.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of December 27,
1999. This Note is secured in part by a pledge of the Company's Common Stock
under the terms of a Security Agreement of even date herewith and is subject to
all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
____________________________________
Richard Mora
<PAGE>
EXHIBIT E-1
-----------
NUMERICAL TECHNOLOGIES, INC.
1997 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between ____________________________________ (the
"Purchaser") and Numerical Technologies, Inc. (the "Company") as of
__________________, 199__.
RECITALS
--------
(1) Pursuant to the exercise of the stock option granted to Purchaser under
the Company's 1997 Stock Plan (the "Plan") and pursuant to the Stock Option
Agreement (the "Option Agreement") dated ___________, 19__ by and between the
Company and Purchaser with respect to such grant, which Plan and Option
Agreement are hereby incorporated by reference, Purchaser has elected to
purchase _________ of those shares which have not become vested under the
vesting schedule set forth in the Option Agreement ("Unvested Shares"). The
Unvested Shares and the shares subject to the Option Agreement which have become
vested are sometimes collectively referred to herein as the "Shares".
(2) As required by the Option Agreement, as a condition to Purchaser's
election to exercise the option, Purchaser must execute this Restricted Stock
Purchase Agreement, which sets forth the rights and obligations of the parties
with respect to Shares acquired upon exercise of the Option.
15. Repurchase Option.
-----------------
(a) If Purchaser's status as a Service Provider is terminated for any
reason, including for cause, death, and disability, the Company shall have the
right and option to purchase from Purchaser, or Purchaser's personal
representative, as the case may be, all of the Purchaser's Unvested Shares as of
the date of such termination at the price paid by the Purchaser for such Shares
(the "Repurchase Option").
(b) Upon the occurrence of a termination, the Company may exercise its
Repurchase Option by delivering personally or by registered mail, to Purchaser
(or his transferee or legal representative, as the case may be), within ninety
(90) days of the termination, a notice in writing indicating the Company's
intention to exercise the Repurchase Option and setting forth a date for closing
not later than thirty (30) days from the mailing of such notice. The closing
shall take place at the Company's office. At the closing, the holder of the
certificates for the Unvested Shares
-1-
<PAGE>
being transferred shall deliver the stock certificate or certificates evidencing
the Unvested Shares, and the Company shall deliver the purchase price therefor.
(c) At its option, the Company may elect to make payment for the
Unvested Shares to a bank selected by the Company. The Company shall avail
itself of this option by a notice in writing to Purchaser stating the name and
address of the bank, date of closing, and waiving the closing at the Company's
office.
(d) If the Company does not elect to exercise the Repurchase Option
conferred above by giving the requisite notice within ninety (90) days following
the termination, the Repurchase Option shall terminate.
(e) The Repurchase Option shall terminate in accordance with the
Vesting Schedule in Optionee's Option Agreement.
16. Transferability of the Shares; Escrow.
-------------------------------------
(a) Purchaser hereby authorizes and directs the secretary of the
Company, or such other person designated by the Company, to transfer the
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) To insure the availability for delivery of Purchaser's Unvested
Shares upon repurchase by the Company pursuant to the Repurchase Option under
Section 1, Purchaser hereby appoints the secretary, or any other person
designated by the Company as escrow agent, as its attorney-in-fact to sell,
assign and transfer unto the Company, such Unvested Shares, if any, repurchased
by the Company pursuant to the Repurchase Option and shall, upon execution of
this Agreement, deliver and deposit with the secretary of the Company, or such
other person designated by the Company, the share certificates representing the
Unvested Shares, together with the stock assignment duly endorsed in blank,
attached hereto as Exhibit E-2. The Unvested Shares and stock assignment shall
-----------
be held by the secretary in escrow, pursuant to the Joint Escrow Instructions of
the Company and Purchaser attached as Exhibit E-3 hereto, until the Company
-----------
exercises its purchase right as provided in Section 1, until such Unvested
Shares are vested, or until such time as this Agreement no longer is in effect.
As a further condition to the Company's obligations under this Agreement, the
spouse of the Purchaser, if any, shall execute and deliver to the Company the
Consent of Spouse attached hereto as Exhibit E-4. Upon vesting of the Unvested
-----------
Shares, the escrow agent shall promptly deliver to the Purchaser the certificate
or certificates representing such Shares in the escrow agent's possession
belonging to the Purchaser, and the escrow agent shall be discharged of all
further obligations hereunder; provided, however, that the escrow agent shall
nevertheless retain such certificate or certificates as escrow agent if so
required pursuant to other restrictions imposed pursuant to this Agreement.
(c) The Company, or its designee, shall not be liable for any act it
may do or omit to do with respect to holding the Shares in escrow and while
acting in good faith and in the exercise of its judgment.
-2-
<PAGE>
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and the
Exercise Notice executed by the Purchaser with respect to any Unvested Shares
purchased by Purchaser and shall acknowledge the same by signing a copy of this
Agreement.
17. Ownership, Voting Rights, Duties. This Agreement shall not affect in
--------------------------------
any way the ownership, voting rights or other rights or duties of Purchaser,
except as specifically provided herein.
18. Legends. The share certificate evidencing the Shares issued hereunder
-------
shall be endorsed with the following legend (in addition to any legend required
under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
19. Adjustment for Stock Split. All references to the number of Shares
--------------------------
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
20. Notices. Notices required hereunder shall be given in person or by
-------
registered mail to the address of Purchaser shown on the records of the Company,
and to the Company at their respective principal executive offices.
21. Survival of Terms. This Agreement shall apply to and bind Purchaser
-----------------
and the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
22. Section 83(b) Election. Purchaser hereby acknowledges that he or she
----------------------
has been informed that, with respect to the exercise of an Option for unvested
Shares, an election may be filed by the Purchaser with the Internal Revenue
Service, within 30 days of the purchase of the Shares, electing pursuant to
--------------
Section 83(b) of the Code to be taxed currently on any difference between the
purchase price of the Shares and their Fair Market Value on the date of
purchase. In the case of a Nonstatutory Stock Option, this will result in a
recognition of taxable income to the Purchaser on the date of exercise, measured
by the excess, if any, of the fair market value of the Shares, at the time the
Option is exercised over the purchase price for the Shares. Absent such an
election, taxable income will be measured and recognized by Purchaser at the
time or times on which the Company's Repurchase Option lapses. In the case of
an Incentive Stock Option, such an election will result in a recognition of
income to the Purchaser for alternative minimum tax purposes on the date of
exercise, measured by the excess, if any, of the fair market value of the
Shares, at the time the option is exercised, over the purchase price for the
Shares. Absent such an election, alternative minimum taxable income will be
measured and recognized by Purchaser at the time or times on which the
-3-
<PAGE>
Company's Repurchase Option lapses. Purchaser is strongly encouraged to seek the
advice of his or her own tax consultants in connection with the purchase of the
Shares and the advisability of filing of the Election under Section 83(b) of the
Code. A form of Election under Section 83(b) is attached hereto as Exhibit E-5
-----------
for reference.
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND NOT
THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASER'S
BEHALF.
23. Representations. Purchaser has reviewed with his own tax advisors the
---------------
federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. Purchaser is relying solely on
such advisors and not on any statements or representations of the Company or any
of its agents. Purchaser understands that he (and not the Company) shall be
responsible for his own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
24. Governing Law. This Agreement shall be governed by the internal
-------------
substantive laws, but not the choice of law rules, of California.
Purchaser represents that he has read this Agreement and is familiar with
its terms and provisions. Purchaser hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set
forth above.
"COMPANY"
NUMERICAL TECHNOLOGIES, INC.
-------------------------
By
-------------------------
Title
"PURCHASER"
-------------------------
Signature
-------------------------
Printed Name
-------------------------
Soc. Sec. No.
Address:
-------
-------------------------
-------------------------
-5-
<PAGE>
EXHIBIT E-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto Numerical Technologies, Inc. (__________) shares of the Common
Stock of Numerical Technologies, Inc. standing in my name of the books of said
corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint _____________________________ to transfer the
said stock on the books of the within named corporation with full power of
substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement between Numerical Technologies, Inc. and the
undersigned dated ______________, 19__.
Dated: _______________, 19__
Signature:
------------------
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
"repurchase option," as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT E-3
-----------
JOINT ESCROW INSTRUCTIONS
-------------------------
____________________, 19_____
Numerical Technologies, Inc.
70 West Plumeria Drive
San Jose, CA 95134-2134
Attention: Secretary
Dear _________________:
As Escrow Agent for both Numerical Technologies, Inc. (the "Company"), and
the undersigned purchaser of stock of the Company (the "Purchaser"), you are
hereby authorized and directed to hold the documents delivered to you pursuant
to the terms of that certain Restricted Stock Purchase Agreement ("Agreement")
between the Company and the undersigned, in accordance with the following
instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively for convenience herein as the "Company") exercises the Company's
repurchase option set forth in the Agreement, the Company shall give to
Purchaser and you a written notice specifying the number of shares of stock to
be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company. Purchaser and the Company hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, cancellation of indebtedness, or some combination thereof) for
the number of shares of stock being purchased pursuant to the exercise of the
Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a stockholder of the Company while the
stock is held by you.
<PAGE>
4. Provided the Promissory Note dated December 27, 1999 in the principal
amount of $217,500.00 and issued by the Purchaser to the Company (the "Note")
has been paid in full, upon written request of the Purchaser, but no more than
once per calendar year, unless the Company's repurchase option has been
exercised, you will deliver to Purchaser a certificate or certificates
representing so many shares of stock as are not then subject to the Company's
repurchase option. Provided the Note has been paid in full, within 120 days
after cessation of Purchaser's continuous employment by or services to the
Company, or any parent or subsidiary of the Company, you will deliver to
Purchaser a certificate or certificates representing the aggregate number of
shares held or issued pursuant to the Agreement and not purchased by the Company
or its assignees pursuant to exercise of the Company's repurchase option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case you obey or comply with any such order, judgment or decree, you shall
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
-2-
<PAGE>
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Numerical Technologies, Inc.
70 West Plumeria Drive
San Jose, CA 95134-2134
Attention: Secretary
PURCHASER:
------------------------
------------------------
------------------------
ESCROW AGENT: Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
-3-
<PAGE>
18. These Joint Escrow Instructions shall be governed by the internal
substantive laws, but not the choice of law rules, of California.
NUMERICAL TECHNOLOGIES, INC.
------------------------
By
------------------------
Title
PURCHASER
------------------------
Signature
------------------------
Typed or Printed Name
ESCROW AGENT
WILSON SONSINI GOODRICH & ROSATI
------------------------
By
------------------------
Title
-4-
<PAGE>
EXHIBIT E-4
-----------
CONSENT OF SPOUSE
-----------------
I, ____________________, spouse of ___________________, have read and
approve the foregoing Agreement. In consideration of granting of the right to
my spouse to purchase shares of ____________________________, as set forth in
the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to
the exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in said Agreement
or any shares issued pursuant thereto under the community property laws or
similar laws relating to marital property in effect in the state of our
residence as of the date of the signing of the foregoing Agreement.
Dated: _______________, 19____
---------------------------
<PAGE>
EXHIBIT E-5
-----------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Sections 55 and 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
or alternative minimum taxable income, as the case may be, for the current
taxable year the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: ______________________________ shares (the "Shares") of the Common
Stock of ___________________________ (the "Company").
3. The date on which the property was transferred is: _______________, 19___.
4. The property is subject to the following restrictions:
The Shares may not be transferred and are subject to forfeiture under the
terms of an agreement between the taxpayer and the Company. These
restrictions lapse upon the satisfaction of certain conditions contained in
such agreement.
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, of such property is:
$______________________.
6. The amount (if any) paid for such property is:
$______________________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated:
-----------------, ----- ----------------------------
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated:
-----------------, ----- ----------------------------
<PAGE>
EXHIBIT 10.14
NUMERICAL TECHNOLOGIES, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT -- EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
Atul Sharan
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Date of Grant: March 31, 1999
Vesting Commencement Date: October 15, 1998
Exercise Price per Share: $0.50
Total Number of Shares Granted: 60,000
Total Exercise Price: $30,000.00
Type of Option: X Incentive Stock Option
-----
____ Nonstatutory Stock Option
Term/Expiration Date: Ten Years/March 31, 2009*
- ---------------
* Or earlier, pursuant to the termination period set forth below.
Exercise and Vesting Schedule:
-----------------------------
This Option is exercisable immediately, in whole or in part, and shall vest
according to the following vesting schedule:
One-fourth (1/4th) of the Shares subject to the Option shall vest twelve
months after the Vesting Commencement Date, and one-sixteenth (1/16th) of the
Shares subject to the Option shall vest on the last day of each three month
anniversary thereafter, subject to your continuing to be a Service Provider on
such dates.
<PAGE>
Termination Period:
------------------
You may exercise this Option for thirty days after you cease to be a
Service Provider. Upon your death or disability, this Option may be exercised
for one year after you cease to be a Service Provider. In no event may you
exercise this Option after the Term/Expiration Date as provided above.
II. AGREEMENT
---------
1. Grant of Option. The Plan Administrator of the Company hereby grants to
---------------
the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 14(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option as defined in
Section 422 of the Code. Nevertheless, to the extent that it exceeds the
$100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option. This Option shall be exercisable during its term in
------------------
accordance with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) Subject to subsections 2(a)(ii) and 2(a)(iii) below, this
Option shall be exercisable cumulatively according to the vesting schedule set
forth in the Notice of Grant. Alternatively, at the election of the Optionee,
this option may be exercised in whole or in part at any time as to Shares which
have not yet vested. For purposes of this Stock Option Agreement, Shares subject
to the Option shall vest based on continued employment of Optionee with the
Company. Vested Shares shall not be subject to the Company's repurchase right
(as set forth in the Restricted Stock Purchase Agreement, attached hereto as
Exhibit C-1).
- -----------
(ii) As a condition to exercising this Option for unvested Shares,
the Optionee shall execute the Restricted Stock Purchase Agreement.
(iii) This Option may not be exercised for a fraction of a Share.
(b) Method of Exercise. This Option shall be exercisable by delivery of
------------------
an exercise notice in the form attached as Exhibit A (the "Exercise Notice")
---------
which shall state the election to exercise the Option, the number of Shares with
respect to which the Option is being exercised, and such other representations
and agreements as may be required by the Company. The Exercise Notice
-2-
<PAGE>
shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by the aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
3. Optionee's Representations. In the event the Shares have not been
--------------------------
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as Exhibit
-------
B.
- -
4. Lock-Up Period. Optionee hereby agrees that, if so requested by the
--------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall be by
-----------------
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or
(d) surrender of other Shares which, (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised Shares.
6. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon
-3-
<PAGE>
such exercise or the method of payment of consideration for such shares would
constitute a violation of any Applicable Law.
7. Non-Transferability of Option. This Option may not be transferred in any
-----------------------------
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by Optionee. The terms of the
Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
9. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A
TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there will be
---------------
no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(b) Exercise of ISO Following Disability. If the Optionee ceases to be
------------------------------------
an Employee as a result of a disability that is not a total and permanent
disability as defined in Section 22(e)(3) of the Code, to the extent permitted
on the date of termination, the Optionee must exercise an ISO within three
months of such termination for the ISO to be qualified as an ISO.
(c) Exercise of Nonstatutory Stock Option. There may be a regular
-------------------------------------
federal income tax liability upon the exercise of a Nonstatutory Stock Option.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
Employee or a former Employee, the Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(d) Disposition of Shares. In the case of an NSO, if Shares are held for
---------------------
at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and at least two years after the Date of Grant, any gain
realized on disposition of the Shares will also be treated as long-term capital
gain for federal income
-4-
<PAGE>
tax purposes. If Shares purchased under an ISO are disposed of within one year
after exercise or two years after the Date of Grant, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the difference between the Exercise Price and the lesser
of (i) the Fair Market Value of the Shares on the date of exercise, or (ii) the
sale price of the Shares. Any additional gain will be taxed as capital gain,
short-term depending on the period that the ISO Shares were held.
(e) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (i) the date two years after the Date of Grant, or (ii) the
date one year after the date of exercise, the Optionee shall immediately notify
the Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
(f) Section 83(b) Election for Unvested Shares Purchased Pursuant to
----------------------------------------------------------------
Options. With respect to the exercise of an Option for unvested Shares, an
- -------
election may be filed by the Optionee with the Internal Revenue Service, within
------
30 days of the purchase of the Shares, electing pursuant to Section 83(b) of the
- -------
Code to be taxed currently on any difference between the purchase price of the
Shares and their Fair Market Value on the date of purchase. In the case of a
Nonstatutory Stock Option, this will result in a recognition of taxable income
to the Optionee on the date of exercise, measured by the excess, if any, of the
fair market value of the Shares, at the time the Option is exercised over the
purchase price for the Shares. Absent such an election, taxable income will be
measured and recognized by Optionee at the time or times on which the Company's
Repurchase Option lapses. In the case of an Incentive Stock Option, such an
election will result in a recognition of income to the Optionee for alternative
minimum tax purposes on the date of exercise, measured by the excess, if any, of
the fair market value of the Shares, at the time the option is exercised, over
the purchase price for the Shares. Absent such an election, alternative minimum
taxable income will be measured and recognized by Optionee at the time or times
on which the Company's Repurchase Option lapses. Optionee is strongly encouraged
to seek the advice of his or her own tax consultants in connection with the
purchase of the Shares and the advisability of filing of the Election under
Section 83(b) of the Code. A form of Election under Section 83(b) is attached
hereto as Exhibit C-5 for reference.
-----------
OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY AND NOT THE
COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF OPTIONEE
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON OPTIONEE'S
BEHALF.
10. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of California.
-5-
<PAGE>
11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
OPTIONEE: NUMERICAL TECHNOLOGIES, INC.
/s/ Atul Sharan /s/ Yagyensh C. Pati
- -------------------------------- ----------------------------------
Signature By
Atul Sharan Pres. & CEO
- -------------------------------- ----------------------------------
Print Name Title
21490 VAI Avenue
- --------------------------------
Cupertino, CA 95014-4935
- --------------------------------
Residence Address
-6-
<PAGE>
EXHIBIT A
1997 STOCK PLAN
EXERCISE NOTICE
Numerical Technologies, Inc.
2630 Walsh Avenue
Santa Clara, CA 95051
Attention: Secretary
1. Exercise of Option. Effective as of today, August 01, 1999, the
------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
19,000 shares of the Common Stock (the "Shares") of Numerical Technologies, Inc.
(the "Company") under and pursuant to the 1997 Stock Plan (the "Plan") and the
[ ] Incentive [ ] Nonstatutory Stock Option Agreement dated ____________, ___
(the "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the full
-------------------
purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as evidenced by
---------------------
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by Optionee or
--------------------------------
any transferee (either being sometimes referred to herein as the "Holder") may
be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall deliver
---------------------------
to the Company a written notice (the "Notice") stating: (i) the Holder's bona
fide intention to sell or otherwise transfer such Shares; (ii) the name of each
proposed purchaser or other transferee
<PAGE>
("Proposed Transferee"); (iii) the number of Shares to be transferred to each
Proposed Transferee; and (iv) the bona fide cash price or other consideration
for which the Holder proposes to transfer the Shares (the "Offered Price"), and
the Holder shall offer the Shares at the Offered Price to the Company or its
assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty (30)
----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder,elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the option
-------
of the Company or its assignee(s), in cash (by check), by cancellation of all or
a portion of any outstanding indebtedness of the Holder to the Company (or, in
the case of repurchase by an assignee, to the assignee), or by any combination
thereof within 30 days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee. If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
-2-
<PAGE>
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares upon 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 Securities and Exchange Commission under the
Securities Act of 1933, as amended.
6. Tax Consultation. Optionee understands that Optionee may suffer adverse
----------------
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax consultants
Optionee deems advisable in connection with the purchase or disposition of the
Shares and that Optionee is not relying on the Company for any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN
THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF
THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
-3-
<PAGE>
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
8. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
9. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Administrator shall be final and binding on
all parties.
10. Governing Law; Severability. This Agreement is governed by the internal
---------------------------
substantive laws, but not the choice of law rules, of California.
11. Entire Agreement. The Plan and Option Agreement are incorporated herein
----------------
by reference. This Agreement, the Plan, the Restricted Stock Purchase Agreement,
the Option Agreement and the Investment Representation Statement constitute the
entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee.
Submitted by: Accepted by:
OPTIONEE: NUMERICAL TECHNOLOGIES, INC.
/s/ Atul Sharan /s/ Yagyensh C. Pati
- --------------------------------- -------------------------------
Signature By
Atul Sharan Pres. & CEO
- --------------------------------- -------------------------------
Print Name Its
Address: Address:
- ------- -------
21490 VAI Avenue 2630 Walsh Avenue
- --------------------------------- Santa Clara, CA 95051
Cupertino, CA 95014
- ---------------------------------
------------------------------
Date Received
-4-
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : NUMERICAL TECHNOLOGIES, INC.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, and any other legend
required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of the grant of the Option to the Optionee, the exercise will be
exempt from registration
<PAGE>
under the Securities Act. In the event the Company becomes subject to the
reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the Securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including: (1) the resale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934); and, in the case of
an affiliate, (2) the availability of certain public information about the
Company, (3) the amount of Securities being sold during any three month period
not exceeding the limitations specified in Rule 144(e), and (4) the timely
filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
/s/ Atul Sharan
-------------------------------------
Date: 08/01/99
--------------------------------
-2-
<PAGE>
EXHIBIT C-1
-----------
NUMERICAL TECHNOLOGIES, INC.
1997 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between Atul Sharan (the "Purchaser") and Numerical
Technologies, Inc. (the "Company") as of-----------------, 199_.
RECITALS
--------
(1) Pursuant to the exercise of the stock option granted to Purchaser under
the Company's 1997 Stock Plan (the "Plan") and pursuant to the Stock Option
Agreement (the "Option Agreement") dated ____________, _____ by and between the
Company and Purchaser with respect to such grant, which Plan and Option
Agreement are hereby incorporated by reference, Purchaser has elected to
purchase _________ of those shares which have not become vested under the
vesting schedule set forth in the Option Agreement ("Unvested Shares"). The
Unvested Shares and the shares subject to the Option Agreement which have become
vested are sometimes collectively referred to herein as the "Shares".
(2) As required by the Option Agreement, as a condition to Purchaser's
election to exercise the option, Purchaser must execute this Restricted Stock
Purchase Agreement, which sets forth the rights and obligations of the parties
with respect to Shares acquired upon exercise of the Option.
1. Repurchase Option.
-----------------
(a) If Purchaser's status as a Service Provider is terminated for any
reason, including for cause, death, and disability, the Company shall have the
right and option to purchase from Purchaser, or Purchaser's personal
representative, as the case may be, all of the Purchaser's Unvested Shares as of
the date of such termination at the price paid by the Purchaser for such Shares
(the "Repurchase Option").
(b) Upon the occurrence of a termination, the Company may exercise its
Repurchase Option by delivering personally or by registered mail, to Purchaser
(or his transferee or legal representative, as the case may be), within ninety
(90) days of the termination, a notice in writing indicating the Company's
intention to exercise the Repurchase Option and setting forth a date for closing
not later than thirty (30) days from the mailing of such notice. The closing
shall take place at the Company's office. At the closing, the holder of the
certificates for the Unvested Shares
<PAGE>
being transferred shall deliver the stock certificate or certificates evidencing
the Unvested Shares, and the Company shall deliver the purchase price therefor.
(c) At its option, the Company may elect to make payment for the
Unvested Shares to a bank selected by the Company. The Company shall avail
itself of this option by a notice in writing to Purchaser stating the name and
address of the bank, date of closing, and waiving the closing at the Company's
office.
(d) If the Company does not elect to exercise the Repurchase Option
conferred above by giving the requisite notice within ninety (90) days following
the termination, the Repurchase Option shall terminate.
(e) The Repurchase Option shall terminate in accordance with the
Vesting Schedule in Optionee's Option Agreement.
2. Transferability of the Shares; Escrow.
-------------------------------------
(a) Purchaser hereby authorizes and directs the secretary of the
Company, or such other person designated by the Company, to transfer the
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) To insure the availability for delivery of Purchaser's Unvested
Shares upon repurchase by the Company pursuant to the Repurchase Option under
Section 1, Purchaser hereby appoints the secretary, or any other person
designated by the Company as escrow agent, as its attorney-in-fact to sell,
assign and transfer unto the Company, such Unvested Shares, if any, repurchased
by the Company pursuant to the Repurchase Option and shall, upon execution of
this Agreement, deliver and deposit with the secretary of the Company, or such
other person designated by the Company, the share certificates representing the
Unvested Shares, together with the stock assignment duly endorsed in blank,
attached hereto as Exhibit C-2. The Unvested Shares and stock assignment shall
-----------
be held by the secretary in escrow, pursuant to the Joint Escrow Instructions of
the Company and Purchaser attached as Exhibit C-3 hereto, until the Company
-----------
exercises its purchase right as provided in Section 1, until such Unvested
Shares are vested, or until such time as this Agreement no longer is in effect.
As a further condition to the Company's obligations under this Agreement, the
spouse of the Purchaser, if any, shall execute and deliver to the Company the
Consent of Spouse attached hereto as Exhibit C-4. Upon vesting of the Unvested
-----------
Shares, the escrow agent shall promptly deliver to the Purchaser the certificate
or certificates representing such Shares in the escrow agent's possession
belonging to the Purchaser, and the escrow agent shall be discharged of all
further obligations hereunder; provided, however, that the escrow agent shall
nevertheless retain such certificate or certificates as escrow agent if so
required pursuant to other restrictions imposed pursuant to this Agreement.
(c) The Company, or its designee, shall not be liable for any act it
may do or omit to do with respect to holding the Shares in escrow and while
acting in good faith and in the exercise of its judgment.
-2-
<PAGE>
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and the
Exercise Notice executed by the Purchaser with respect to any
Unvested Shares purchased by Purchaser and shall acknowledge the same by signing
a copy of this Agreement.
3. Ownership, Voting Rights, Duties. This Agreement shall not affect in any
--------------------------------
way the ownership, voting rights or other rights or duties of Purchaser, except
as specifically provided herein.
4. Legends. The share certificate evidencing the Shares issued hereunder
-------
shall be endorsed with the following legend (in addition to any legend required
under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
5. Adjustment for Stock Split. All references to the number of Shares and
--------------------------
the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
6. Notices. Notices required hereunder shall be given in person or by
-------
registered mail to the address of Purchaser shown on the records of the Company,
and to the Company at their respective principal executive offices.
7. Survival of Terms. This Agreement shall apply to and bind Purchaser and
-----------------
the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
8. Section 83(b) Election. Purchaser hereby acknowledges that he or she has
----------------------
been informed that, with respect to the exercise of an Option for unvested
Shares, an election may be filed by the Purchaser with the Internal Revenue
Service, within 30 days of the purchase of the Shares, electing pursuant to
--------------
Section 83(b) of the Code to be taxed currently on any difference between the
purchase price of the Shares and their Fair Market Value on the date of
purchase. In the case of a Nonstatutory Stock Option, this will result in a
recognition of taxable income to the Purchaser on the date of exercise, measured
by the excess, if any, of the fair market value of the Shares, at the time the
Option is exercised over the purchase price for the Shares. Absent such an
election, taxable income will be measured and recognized by Purchaser at the
time or times on which the Company's Repurchase Option lapses. In the case of an
Incentive Stock Option, such an election will result in a recognition of income
to the Purchaser for alternative minimum tax purposes on the date of exercise,
measured by the excess, if any, of the fair market value of the Shares, at the
time the option is exercised, over the purchase price for the Shares. Absent
such an election, alternative minimum taxable income will be measured and
recognized by Purchaser at the time or times on which the
-3-
<PAGE>
Company's Repurchase Option lapses. Purchaser is strongly encouraged to seek the
advice of his or her own tax consultants in connection with the purchase of the
Shares and the advisability of filing of the Election under Section 83(b) of the
Code. A form of Election under Section 83(b) is attached hereto as Exhibit C-5
-----------
for reference.
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND NOT
THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASER'S
BEHALF.
9. Representations. Purchaser has reviewed with his own tax advisors the
---------------
federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. Purchaser is relying solely on such
advisors and not on any statements or representations of the Company or any of
its agents. Purchaser understands that he (and not the Company) shall be
responsible for his own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
10. Governing Law. This Agreement shall be governed by the internal
-------------
substantive laws, but not the choice of law rules, of California.
Purchaser represents that he has read this Agreement and is familiar with
its terms and provisions. Purchaser hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set
forth above.
"COMPANY"
NUMERICAL TECHNOLOGIES, INC
/s/ Yagyensh C. Pati
------------------------------------
By
Pres. & CEO
------------------------------------
Title
"PURCHASER"
/s/ Atul Sharan
-----------------------------------
Signature
Atul Sharan
-----------------------------------
Printed Name
451 55 3675
-----------------------------------
Soc. Sec. No.
Address:
-------
21490 VAI Avenue
-----------------------------------
Cupertino, CA 95014
-----------------------------------
-5-
<PAGE>
EXHIBIT C-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto Numerical Technologies, Inc. (__________) shares of the Common
Stock of Numerical Technologies, Inc. standing in my name of the books of said
corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint _____________________ to transfer the said
stock on the books of the within named corporation with full power of
substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement between Numerical Technologies, Inc. and the
undersigned dated ______________, 19__.
Dated: August 01, 1999
Signature: /s/ Atul Sharan
------------------------------------
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
"repurchase option," as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT C-3
-----------
JOINT ESCROW INSTRUCTIONS
-------------------------
____________, 19__
Numerical Technologies, Inc.
2630 Walsh Avenue
Santa Clara, CA 95051
Attention: Secretary
Dear ________:
As Escrow Agent for both Numerical Technologies, Inc. (the "Company"), and
the undersigned purchaser of stock of the Company (the "Purchaser"), you are
hereby authorized and directed to hold the documents delivered to you pursuant
to the terms of that certain Restricted Stock Purchase Agreement ("Agreement")
between the Company and the undersigned, in accordance with the following
instructions:
1. In the event the Company and/or any assignee of the Company (referred to
collectively for convenience herein as the "Company") exercises the Company's
repurchase option set forth in the Agreement, the Company shall give to
Purchaser and you a written notice specifying the number of shares of stock to
be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company. Purchaser and the Company hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities.
<PAGE>
Subject to the provisions of this paragraph 3, Purchaser shall exercise all
rights and privileges of a stockholder of the Company while the stock is held by
you.
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's repurchase option.
Within 120 days after cessation of Purchaser's continuous employment by or
services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's repurchase
option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked only
by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
-2-
<PAGE>
11. You shall be entitled to employ such legal counsel and other experts as
you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Numerical Technologies, Inc.
2630 Walsh Avenue
Santa Clara, CA 95051
Attention: Secretary
PURCHASER: ________________________________
________________________________
________________________________
ESCROW AGENT: Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
-3-
<PAGE>
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by the internal
substantive laws, but not the choice of law rules, of California.
NUMERICAL TECHNOLOGIES, INC.
/s/ Yagyensh C. Pati
------------------------------------
By
PRES. & CEO
------------------------------------
Title
PURCHASER
/s/ ATUL SHARAN
-----------------------------------
Signature
ATUL SHARAN
-----------------------------------
Typed or Printed Name
ESCROW AGENT
WILSON SONSINI GOODRICH & ROSATI
-----------------------------------
By
-----------------------------------
Title
-4-
<PAGE>
EXHIBIT C-4
-----------
CONSENT OF SPOUSE
-----------------
I, Preeti Sharan , spouse of Atul Sharan , have read
-------------------- ---------------------
and approve the foregoing Agreement. In consideration of granting of the right
to my spouse to purchase shares of , as set forth
---------------------------
in the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect
to the exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in said Agreement
or any shares issued pursuant thereto under the community property laws or
similar laws relating to marital property in effect in the state of our
residence as of the date of the signing of the foregoing Agreement.
Dated: August 01, 1999
--------- --
/s/ Preeti Sharan
--------------------------------
<PAGE>
EXHIBIT C-5
-----------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Sections 55 and 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
or alternative minimum taxable income, as the case may be, for the current
taxable year the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: Atul Sharan TAXPAYER: SPOUSE: Preeti Sharan
ADDRESS: 21490 Vai Avenue
Cupertino, CA 95014-4935
IDENTIFICATION NO.: TAXPAYER: 451 55 3675 SPOUSE: 551 99 2042
TAXABLE YEAR: 1999
2. The property with respect to which the election is made is described as
follows: 11,500 shares (the "Shares") of the Common Stock of
--------------
Numerical Technologies (the "Company").
- ----------------------
3. The date on which the property was transferred is: October 25, 1999.
---------- --
4. The property is subject to the following restrictions:
The Shares may not be transferred and are subject to forfeiture under the
terms of an agreement between the taxpayer and the Company. These restrictions
lapse upon the satisfaction of certain conditions contained in such agreement.
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, of
such property is: $ 17,250.00 .
--------------
6. The amount (if any) paid for such property is: $ 5,750.00 .
--------------
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: October 25, 1999 /s/ Atul Sharan
---------- -- ------------------------------------
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: October 25, 1999 /s/ Preeti Sharan
---------- -- ------------------------------------
<PAGE>
EXHIBIT 10.15
NUMERICAL TECHNOLOGIES, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT -- EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
Atul Sharan
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Date of Grant: December 27, 1999
Vesting Commencement Date: October 21, 1999
Exercise Price per Share: $1.50
Total Number of Shares Granted: 125,000
Total Exercise Price: $187,500.00
Type of Option: X Incentive Stock Option
-----
____ Nonstatutory Stock Option
Term/Expiration Date: Ten Years/December 27, 2009
- ---------------
* Or earlier, pursuant to the termination period set forth below.
Exercise and Vesting Schedule:
-----------------------------
This Option is exercisable immediately, in whole or in part, and shall vest
according to the following vesting schedule:
One-fourth (1/4th) of the Shares subject to the Option shall vest twelve
months after the Vesting Commencement Date, and one-sixteenth (1/16th) of the
Shares subject to the Option shall vest on the last day of each three month
anniversary thereafter, subject to your continuing to be a Service Provider on
such dates.
<PAGE>
Termination Period:
------------------
You may exercise this Option for thirty days after you cease to be a
Service Provider. Upon your death or disability, this Option may be exercised
for one year after you cease to be a Service Provider. In no event may you
exercise this Option after the Term/Expiration Date as provided above.
II. AGREEMENT
---------
1. Grant of Option. The Plan Administrator of the Company hereby grants to
---------------
the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 14(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option as defined in
Section 422 of the Code. Nevertheless, to the extent that it exceeds the
$100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option. This Option shall be exercisable during its term in
------------------
accordance with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) Subject to subsections 2(a)(ii) and 2(a)(iii) below, this
Option shall be exercisable cumulatively according to the vesting schedule set
forth in the Notice of Grant. Alternatively, at the election of the Optionee,
this option may be exercised in whole or in part at any time as to Shares which
have not yet vested. For purposes of this Stock Option Agreement, Shares subject
to the Option shall vest based on continued employment of Optionee with the
Company. Vested Shares shall not be subject to the Company's repurchase right
(as set forth in the Restricted Stock Purchase Agreement, attached hereto as
Exhibit C-1).
- -----------
(ii) As a condition to exercising this Option for unvested Shares,
the Optionee shall execute the Restricted Stock Purchase Agreement.
(iii) This Option may not be exercised for a fraction of a Share.
(b) Method of Exercise. This Option shall be exercisable by delivery of
------------------
an exercise notice in the form attached as Exhibit A (the "Exercise Notice")
---------
which shall state the election to exercise the Option, the number of Shares with
respect to which the Option is being exercised, and such other representations
and agreements as may be required by the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by the aggregate Exercise
Price.
-2-
<PAGE>
No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
3. Optionee's Representations. In the event the Shares have not been
--------------------------
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as Exhibit
B.
4. Lock-Up Period. Optionee hereby agrees that, if so requested by the
--------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall be by
-----------------
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or
(d) surrender of other Shares which, (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised Shares.
6. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. Non-Transferability of Option. This Option may not be transferred in any
-----------------------------
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by Optionee. The terms of the
Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
-3-
<PAGE>
8. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
9. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A
TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there will be
---------------
no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(b) Exercise of ISO Following Disability. If the Optionee ceases to be
------------------------------------
an Employee as a result of a disability that is not a total and permanent
disability as defined in Section 22(e)(3) of the Code, to the extent permitted
on the date of termination, the Optionee must exercise an ISO within three
months of such termination for the ISO to be qualified as an ISO.
(c) Exercise of Nonstatutory Stock Option. There may be a regular
-------------------------------------
federal income tax liability upon the exercise of a Nonstatutory Stock Option.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
Employee or a former Employee, the Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(d) Disposition of Shares. In the case of an NSO, if Shares are held for
---------------------
at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and at least two years after the Date of Grant, any gain
realized on disposition of the Shares will also be treated as long-term capital
gain for federal income tax purposes. If Shares purchased under an ISO are
disposed of within one year after exercise or two years after the Date of Grant,
any gain realized on such disposition will be treated as compensation income
(taxable at ordinary income rates) to the extent of the difference between the
Exercise Price and the lesser of (i) the Fair Market Value of the Shares on the
date of exercise, or (ii) the sale price of the Shares. Any additional gain will
be taxed as capital gain, short-term depending on the period that the ISO Shares
were held.
(e) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (i) the date two years after the Date of Grant, or (ii) the
-4-
<PAGE>
date one year after the date of exercise, the Optionee shall immediately notify
the Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
(f) Section 83(b) Election for Unvested Shares Purchased Pursuant to
----------------------------------------------------------------
Options. With respect to the exercise of an Option for unvested Shares, an
- -------
election may be filed by the Optionee with the Internal Revenue Service, within
------
30 days of the purchase of the Shares, electing pursuant to Section 83(b) of the
- -------
Code to be taxed currently on any difference between the purchase price of the
Shares and their Fair Market Value on the date of purchase. In the case of a
Nonstatutory Stock Option, this will result in a recognition of taxable income
to the Optionee on the date of exercise, measured by the excess, if any, of the
fair market value of the Shares, at the time the Option is exercised over the
purchase price for the Shares. Absent such an election, taxable income will be
measured and recognized by Optionee at the time or times on which the Company's
Repurchase Option lapses. In the case of an Incentive Stock Option, such an
election will result in a recognition of income to the Optionee for alternative
minimum tax purposes on the date of exercise, measured by the excess, if any, of
the fair market value of the Shares, at the time the option is exercised, over
the purchase price for the Shares. Absent such an election, alternative minimum
taxable income will be measured and recognized by Optionee at the time or times
on which the Company's Repurchase Option lapses. Optionee is strongly encouraged
to seek the advice of his or her own tax consultants in connection with the
purchase of the Shares and the advisability of filing of the Election under
Section 83(b) of the Code. A form of Election under Section 83(b) is attached
hereto as Exhibit C-5 for reference.
-----------
OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY AND NOT THE
COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF OPTIONEE
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON OPTIONEE'S
BEHALF.
10. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of California.
11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE
-5-
<PAGE>
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT
ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
OPTIONEE: NUMERICAL TECHNOLOGIES, INC.
- -------------------------------- ----------------------------------
Signature By
- -------------------------------- ----------------------------------
Print Name Title
- --------------------------------
- --------------------------------
Residence Address
-6-
<PAGE>
EXHIBIT A
1997 STOCK PLAN
EXERCISE NOTICE
Numerical Technologies, Inc.
80 West Plumeria Drive
San Jose, CA 95134-2134
Attention: Secretary
1. Exercise of Option. Effective as of today, _____________, _____, the
------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Numerical Technologies,
Inc. (the "Company") under and pursuant to the 1997 Stock Plan (the "Plan") and
the [ ] Incentive [ ] Nonstatutory Stock Option Agreement dated ____________,
___ (the "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the full
-------------------
purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as evidenced by
---------------------
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by Optionee or
--------------------------------
any transferee (either being sometimes referred to herein as the "Holder") may
be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall deliver
---------------------------
to the Company a written notice (the "Notice") stating: (i) the Holder's bona
fide intention to sell or otherwise transfer such Shares; (ii) the name of each
proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number
of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide
cash price or other consideration for which the Holder proposes to transfer the
Shares (the "Offered Price"), and the Holder shall offer the Shares at the
Offered Price to the Company or its assignee(s).
<PAGE>
(b) Exercise of Right of First Refusal. At any time within thirty (30)
----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder,elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the option
-------
of the Company or its assignee(s), in cash (by check), by cancellation of all or
a portion of any outstanding indebtedness of the Holder to the Company (or, in
the case of repurchase by an assignee, to the assignee), or by any combination
thereof within 30 days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee. If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares upon 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 Securities and Exchange Commission under the
Securities Act of 1933, as amended.
6. Tax Consultation. Optionee understands that Optionee may suffer adverse
----------------
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax consultants
Optionee deems advisable in connection with
-2-
<PAGE>
the purchase or disposition of the Shares and that Optionee is not relying on
the Company for any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN
THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF
THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
8. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
9. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such
-3-
<PAGE>
dispute at its next regular meeting. The resolution of such a dispute by the
Administrator shall be final and binding on all parties.
10. Governing Law; Severability. This Agreement is governed by the internal
---------------------------
substantive laws, but not the choice of law rules, of California.
11. Entire Agreement. The Plan and Option Agreement are incorporated herein
----------------
by reference. This Agreement, the Plan, the Restricted Stock Purchase Agreement,
the Option Agreement and the Investment Representation Statement constitute the
entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee.
Submitted by: Accepted by:
OPTIONEE: NUMERICAL TECHNOLOGIES, INC.
- --------------------------------- -------------------------------
Signature By
- --------------------------------- -------------------------------
Print Name Its
Address: Address:
- ------- -------
- --------------------------------- 80 West Plumeria Drive
- --------------------------------- San Jose, CA 95134-2134
------------------------------
Date Received
-4-
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : NUMERICAL TECHNOLOGIES, INC.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, and any other legend
required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of the grant of the Option to the Optionee, the exercise will be
exempt from registration
<PAGE>
under the Securities Act. In the event the Company becomes subject to the
reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the Securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including: (1) the resale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934); and, in the case of
an affiliate, (2) the availability of certain public information about the
Company, (3) the amount of Securities being sold during any three month period
not exceeding the limitations specified in Rule 144(e), and (4) the timely
filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
-------------------------------------
Date: ,
--------------------------------
-2-
<PAGE>
EXHIBIT C-1
-----------
NUMERICAL TECHNOLOGIES, INC.
1997 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between ____________________________________ (the
"Purchaser") and Numerical Technologies, Inc. (the "Company") as of
__________________, _____.
RECITALS
--------
(1) Pursuant to the exercise of the stock option granted to Purchaser under
the Company's 1997 Stock Plan (the "Plan") and pursuant to the Stock Option
Agreement (the "Option Agreement") dated ____________, _____ by and between the
Company and Purchaser with respect to such grant, which Plan and Option
Agreement are hereby incorporated by reference, Purchaser has elected to
purchase _________ of those shares which have not become vested under the
vesting schedule set forth in the Option Agreement ("Unvested Shares"). The
Unvested Shares and the shares subject to the Option Agreement which have become
vested are sometimes collectively referred to herein as the "Shares".
(2) As required by the Option Agreement, as a condition to Purchaser's
election to exercise the option, Purchaser must execute this Restricted Stock
Purchase Agreement, which sets forth the rights and obligations of the parties
with respect to Shares acquired upon exercise of the Option.
1. Repurchase Option.
-----------------
(a) If Purchaser's status as a Service Provider is terminated for any
reason, including for cause, death, and disability, the Company shall have the
right and option to purchase from Purchaser, or Purchaser's personal
representative, as the case may be, all of the Purchaser's Unvested Shares as of
the date of such termination at the price paid by the Purchaser for such Shares
(the "Repurchase Option").
(b) Upon the occurrence of a termination, the Company may exercise its
Repurchase Option by delivering personally or by registered mail, to Purchaser
(or his transferee or legal representative, as the case may be), within ninety
(90) days of the termination, a notice in writing indicating the Company's
intention to exercise the Repurchase Option and setting forth a date for closing
not later than thirty (30) days from the mailing of such notice. The closing
shall take place at the Company's office. At the closing, the holder of the
certificates for the Unvested Shares being transferred shall deliver the stock
certificate or certificates evidencing the Unvested Shares, and the Company
shall deliver the purchase price therefor.
<PAGE>
(c) At its option, the Company may elect to make payment for the
Unvested Shares to a bank selected by the Company. The Company shall avail
itself of this option by a notice in writing to Purchaser stating the name and
address of the bank, date of closing, and waiving the closing at the Company's
office.
(d) If the Company does not elect to exercise the Repurchase Option
conferred above by giving the requisite notice within ninety (90) days following
the termination, the Repurchase Option shall terminate.
(e) The Repurchase Option shall terminate in accordance with the
Vesting Schedule in Optionee's Option Agreement.
2. Transferability of the Shares; Escrow.
-------------------------------------
(a) Purchaser hereby authorizes and directs the secretary of the
Company, or such other person designated by the Company, to transfer the
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) To insure the availability for delivery of Purchaser's Unvested
Shares upon repurchase by the Company pursuant to the Repurchase Option under
Section 1, Purchaser hereby appoints the secretary, or any other person
designated by the Company as escrow agent, as its attorney-in-fact to sell,
assign and transfer unto the Company, such Unvested Shares, if any, repurchased
by the Company pursuant to the Repurchase Option and shall, upon execution of
this Agreement, deliver and deposit with the secretary of the Company, or such
other person designated by the Company, the share certificates representing the
Unvested Shares, together with the stock assignment duly endorsed in blank,
attached hereto as Exhibit C-2. The Unvested Shares and stock assignment shall
-----------
be held by the secretary in escrow, pursuant to the Joint Escrow Instructions of
the Company and Purchaser attached as Exhibit C-3 hereto, until the Company
-----------
exercises its purchase right as provided in Section 1, until such Unvested
Shares are vested, or until such time as this Agreement no longer is in effect.
As a further condition to the Company's obligations under this Agreement, the
spouse of the Purchaser, if any, shall execute and deliver to the Company the
Consent of Spouse attached hereto as Exhibit C-4. Upon vesting of the Unvested
-----------
Shares, the escrow agent shall promptly deliver to the Purchaser the certificate
or certificates representing such Shares in the escrow agent's possession
belonging to the Purchaser, and the escrow agent shall be discharged of all
further obligations hereunder; provided, however, that the escrow agent shall
nevertheless retain such certificate or certificates as escrow agent if so
required pursuant to other restrictions imposed pursuant to this Agreement.
(c) The Company, or its designee, shall not be liable for any act it
may do or omit to do with respect to holding the Shares in escrow and while
acting in good faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and the
Exercise Notice executed by the Purchaser with respect to any
-2-
<PAGE>
Unvested Shares purchased by Purchaser and shall acknowledge the same by signing
a copy of this Agreement.
3. Ownership, Voting Rights, Duties. This Agreement shall not affect in any
--------------------------------
way the ownership, voting rights or other rights or duties of Purchaser, except
as specifically provided herein.
4. Legends. The share certificate evidencing the Shares issued hereunder
-------
shall be endorsed with the following legend (in addition to any legend required
under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
5. Adjustment for Stock Split. All references to the number of Shares and
--------------------------
the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
6. Notices. Notices required hereunder shall be given in person or by
-------
registered mail to the address of Purchaser shown on the records of the Company,
and to the Company at their respective principal executive offices.
7. Survival of Terms. This Agreement shall apply to and bind Purchaser and
-----------------
the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
8. Section 83(b) Election. Purchaser hereby acknowledges that he or she has
----------------------
been informed that, with respect to the exercise of an Option for unvested
Shares, an election may be filed by the Purchaser with the Internal Revenue
Service, within 30 days of the purchase of the Shares, electing pursuant to
--------------
Section 83(b) of the Code to be taxed currently on any difference between the
purchase price of the Shares and their Fair Market Value on the date of
purchase. In the case of a Nonstatutory Stock Option, this will result in a
recognition of taxable income to the Purchaser on the date of exercise, measured
by the excess, if any, of the fair market value of the Shares, at the time the
Option is exercised over the purchase price for the Shares. Absent such an
election, taxable income will be measured and recognized by Purchaser at the
time or times on which the Company's Repurchase Option lapses. In the case of an
Incentive Stock Option, such an election will result in a recognition of income
to the Purchaser for alternative minimum tax purposes on the date of exercise,
measured by the excess, if any, of the fair market value of the Shares, at the
time the option is exercised, over the purchase price for the Shares. Absent
such an election, alternative minimum taxable income will be measured and
recognized by Purchaser at the time or times on which the Company's Repurchase
Option lapses. Purchaser is strongly encouraged to seek the advice of his or her
own tax consultants in connection with the purchase of the Shares and the
advisability of filing
-3-
<PAGE>
of the Election under Section 83(b) of the Code. A form of Election under
Section 83(b) is attached hereto as Exhibit C-5 for reference.
-----------
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND NOT
THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASER'S
BEHALF.
9. Representations. Purchaser has reviewed with his own tax advisors the
---------------
federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. Purchaser is relying solely on such
advisors and not on any statements or representations of the Company or any of
its agents. Purchaser understands that he (and not the Company) shall be
responsible for his own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
10. Governing Law. This Agreement shall be governed by the internal
-------------
substantive laws, but not the choice of law rules, of California.
Purchaser represents that he has read this Agreement and is familiar with
its terms and provisions. Purchaser hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set
forth above.
"COMPANY"
NUMERICAL TECHNOLOGIES, INC
------------------------------------
By
------------------------------------
Title
"PURCHASER"
-----------------------------------
Signature
-----------------------------------
Printed Name
-----------------------------------
Soc. Sec. No.
Address:
-------
-----------------------------------
-----------------------------------
-5-
<PAGE>
EXHIBIT C-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto Numerical Technologies, Inc. (__________) shares of the Common
Stock of Numerical Technologies, Inc. standing in my name of the books of said
corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint ____________________ to transfer the said
stock on the books of the within named corporation with full power of
substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement between Numerical Technologies, Inc. and the
undersigned dated ______________, 19__.
Dated: _______________, 19__
Signature:
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
"repurchase option," as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT C-3
-----------
JOINT ESCROW INSTRUCTIONS
------------, -----
Numerical Technologies, Inc.
80 West Plumeria Drive
San Jose, CA 95134-2134
Attention: Secretary
Dear:
As Escrow Agent for both Numerical Technologies, Inc. (the "Company"), and
the undersigned purchaser of stock of the Company (the "Purchaser"), you are
hereby authorized and directed to hold the documents delivered to you pursuant
to the terms of that certain Restricted Stock Purchase Agreement ("Agreement")
between the Company and the undersigned, in accordance with the following
instructions:
1. In the event the Company and/or any assignee of the Company (referred to
collectively for convenience herein as the "Company") exercises the Company's
repurchase option set forth in the Agreement, the Company shall give to
Purchaser and you a written notice specifying the number of shares of stock to
be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company. Purchaser and the Company hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a stockholder of the Company while the
stock is held by you.
<PAGE>
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's repurchase option.
Within 120 days after cessation of Purchaser's continuous employment by or
services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's repurchase
option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked only
by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts as
you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
-2-
<PAGE>
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Numerical Technologies, Inc.
80 West Plumeria Drive
San Jose, CA 95134-2134
Attention: Secretary
PURCHASER:
ESCROW AGENT: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
-3-
<PAGE>
18. These Joint Escrow Instructions shall be governed by the internal
substantive laws, but not the choice of law rules, of California.
NUMERICAL TECHNOLOGIES, INC.
------------------------------------
By
------------------------------------
Title
PURCHASER
-----------------------------------
Signature
-----------------------------------
Typed or Printed Name
ESCROW AGENT
WILSON SONSINI GOODRICH & ROSATI
-----------------------------------
By
-----------------------------------
Title
-4-
<PAGE>
EXHIBIT C-4
-----------
CONSENT OF SPOUSE
-----------------
I, ____________________, spouse of ___________________, have read and
approve the foregoing Agreement. In consideration of granting of the right to my
spouse to purchase shares of ____________________________, as set forth in the
Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the
exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in said Agreement
or any shares issued pursuant thereto under the community property laws or
similar laws relating to marital property in effect in the state of our
residence as of the date of the signing of the foregoing Agreement.
Dated: _______________, _____
<PAGE>
EXHIBIT C-5
-----------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Sections 55 and 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
or alternative minimum taxable income, as the case may be, for the current
taxable year the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: shares (the ------------------------------ "Shares") of the Common
Stock of ___________________________ (the "Company").
3. The date on which the property was transferred is: _____________, _____.
4. The property is subject to the following restrictions:
The Shares may not be transferred and are subject to forfeiture under the
terms of an agreement between the taxpayer and the Company. These restrictions
lapse upon the satisfaction of certain conditions contained in such agreement.
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, of
such property is: $_____________________.
6. The amount (if any) paid for such property is: $_________________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: ___________________, _____ -------------------------------
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, _____ -------------------------------
<PAGE>
EXHIBIT 10.16
NUMERICAL TECHNOLOGIES, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT -- EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
Lars Herlitz
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Date of Grant: February 3, 1999
Vesting Commencement Date: December 15, 1998
Exercise Price per Share: $0.50
Total Number of Shares Granted: 115,000
Total Exercise Price: $57,500.00
Type of Option: X Incentive Stock Option
-----
____ Nonstatutory Stock Option
Term/Expiration Date: Ten Years/February 3, 2009
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* Or earlier, pursuant to the termination period set forth below.
Exercise and Vesting Schedule:
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This Option is exercisable immediately, in whole or in part, and shall vest
according to the following vesting schedule:
One-fourth (1/4th) of the Shares subject to the Option shall vest twelve
months after the Vesting Commencement Date, and one-sixteenth (1/16th) of the
Shares subject to the Option shall vest on the last day of each three month
anniversary thereafter, subject to your continuing to be a Service Provider on
such dates.
<PAGE>
Termination Period:
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You may exercise this Option for thirty days after you cease to be a
Service Provider. Upon your death or disability, this Option may be exercised
for one year after you cease to be a Service Provider. In no event may you
exercise this Option after the Term/Expiration Date as provided above.
II. AGREEMENT
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1. Grant of Option. The Plan Administrator of the Company hereby grants to
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the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 14(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option as defined in
Section 422 of the Code. Nevertheless, to the extent that it exceeds the
$100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option. This Option shall be exercisable during its term in
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accordance with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
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(i) Subject to subsections 2(a)(ii) and 2(a)(iii) below, this
Option shall be exercisable cumulatively according to the vesting schedule set
forth in the Notice of Grant. Alternatively, at the election of the Optionee,
this option may be exercised in whole or in part at any time as to Shares which
have not yet vested. For purposes of this Stock Option Agreement, Shares subject
to the Option shall vest based on continued employment of Optionee with the
Company. Vested Shares shall not be subject to the Company's repurchase right
(as set forth in the Restricted Stock Purchase Agreement, attached hereto as
Exhibit C-1).
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(ii) As a condition to exercising this Option for unvested Shares,
the Optionee shall execute the Restricted Stock Purchase Agreement.
(iii) This Option may not be exercised for a fraction of a Share.
(b) Method of Exercise. This Option shall be exercisable by delivery of
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an exercise notice in the form attached as Exhibit A (the "Exercise Notice")
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which shall state the election to exercise the Option, the number of Shares with
respect to which the Option is being exercised, and such other representations
and agreements as may be required by the Company. The Exercise Notice
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<PAGE>
shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by the aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
3. Optionee's Representations. In the event the Shares have not been
--------------------------
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as Exhibit
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B.
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4. Lock-Up Period. Optionee hereby agrees that, if so requested by the
--------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall be by
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any of the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or
(d) surrender of other Shares which, (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised Shares.
6. Restrictions on Exercise. This Option may not be exercised until such
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time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon
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<PAGE>
such exercise or the method of payment of consideration for such shares would
constitute a violation of any Applicable Law.
7. Non-Transferability of Option. This Option may not be transferred in any
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manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by Optionee. The terms of the
Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8. Term of Option. This Option may be exercised only within the term set
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out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
9. Tax Consequences. Set forth below is a brief summary as of the date of
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this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A
TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there will be
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no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(b) Exercise of ISO Following Disability. If the Optionee ceases to be
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an Employee as a result of a disability that is not a total and permanent
disability as defined in Section 22(e)(3) of the Code, to the extent permitted
on the date of termination, the Optionee must exercise an ISO within three
months of such termination for the ISO to be qualified as an ISO.
(c) Exercise of Nonstatutory Stock Option. There may be a regular
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federal income tax liability upon the exercise of a Nonstatutory Stock Option.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
Employee or a former Employee, the Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(d) Disposition of Shares. In the case of an NSO, if Shares are held for
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at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and at least two years after the Date of Grant, any gain
realized on disposition of the Shares will also be treated as long-term capital
gain for federal income
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<PAGE>
tax purposes. If Shares purchased under an ISO are disposed of within one year
after exercise or two years after the Date of Grant, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the difference between the Exercise Price and the lesser
of (i) the Fair Market Value of the Shares on the date of exercise, or (ii) the
sale price of the Shares. Any additional gain will be taxed as capital gain,
short-term depending on the period that the ISO Shares were held.
(e) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (i) the date two years after the Date of Grant, or (ii) the
date one year after the date of exercise, the Optionee shall immediately notify
the Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
(f) Section 83(b) Election for Unvested Shares Purchased Pursuant to
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Options. With respect to the exercise of an Option for unvested Shares, an
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election may be filed by the Optionee with the Internal Revenue Service, within
30 days of the purchase of the Shares, electing pursuant to Section 83(b) of the
Code to be taxed currently on any difference between the purchase price of the
Shares and their Fair Market Value on the date of purchase. In the case of a
Nonstatutory Stock Option, this will result in a recognition of taxable income
to the Optionee on the date of exercise, measured by the excess, if any, of the
fair market value of the Shares, at the time the Option is exercised over the
purchase price for the Shares. Absent such an election, taxable income will be
measured and recognized by Optionee at the time or times on which the Company's
Repurchase Option lapses. In the case of an Incentive Stock Option, such an
election will result in a recognition of income to the Optionee for alternative
minimum tax purposes on the date of exercise, measured by the excess, if any, of
the fair market value of the Shares, at the time the option is exercised, over
the purchase price for the Shares. Absent such an election, alternative minimum
taxable income will be measured and recognized by Optionee at the time or times
on which the Company's Repurchase Option lapses. Optionee is strongly encouraged
to seek the advice of his or her own tax consultants in connection with the
purchase of the Shares and the advisability of filing of the Election under
Section 83(b) of the Code. A form of Election under Section 83(b) is attached
hereto as Exhibit C-5 for reference.
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OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY AND NOT THE
COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF OPTIONEE
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON OPTIONEE'S
BEHALF.
10. Entire Agreement; Governing Law. The Plan is incorporated herein by
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reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of California.
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<PAGE>
11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
OPTIONEE: NUMERICAL TECHNOLOGIES, INC.
/s/ Lars Herlitz /s/ Yagyensh C. Pati
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Signature By
Lars Herlitz Pres. & CEO
- -------------------------------- ----------------------------------
Print Name Title
1271 Lakeside Dr. #3119
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Sunnyvale, CA 94086
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Residence Address
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<PAGE>
EXHIBIT A
1997 STOCK PLAN
EXERCISE NOTICE
Numerical Technologies, Inc.
2630 Walsh Avenue
Santa Clara, CA 95051
Attention: Secretary
1. Exercise of Option. Effective as of today, _____________, _____, the
------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Numerical Technologies,
Inc. (the "Company") under and pursuant to the 1997 Stock Plan (the "Plan") and
the [ ] Incentive [ ] Nonstatutory Stock Option Agreement dated ____________,
___ (the "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the full
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purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee has
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received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as evidenced by
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the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by Optionee or
--------------------------------
any transferee (either being sometimes referred to herein as the "Holder") may
be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall deliver
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to the Company a written notice (the "Notice") stating: (i) the Holder's bona
fide intention to sell or otherwise transfer such Shares; (ii) the name of each
proposed purchaser or other transferee
<PAGE>
("Proposed Transferee"); (iii) the number of Shares to be transferred to each
Proposed Transferee; and (iv) the bona fide cash price or other consideration
for which the Holder proposes to transfer the Shares (the "Offered Price"), and
the Holder shall offer the Shares at the Offered Price to the Company or its
assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty (30)
----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder,elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
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Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the option
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of the Company or its assignee(s), in cash (by check), by cancellation of all or
a portion of any outstanding indebtedness of the Holder to the Company (or, in
the case of repurchase by an assignee, to the assignee), or by any combination
thereof within 30 days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee. If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
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<PAGE>
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares upon 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 Securities and Exchange Commission under the
Securities Act of 1933, as amended.
6. Tax Consultation. Optionee understands that Optionee may suffer adverse
----------------
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax consultants
Optionee deems advisable in connection with the purchase or disposition of the
Shares and that Optionee is not relying on the Company for any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
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(a) Legends. Optionee understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN
THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF
THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
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<PAGE>
(c) Refusal to Transfer. The Company shall not be required (i) to
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transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
8. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
9. Interpretation. Any dispute regarding the interpretation of this
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Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Administrator shall be final and binding on
all parties.
10. Governing Law; Severability. This Agreement is governed by the internal
---------------------------
substantive laws, but not the choice of law rules, of California.
11. Entire Agreement. The Plan and Option Agreement are incorporated herein
----------------
by reference. This Agreement, the Plan, the Restricted Stock Purchase Agreement,
the Option Agreement and the Investment Representation Statement constitute the
entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee.
Submitted by: Accepted by:
OPTIONEE: NUMERICAL TECHNOLOGIES, INC.
/s/ Lars Herlitz /s/ Yagyensh C. Pati
- --------------------------------- -------------------------------
Signature By
Lars Herlitz Pres. & CEO
- --------------------------------- -------------------------------
Print Name Its
Address: Address:
- ------- -------
1271 Lakeside Dr. #3119 2630 Walsh Avenue
- --------------------------------- Santa Clara, CA 95051
Sunyvale, CA 94086
- ---------------------------------
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Date Received
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<PAGE>
EXHIBIT B
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INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : NUMERICAL TECHNOLOGIES, INC.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, and any other legend
required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to
<PAGE>
the satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the Optionee,
the exercise will be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or
such longer period as any market stand-off agreement may require) the Securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including: (1) the resale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, (3) the amount of Securities being
sold during any three month period not exceeding the limitations specified in
Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that
any such other registration exemption will be available in such event.
Signature of Optionee:
/s/ Lars Herlitz
---------------------------
Date: , 19
--------------- ---
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<PAGE>
EXHIBIT C-1
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NUMERICAL TECHNOLOGIES, INC.
1997 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between ____________________________________ (the
"Purchaser") and Numerical Technologies, Inc. (the "Company") as of
__________________, 199_.
RECITALS
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(1) Pursuant to the exercise of the stock option granted to Purchaser under
the Company's 1997 Stock Plan (the "Plan") and pursuant to the Stock Option
Agreement (the "Option Agreement") dated ____________, 19__ by and between the
Company and Purchaser with respect to such grant, which Plan and Option
Agreement are hereby incorporated by reference, Purchaser has elected to
purchase _________ of those shares which have not become vested under the
vesting schedule set forth in the Option Agreement ("Unvested Shares"). The
Unvested Shares and the shares subject to the Option Agreement which have become
vested are sometimes collectively referred to herein as the "Shares".
(2) As required by the Option Agreement, as a condition to Purchaser's
election to exercise the option, Purchaser must execute this Restricted Stock
Purchase Agreement, which sets forth the rights and obligations of the parties
with respect to Shares acquired upon exercise of the Option.
1. Repurchase Option.
-----------------
(a) If Purchaser's status as a Service Provider is terminated for any
reason, including for cause, death, and disability, the Company shall have the
right and option to purchase from Purchaser, or Purchaser's personal
representative, as the case may be, all of the Purchaser's Unvested Shares as of
the date of such termination at the price paid by the Purchaser for such Shares
(the "Repurchase Option").
(b) Upon the occurrence of a termination, the Company may exercise its
Repurchase Option by delivering personally or by registered mail, to Purchaser
(or his transferee or legal representative, as the case may be), within ninety
(90) days of the termination, a notice in writing indicating the Company's
intention to exercise the Repurchase Option and setting forth a date for closing
not later than thirty (30) days from the mailing of such notice. The closing
shall take place at the Company's office. At the closing, the holder of the
certificates for the Unvested Shares
<PAGE>
being transferred shall deliver the stock certificate or certificates evidencing
the Unvested Shares, and the Company shall deliver the purchase price therefor.
(c) At its option, the Company may elect to make payment for the
Unvested Shares to a bank selected by the Company. The Company shall avail
itself of this option by a notice in writing to Purchaser stating the name and
address of the bank, date of closing, and waiving the closing at the Company's
office.
(d) If the Company does not elect to exercise the Repurchase Option
conferred above by giving the requisite notice within ninety (90) days following
the termination, the Repurchase Option shall terminate.
(e) The Repurchase Option shall terminate in accordance with the
Vesting Schedule in Optionee's Option Agreement.
2. Transferability of the Shares; Escrow.
-------------------------------------
(a) Purchaser hereby authorizes and directs the secretary of the
Company, or such other person designated by the Company, to transfer the
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) To insure the availability for delivery of Purchaser's Unvested
Shares upon repurchase by the Company pursuant to the Repurchase Option under
Section 1, Purchaser hereby appoints the secretary, or any other person
designated by the Company as escrow agent, as its attorney-in-fact to sell,
assign and transfer unto the Company, such Unvested Shares, if any, repurchased
by the Company pursuant to the Repurchase Option and shall, upon execution of
this Agreement, deliver and deposit with the secretary of the Company, or such
other person designated by the Company, the share certificates representing the
Unvested Shares, together with the stock assignment duly endorsed in blank,
attached hereto as Exhibit C-2. The Unvested Shares and stock assignment shall
-----------
be held by the secretary in escrow, pursuant to the Joint Escrow Instructions of
the Company and Purchaser attached as Exhibit C-3 hereto, until the Company
-----------
exercises its purchase right as provided in Section 1, until such Unvested
Shares are vested, or until such time as this Agreement no longer is in effect.
As a further condition to the Company's obligations under this Agreement, the
spouse of the Purchaser, if any, shall execute and deliver to the Company the
Consent of Spouse attached hereto as Exhibit C-4. Upon vesting of the Unvested
-----------
Shares, the escrow agent shall promptly deliver to the Purchaser the certificate
or certificates representing such Shares in the escrow agent's possession
belonging to the Purchaser, and the escrow agent shall be discharged of all
further obligations hereunder; provided, however, that the escrow agent shall
nevertheless retain such certificate or certificates as escrow agent if so
required pursuant to other restrictions imposed pursuant to this Agreement.
(c) The Company, or its designee, shall not be liable for any act it
may do or omit to do with respect to holding the Shares in escrow and while
acting in good faith and in the exercise of its judgment.
-2-
<PAGE>
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and the
Exercise Notice executed by the Purchaser with respect to any
Unvested Shares purchased by Purchaser and shall acknowledge the same by signing
a copy of this Agreement.
3. Ownership, Voting Rights, Duties. This Agreement shall not affect in any
--------------------------------
way the ownership, voting rights or other rights or duties of Purchaser, except
as specifically provided herein.
4. Legends. The share certificate evidencing the Shares issued hereunder
-------
shall be endorsed with the following legend (in addition to any legend required
under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
5. Adjustment for Stock Split. All references to the number of Shares and
--------------------------
the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
6. Notices. Notices required hereunder shall be given in person or by
-------
registered mail to the address of Purchaser shown on the records of the Company,
and to the Company at their respective principal executive offices.
7. Survival of Terms. This Agreement shall apply to and bind Purchaser and
-----------------
the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
8. Section 83(b) Election. Purchaser hereby acknowledges that he or she has
----------------------
been informed that, with respect to the exercise of an Option for unvested
Shares, an election may be filed by the Purchaser with the Internal Revenue
Service, within 30 days of the purchase of the Shares, electing pursuant to
--------------
Section 83(b) of the Code to be taxed currently on any difference between the
purchase price of the Shares and their Fair Market Value on the date of
purchase. In the case of a Nonstatutory Stock Option, this will result in a
recognition of taxable income to the Purchaser on the date of exercise, measured
by the excess, if any, of the fair market value of the Shares, at the time the
Option is exercised over the purchase price for the Shares. Absent such an
election, taxable income will be measured and recognized by Purchaser at the
time or times on which the Company's Repurchase Option lapses. In the case of an
Incentive Stock Option, such an election will result in a recognition of income
to the Purchaser for alternative minimum tax purposes on the date of exercise,
measured by the excess, if any, of the fair market value of the Shares, at the
time the option is exercised, over the purchase price for the Shares. Absent
such an election, alternative minimum taxable income will be measured and
recognized by Purchaser at the time or times on which the
-3-
<PAGE>
Company's Repurchase Option lapses. Purchaser is strongly encouraged to seek the
advice of his or her own tax consultants in connection with the purchase of the
Shares and the advisability of filing of the Election under Section 83(b) of the
Code. A form of Election under Section 83(b) is attached hereto as Exhibit C-5
-----------
for reference.
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND NOT
THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASER'S
BEHALF.
9. Representations. Purchaser has reviewed with his own tax advisors the
---------------
federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. Purchaser is relying solely on such
advisors and not on any statements or representations of the Company or any of
its agents. Purchaser understands that he (and not the Company) shall be
responsible for his own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
10. Governing Law. This Agreement shall be governed by the internal
-------------
substantive laws, but not the choice of law rules, of California.
Purchaser represents that he has read this Agreement and is familiar with
its terms and provisions. Purchaser hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set
forth above.
"COMPANY"
NUMERICAL TECHNOLOGIES, INC
/s/ Yagyensh C. Pati
------------------------------------
By
Pres. & CEO
------------------------------------
Title
"PURCHASER"
/s/ Lars Herlitz
-----------------------------------
Signature
Lars Herlitz
-----------------------------------
Printed Name
278 78 6549
-----------------------------------
Soc. Sec. No.
Address:
-------
1271 Lakeside Dr. #3119
-----------------------------------
Sunnyvale, CA 94086
-----------------------------------
-5-
<PAGE>
EXHIBIT C-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto Numerical Technologies, Inc. (__________) shares of the Common
Stock of Numerical Technologies, Inc. standing in my name of the books of said
corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint ________________ to transfer the said stock
on the books of the within named corporation with full power of substitution in
the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement between Numerical Technologies, Inc. and the
undersigned dated ______________, _____.
Dated: _______________, ______
Signature: /s/ Lars Herlitz
-----------------------------------
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
"repurchase option," as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
-1-
<PAGE>
EXHIBIT C-3
-----------
JOINT ESCROW INSTRUCTIONS
______, 19__
Numerical Technologies, Inc.
2630 Walsh Avenue
Santa Clara, CA 95051
Attention: Secretary
Dear _______________:
As Escrow Agent for both Numerical Technologies, Inc. (the "Company"), and
the undersigned purchaser of stock of the Company (the "Purchaser"), you are
hereby authorized and directed to hold the documents delivered to you pursuant
to the terms of that certain Restricted Stock Purchase Agreement ("Agreement")
between the Company and the undersigned, in accordance with the following
instructions:
1. In the event the Company and/or any assignee of the Company (referred to
collectively for convenience herein as the "Company") exercises the Company's
repurchase option set forth in the Agreement, the Company shall give to
Purchaser and you a written notice specifying the number of shares of stock to
be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company. Purchaser and the Company hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a stockholder of the Company while the
stock is held by you.
<PAGE>
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's repurchase option.
Within 120 days after cessation of Purchaser's continuous employment by or
services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's repurchase
option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked only
by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts as
you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
-2-
<PAGE>
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Numerical Technologies, Inc.
2630 Walsh Avenue
Santa Clara, CA 95051
Attention: Secretary
PURCHASER:
ESCROW AGENT: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
-3-
<PAGE>
18. These Joint Escrow Instructions shall be governed by the internal
substantive laws, but not the choice of law rules, of California.
NUMERICAL TECHNOLOGIES, INC.
------------------------------------
By
------------------------------------
Title
PURCHASER
-----------------------------------
Signature
-----------------------------------
Typed or Printed Name
ESCROW AGENT
WILSON SONSINI GOODRICH & ROSATI
-----------------------------------
By
-----------------------------------
Title
-4-
<PAGE>
EXHIBIT C-4
-----------
CONSENT OF SPOUSE
-----------------
I, , spouse of , have read and
-------------------- ------------------
approve the foregoing Agreement. In consideration of granting of the right to my
spouse to purchase shares of , as set forth in the
Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the
exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in said Agreement
or any shares issued pursuant thereto under the community property laws or
similar laws relating to marital property in effect in the state of our
residence as of the date of the signing of the foregoing Agreement.
Dated: ,
-------------- --
-------------------------
-1-
<PAGE>
EXHIBIT C-5
-----------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Sections 55 and 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
or alternative minimum taxable income, as the case may be, for the current
taxable year the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: Lars Herlitz SPOUSE:
ADDRESS: 1271 Lakeside Dr. #3119
Sunnyvale, CA 94086
IDENTIFICATION NO.: TAXPAYER: ###-##-#### SPOUSE:
TAXABLE YEAR: 1999
2. The property with respect to which the election is made is described as
follows: 57,500 shares (the "Shares") of the Common Stock of
-------------
Numerical Technologies Inc., (the "Company").
----------------------------
3. The date on which the property was transferred is: Oct 12 , 1999.
--------- --
4. The property is subject to the following restrictions:
The Shares may not be transferred and are subject to forfeiture under the
terms of an agreement between the taxpayer and the Company. These
restrictions lapse upon the satisfaction of certain conditions contained in
such agree ment.
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, of such property is: $ 86,250.00.
-----------
6. The amount (if any) paid for such property is: $ 28,750.00.
----------
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: Oct. 12, 1999 /s/ Lars Herlitz
---------- -- -------------------------------------
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 19__ -------------------------------------
<PAGE>
EXHIBIT 10.17
NUMERICAL TECHNOLOGIES, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT -- EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
Lars Herlitz
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Date of Grant: December 27, 1999
Vesting Commencement Date: December 14, 1999
Exercise Price per Share: $1.50
Total Number of Shares Granted: 55,000
Total Exercise Price: $82,500.00
Type of Option: X Incentive Stock Option
-----
____ Nonstatutory Stock Option
Term/Expiration Date: Ten Years/December 27, 2009
- ---------------
* Or earlier, pursuant to the termination period set forth below.
Exercise and Vesting Schedule:
-----------------------------
This Option is exercisable immediately, in whole or in part, and shall vest
according to the following vesting schedule:
One-fourth (1/4th) of the Shares subject to the Option shall vest twelve
months after the Vesting Commencement Date, and one-sixteenth (1/16th) of the
Shares subject to the Option shall vest on the last day of each three month
anniversary thereafter, subject to your continuing to be a Service Provider on
such dates.
<PAGE>
Termination Period:
------------------
You may exercise this Option for thirty days after you cease to be a
Service Provider. Upon your death or disability, this Option may be exercised
for one year after you cease to be a Service Provider. In no event may you
exercise this Option after the Term/Expiration Date as provided above.
II. AGREEMENT
---------
1. Grant of Option. The Plan Administrator of the Company hereby grants to
---------------
the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 14(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option as defined in
Section 422 of the Code. Nevertheless, to the extent that it exceeds the
$100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option. This Option shall be exercisable during its term in
------------------
accordance with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) Subject to subsections 2(a)(ii) and 2(a)(iii) below, this
Option shall be exercisable cumulatively according to the vesting schedule set
forth in the Notice of Grant. Alternatively, at the election of the Optionee,
this option may be exercised in whole or in part at any time as to Shares which
have not yet vested. For purposes of this Stock Option Agreement, Shares subject
to the Option shall vest based on continued employment of Optionee with the
Company. Vested Shares shall not be subject to the Company's repurchase right
(as set forth in the Restricted Stock Purchase Agreement, attached hereto as
Exhibit C-1).
- -----------
(ii) As a condition to exercising this Option for unvested Shares,
the Optionee shall execute the Restricted Stock Purchase Agreement.
(iii) This Option may not be exercised for a fraction of a Share.
(b) Method of Exercise. This Option shall be exercisable by delivery of
------------------
an exercise notice in the form attached as Exhibit A (the "Exercise Notice")
---------
which shall state the election to exercise the Option, the number of Shares with
respect to which the Option is being exercised, and such other representations
and agreements as may be required by the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by the aggregate Exercise
Price.
-2-
<PAGE>
No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
3. Optionee's Representations. In the event the Shares have not been
--------------------------
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as Exhibit
B.
4. Lock-Up Period. Optionee hereby agrees that, if so requested by the
--------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall be by
-----------------
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or
(d) surrender of other Shares which, (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised Shares.
6. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. Non-Transferability of Option. This Option may not be transferred in any
-----------------------------
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by Optionee. The terms of the
Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
-3-
<PAGE>
8. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
9. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A
TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there will be
---------------
no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(b) Exercise of ISO Following Disability. If the Optionee ceases to be
------------------------------------
an Employee as a result of a disability that is not a total and permanent
disability as defined in Section 22(e)(3) of the Code, to the extent permitted
on the date of termination, the Optionee must exercise an ISO within three
months of such termination for the ISO to be qualified as an ISO.
(c) Exercise of Nonstatutory Stock Option. There may be a regular
-------------------------------------
federal income tax liability upon the exercise of a Nonstatutory Stock Option.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
Employee or a former Employee, the Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(d) Disposition of Shares. In the case of an NSO, if Shares are held for
---------------------
at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and at least two years after the Date of Grant, any gain
realized on disposition of the Shares will also be treated as long-term capital
gain for federal income tax purposes. If Shares purchased under an ISO are
disposed of within one year after exercise or two years after the Date of Grant,
any gain realized on such disposition will be treated as compensation income
(taxable at ordinary income rates) to the extent of the difference between the
Exercise Price and the lesser of (i) the Fair Market Value of the Shares on the
date of exercise, or (ii) the sale price of the Shares. Any additional gain will
be taxed as capital gain, short-term depending on the period that the ISO Shares
were held.
(e) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (i) the date two years after the Date of Grant, or (ii) the
-4-
<PAGE>
date one year after the date of exercise, the Optionee shall immediately notify
the Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
(f) Section 83(b) Election for Unvested Shares Purchased Pursuant to
----------------------------------------------------------------
Options. With respect to the exercise of an Option for unvested Shares, an
- -------
election may be filed by the Optionee with the Internal Revenue Service, within
------
30 days of the purchase of the Shares, electing pursuant to Section 83(b) of the
- -------
Code to be taxed currently on any difference between the purchase price of the
Shares and their Fair Market Value on the date of purchase. In the case of a
Nonstatutory Stock Option, this will result in a recognition of taxable income
to the Optionee on the date of exercise, measured by the excess, if any, of the
fair market value of the Shares, at the time the Option is exercised over the
purchase price for the Shares. Absent such an election, taxable income will be
measured and recognized by Optionee at the time or times on which the Company's
Repurchase Option lapses. In the case of an Incentive Stock Option, such an
election will result in a recognition of income to the Optionee for alternative
minimum tax purposes on the date of exercise, measured by the excess, if any, of
the fair market value of the Shares, at the time the option is exercised, over
the purchase price for the Shares. Absent such an election, alternative minimum
taxable income will be measured and recognized by Optionee at the time or times
on which the Company's Repurchase Option lapses. Optionee is strongly encouraged
to seek the advice of his or her own tax consultants in connection with the
purchase of the Shares and the advisability of filing of the Election under
Section 83(b) of the Code. A form of Election under Section 83(b) is attached
hereto as Exhibit C-5 for reference.
-----------
OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY AND NOT THE
COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF OPTIONEE
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON OPTIONEE'S
BEHALF.
10. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of California.
11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE
-5-
<PAGE>
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT
ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
OPTIONEE: NUMERICAL TECHNOLOGIES, INC.
- -------------------------------- ----------------------------------
Signature By
- -------------------------------- ----------------------------------
Print Name Title
- --------------------------------
- --------------------------------
Residence Address
-6-
<PAGE>
EXHIBIT A
1997 STOCK PLAN
EXERCISE NOTICE
Numerical Technologies, Inc.
80 West Plumeria Drive
San Jose, CA 95134-2134
Attention: Secretary
1. Exercise of Option. Effective as of today, _____________, _____, the
------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Numerical Technologies,
Inc. (the "Company") under and pursuant to the 1997 Stock Plan (the "Plan") and
the [ ] Incentive [ ] Nonstatutory Stock Option Agreement dated ____________,
___ (the "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the full
-------------------
purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as evidenced by
---------------------
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by Optionee or
--------------------------------
any transferee (either being sometimes referred to herein as the "Holder") may
be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall deliver
---------------------------
to the Company a written notice (the "Notice") stating: (i) the Holder's bona
fide intention to sell or otherwise transfer such Shares; (ii) the name of each
proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number
of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide
cash price or other consideration for which the Holder proposes to transfer the
Shares (the "Offered Price"), and the Holder shall offer the Shares at the
Offered Price to the Company or its assignee(s).
<PAGE>
(b) Exercise of Right of First Refusal. At any time within thirty (30)
----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder,elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the option
-------
of the Company or its assignee(s), in cash (by check), by cancellation of all or
a portion of any outstanding indebtedness of the Holder to the Company (or, in
the case of repurchase by an assignee, to the assignee), or by any combination
thereof within 30 days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee. If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares upon 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 Securities and Exchange Commission under the
Securities Act of 1933, as amended.
6. Tax Consultation. Optionee understands that Optionee may suffer adverse
----------------
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax consultants
Optionee deems advisable in connection with
-2-
<PAGE>
the purchase or disposition of the Shares and that Optionee is not relying on
the Company for any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN
THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF
THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
8. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
9. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such
-3-
<PAGE>
dispute at its next regular meeting. The resolution of such a dispute by the
Administrator shall be final and binding on all parties.
10. Governing Law; Severability. This Agreement is governed by the internal
---------------------------
substantive laws, but not the choice of law rules, of California.
11. Entire Agreement. The Plan and Option Agreement are incorporated herein
----------------
by reference. This Agreement, the Plan, the Restricted Stock Purchase Agreement,
the Option Agreement and the Investment Representation Statement constitute the
entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee.
Submitted by: Accepted by:
OPTIONEE: NUMERICAL TECHNOLOGIES, INC.
- --------------------------------- -------------------------------
Signature By
- --------------------------------- -------------------------------
Print Name Its
Address: Address:
- ------- -------
- --------------------------------- 80 West Plumeria Drive
San Jose, CA 95134-2134
- ---------------------------------
------------------------------
Date Received
-4-
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : NUMERICAL TECHNOLOGIES, INC.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, and any other legend
required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of the grant of the Option to the Optionee, the exercise will be
exempt from registration
<PAGE>
under the Securities Act. In the event the Company becomes subject to the
reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the Securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including: (1) the resale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934); and, in the case of
an affiliate, (2) the availability of certain public information about the
Company, (3) the amount of Securities being sold during any three month period
not exceeding the limitations specified in Rule 144(e), and (4) the timely
filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
-------------------------------------
Date: ,
--------------------------------
-2-
<PAGE>
EXHIBIT C-1
-----------
NUMERICAL TECHNOLOGIES, INC.
1997 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between ____________________________________ (the
"Purchaser") and Numerical Technologies, Inc. (the "Company") as of
__________________, _____.
RECITALS
--------
(1) Pursuant to the exercise of the stock option granted to Purchaser under
the Company's 1997 Stock Plan (the "Plan") and pursuant to the Stock Option
Agreement (the "Option Agreement") dated ____________, _____ by and between the
Company and Purchaser with respect to such grant, which Plan and Option
Agreement are hereby incorporated by reference, Purchaser has elected to
purchase _________ of those shares which have not become vested under the
vesting schedule set forth in the Option Agreement ("Unvested Shares"). The
Unvested Shares and the shares subject to the Option Agreement which have become
vested are sometimes collectively referred to herein as the "Shares".
(2) As required by the Option Agreement, as a condition to Purchaser's
election to exercise the option, Purchaser must execute this Restricted Stock
Purchase Agreement, which sets forth the rights and obligations of the parties
with respect to Shares acquired upon exercise of the Option.
1. Repurchase Option.
-----------------
(a) If Purchaser's status as a Service Provider is terminated for any
reason, including for cause, death, and disability, the Company shall have the
right and option to purchase from Purchaser, or Purchaser's personal
representative, as the case may be, all of the Purchaser's Unvested Shares as of
the date of such termination at the price paid by the Purchaser for such Shares
(the "Repurchase Option").
(b) Upon the occurrence of a termination, the Company may exercise its
Repurchase Option by delivering personally or by registered mail, to Purchaser
(or his transferee or legal representative, as the case may be), within ninety
(90) days of the termination, a notice in writing indicating the Company's
intention to exercise the Repurchase Option and setting forth a date for closing
not later than thirty (30) days from the mailing of such notice. The closing
shall take place at the Company's office. At the closing, the holder of the
certificates for the Unvested Shares being transferred shall deliver the stock
certificate or certificates evidencing the Unvested Shares, and the Company
shall deliver the purchase price therefor.
<PAGE>
(c) At its option, the Company may elect to make payment for the
Unvested Shares to a bank selected by the Company. The Company shall avail
itself of this option by a notice in writing to Purchaser stating the name and
address of the bank, date of closing, and waiving the closing at the Company's
office.
(d) If the Company does not elect to exercise the Repurchase Option
conferred above by giving the requisite notice within ninety (90) days following
the termination, the Repurchase Option shall terminate.
(e) The Repurchase Option shall terminate in accordance with the
Vesting Schedule in Optionee's Option Agreement.
2. Transferability of the Shares; Escrow.
-------------------------------------
(a) Purchaser hereby authorizes and directs the secretary of the
Company, or such other person designated by the Company, to transfer the
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) To insure the availability for delivery of Purchaser's Unvested
Shares upon repurchase by the Company pursuant to the Repurchase Option under
Section 1, Purchaser hereby appoints the secretary, or any other person
designated by the Company as escrow agent, as its attorney-in-fact to sell,
assign and transfer unto the Company, such Unvested Shares, if any, repurchased
by the Company pursuant to the Repurchase Option and shall, upon execution of
this Agreement, deliver and deposit with the secretary of the Company, or such
other person designated by the Company, the share certificates representing the
Unvested Shares, together with the stock assignment duly endorsed in blank,
attached hereto as Exhibit C-2. The Unvested Shares and stock assignment shall
-----------
be held by the secretary in escrow, pursuant to the Joint Escrow Instructions of
the Company and Purchaser attached as Exhibit C-3 hereto, until the Company
-----------
exercises its purchase right as provided in Section 1, until such Unvested
Shares are vested, or until such time as this Agreement no longer is in effect.
As a further condition to the Company's obligations under this Agreement, the
spouse of the Purchaser, if any, shall execute and deliver to the Company the
Consent of Spouse attached hereto as Exhibit C-4. Upon vesting of the Unvested
-----------
Shares, the escrow agent shall promptly deliver to the Purchaser the certificate
or certificates representing such Shares in the escrow agent's possession
belonging to the Purchaser, and the escrow agent shall be discharged of all
further obligations hereunder; provided, however, that the escrow agent shall
nevertheless retain such certificate or certificates as escrow agent if so
required pursuant to other restrictions imposed pursuant to this Agreement.
(c) The Company, or its designee, shall not be liable for any act it
may do or omit to do with respect to holding the Shares in escrow and while
acting in good faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and the
Exercise Notice executed by the Purchaser with respect to any
-2-
<PAGE>
Unvested Shares purchased by Purchaser and shall acknowledge the same by signing
a copy of this Agreement.
3. Ownership, Voting Rights, Duties. This Agreement shall not affect in any
--------------------------------
way the ownership, voting rights or other rights or duties of Purchaser, except
as specifically provided herein.
4. Legends. The share certificate evidencing the Shares issued hereunder
-------
shall be endorsed with the following legend (in addition to any legend required
under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
5. Adjustment for Stock Split. All references to the number of Shares and
--------------------------
the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
6. Notices. Notices required hereunder shall be given in person or by
-------
registered mail to the address of Purchaser shown on the records of the Company,
and to the Company at their respective principal executive offices.
7. Survival of Terms. This Agreement shall apply to and bind Purchaser and
-----------------
the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
8. Section 83(b) Election. Purchaser hereby acknowledges that he or she has
----------------------
been informed that, with respect to the exercise of an Option for unvested
Shares, an election may be filed by the Purchaser with the Internal Revenue
Service, within 30 days of the purchase of the Shares, electing pursuant to
--------------
Section 83(b) of the Code to be taxed currently on any difference between the
purchase price of the Shares and their Fair Market Value on the date of
purchase. In the case of a Nonstatutory Stock Option, this will result in a
recognition of taxable income to the Purchaser on the date of exercise, measured
by the excess, if any, of the fair market value of the Shares, at the time the
Option is exercised over the purchase price for the Shares. Absent such an
election, taxable income will be measured and recognized by Purchaser at the
time or times on which the Company's Repurchase Option lapses. In the case of an
Incentive Stock Option, such an election will result in a recognition of income
to the Purchaser for alternative minimum tax purposes on the date of exercise,
measured by the excess, if any, of the fair market value of the Shares, at the
time the option is exercised, over the purchase price for the Shares. Absent
such an election, alternative minimum taxable income will be measured and
recognized by Purchaser at the time or times on which the Company's Repurchase
Option lapses. Purchaser is strongly encouraged to seek the advice of his or her
own tax consultants in connection with the purchase of the Shares and the
advisability of filing
-3-
<PAGE>
of the Election under Section 83(b) of the Code. A form of Election under
Section 83(b) is attached hereto as Exhibit C-5 for reference.
-----------
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND NOT
THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASER'S
BEHALF.
9. Representations. Purchaser has reviewed with his own tax advisors the
---------------
federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. Purchaser is relying solely on such
advisors and not on any statements or representations of the Company or any of
its agents. Purchaser understands that he (and not the Company) shall be
responsible for his own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
10. Governing Law. This Agreement shall be governed by the internal
-------------
substantive laws, but not the choice of law rules, of California.
Purchaser represents that he has read this Agreement and is familiar with
its terms and provisions. Purchaser hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set
forth above.
"COMPANY"
NUMERICAL TECHNOLOGIES, INC
------------------------------------
By
------------------------------------
Title
"PURCHASER"
-----------------------------------
Signature
-----------------------------------
Printed Name
-----------------------------------
Soc. Sec. No.
Address:
-------
-----------------------------------
-----------------------------------
-5-
<PAGE>
EXHIBIT C-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto Numerical Technologies, Inc. (__________) shares of the Common
Stock of Numerical Technologies, Inc. standing in my name of the books of said
corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint to transfer the said stock on the books of
the within named corporation with full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement between Numerical Technologies, Inc. and the
undersigned dated ______________, _____.
Dated: _______________, ______
Signature:
-------------------------------
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
"repurchase option," as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT C-3
-----------
JOINT ESCROW INSTRUCTIONS
------------, -----
Numerical Technologies, Inc.
80 West Plumeria Drive
San Jose, CA 95134-2134
Attention: Secretary
Dear:
As Escrow Agent for both Numerical Technologies, Inc. (the "Company"), and
the undersigned purchaser of stock of the Company (the "Purchaser"), you are
hereby authorized and directed to hold the documents delivered to you pursuant
to the terms of that certain Restricted Stock Purchase Agreement ("Agreement")
between the Company and the undersigned, in accordance with the following
instructions:
1. In the event the Company and/or any assignee of the Company (referred to
collectively for convenience herein as the "Company") exercises the Company's
repurchase option set forth in the Agreement, the Company shall give to
Purchaser and you a written notice specifying the number of shares of stock to
be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company. Purchaser and the Company hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a stockholder of the Company while the
stock is held by you.
<PAGE>
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's repurchase option.
Within 120 days after cessation of Purchaser's continuous employment by or
services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's repurchase
option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked only
by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts as
you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
-2-
<PAGE>
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Numerical Technologies, Inc.
80 West Plumeria Drive
San Jose, CA 95134-2134
Attention: Secretary
PURCHASER:
ESCROW AGENT: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
-3-
<PAGE>
18. These Joint Escrow Instructions shall be governed by the internal
substantive laws, but not the choice of law rules, of California.
NUMERICAL TECHNOLOGIES, INC.
------------------------------------
By
------------------------------------
Title
PURCHASER
-----------------------------------
Signature
-----------------------------------
Typed or Printed Name
ESCROW AGENT
WILSON SONSINI GOODRICH & ROSATI
-----------------------------------
By
-----------------------------------
Title
-4-
<PAGE>
EXHIBIT C-4
-----------
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and
approve the foregoing Agreement. In consideration of granting of the right to my
spouse to purchase shares of ____________________________, as set forth in the
Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the
exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in said Agreement
or any shares issued pursuant thereto under the community property laws or
similar laws relating to marital property in effect in the state of our
residence as of the date of the signing of the foregoing Agreement.
Dated: _______________, _____
<PAGE>
EXHIBIT C-5
-----------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Sections 55 and 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
or alternative minimum taxable income, as the case may be, for the current
taxable year the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: shares (the ------------------------------ "Shares") of the Common
Stock of ___________________________ (the "Company").
3. The date on which the property was transferred is: _____________, _____.
4. The property is subject to the following restrictions:
The Shares may not be transferred and are subject to forfeiture under the
terms of an agreement between the taxpayer and the Company. These restrictions
lapse upon the satisfaction of certain conditions contained in such agreement.
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, of
such property is: $_____________________.
6. The amount (if any) paid for such property is: $_________________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: ___________________, _____ -------------------------------
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, _____ -------------------------------
<PAGE>
EXHIBIT 10.19
NUMERICAL TECHNOLOGIES, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT -- EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
John Traub
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Date of Grant: December 27, 1999
Vesting Commencement Date: December 27, 1999
Exercise Price per Share: $1.50
Total Number of Shares Granted: 55,000
Total Exercise Price: $82,500.00
Type of Option: X Incentive Stock Option
-----
____ Nonstatutory Stock Option
Term/Expiration Date: Ten Years/December 27, 2009
- ---------------
* Or earlier, pursuant to the termination period set forth below.
Exercise and Vesting Schedule:
-----------------------------
This Option is exercisable immediately, in whole or in part, and shall vest
according to the following vesting schedule:
One-fourth (1/4th) of the Shares subject to the Option shall vest twelve
months after the Vesting Commencement Date, and one-sixteenth (1/16th) of the
Shares subject to the Option shall vest on the last day of each three month
anniversary thereafter, subject to your continuing to be a Service Provider on
such dates.
<PAGE>
Termination Period:
------------------
You may exercise this Option for thirty days after you cease to be a
Service Provider. Upon your death or disability, this Option may be exercised
for one year after you cease to be a Service Provider. In no event may you
exercise this Option after the Term/Expiration Date as provided above.
II. AGREEMENT
---------
1. Grant of Option. The Plan Administrator of the Company hereby grants to
---------------
the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 14(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option as defined in
Section 422 of the Code. Nevertheless, to the extent that it exceeds the
$100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option. This Option shall be exercisable during its term in
------------------
accordance with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) Subject to subsections 2(a)(ii) and 2(a)(iii) below, this
Option shall be exercisable cumulatively according to the vesting schedule set
forth in the Notice of Grant. Alternatively, at the election of the Optionee,
this option may be exercised in whole or in part at any time as to Shares which
have not yet vested. For purposes of this Stock Option Agreement, Shares subject
to the Option shall vest based on continued employment of Optionee with the
Company. Vested Shares shall not be subject to the Company's repurchase right
(as set forth in the Restricted Stock Purchase Agreement, attached hereto as
Exhibit C-1).
- -----------
(ii) As a condition to exercising this Option for unvested Shares,
the Optionee shall execute the Restricted Stock Purchase Agreement.
(iii) This Option may not be exercised for a fraction of a Share.
(b) Method of Exercise. This Option shall be exercisable by delivery of
------------------
an exercise notice in the form attached as Exhibit A (the "Exercise Notice")
---------
which shall state the election to exercise the Option, the number of Shares with
respect to which the Option is being exercised, and such other representations
and agreements as may be required by the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by the aggregate Exercise
Price.
-2-
<PAGE>
No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
3. Optionee's Representations. In the event the Shares have not been
--------------------------
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as Exhibit
B.
4. Lock-Up Period. Optionee hereby agrees that, if so requested by the
--------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall be by
-----------------
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or
(d) surrender of other Shares which, (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised Shares.
6. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. Non-Transferability of Option. This Option may not be transferred in any
-----------------------------
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by Optionee. The terms of the
Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
-3-
<PAGE>
8. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
9. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A
TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there will be
---------------
no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(b) Exercise of ISO Following Disability. If the Optionee ceases to be
------------------------------------
an Employee as a result of a disability that is not a total and permanent
disability as defined in Section 22(e)(3) of the Code, to the extent permitted
on the date of termination, the Optionee must exercise an ISO within three
months of such termination for the ISO to be qualified as an ISO.
(c) Exercise of Nonstatutory Stock Option. There may be a regular
-------------------------------------
federal income tax liability upon the exercise of a Nonstatutory Stock Option.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
Employee or a former Employee, the Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(d) Disposition of Shares. In the case of an NSO, if Shares are held for
---------------------
at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and at least two years after the Date of Grant, any gain
realized on disposition of the Shares will also be treated as long-term capital
gain for federal income tax purposes. If Shares purchased under an ISO are
disposed of within one year after exercise or two years after the Date of Grant,
any gain realized on such disposition will be treated as compensation income
(taxable at ordinary income rates) to the extent of the difference between the
Exercise Price and the lesser of (i) the Fair Market Value of the Shares on the
date of exercise, or (ii) the sale price of the Shares. Any additional gain will
be taxed as capital gain, short-term depending on the period that the ISO Shares
were held.
(e) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (i) the date two years after the Date of Grant, or (ii) the
-4-
<PAGE>
date one year after the date of exercise, the Optionee shall immediately notify
the Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
(f) Section 83(b) Election for Unvested Shares Purchased Pursuant to
----------------------------------------------------------------
Options. With respect to the exercise of an Option for unvested Shares, an
- -------
election may be filed by the Optionee with the Internal Revenue Service, within
------
30 days of the purchase of the Shares, electing pursuant to Section 83(b) of the
- -------
Code to be taxed currently on any difference between the purchase price of the
Shares and their Fair Market Value on the date of purchase. In the case of a
Nonstatutory Stock Option, this will result in a recognition of taxable income
to the Optionee on the date of exercise, measured by the excess, if any, of the
fair market value of the Shares, at the time the Option is exercised over the
purchase price for the Shares. Absent such an election, taxable income will be
measured and recognized by Optionee at the time or times on which the Company's
Repurchase Option lapses. In the case of an Incentive Stock Option, such an
election will result in a recognition of income to the Optionee for alternative
minimum tax purposes on the date of exercise, measured by the excess, if any, of
the fair market value of the Shares, at the time the option is exercised, over
the purchase price for the Shares. Absent such an election, alternative minimum
taxable income will be measured and recognized by Optionee at the time or times
on which the Company's Repurchase Option lapses. Optionee is strongly encouraged
to seek the advice of his or her own tax consultants in connection with the
purchase of the Shares and the advisability of filing of the Election under
Section 83(b) of the Code. A form of Election under Section 83(b) is attached
hereto as Exhibit C-5 for reference.
-----------
OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY AND NOT THE
COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF OPTIONEE
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON OPTIONEE'S
BEHALF.
10. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of California.
11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE
-5-
<PAGE>
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT
ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
OPTIONEE: NUMERICAL TECHNOLOGIES, INC.
- -------------------------------- ----------------------------------
Signature By
- -------------------------------- ----------------------------------
Print Name Title
- --------------------------------
- --------------------------------
Residence Address
-6-
<PAGE>
EXHIBIT A
1997 STOCK PLAN
EXERCISE NOTICE
Numerical Technologies, Inc.
80 West Plumeria Drive
San Jose, CA 95134-2134
Attention: Secretary
1. Exercise of Option. Effective as of today, _____________, _____, the
------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Numerical Technologies,
Inc. (the "Company") under and pursuant to the 1997 Stock Plan (the "Plan") and
the [ ] Incentive [ ] Nonstatutory Stock Option Agreement dated ____________,
___ (the "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the full
-------------------
purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as evidenced by
---------------------
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by Optionee or
--------------------------------
any transferee (either being sometimes referred to herein as the "Holder") may
be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall deliver
---------------------------
to the Company a written notice (the "Notice") stating: (i) the Holder's bona
fide intention to sell or otherwise transfer such Shares; (ii) the name of each
proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number
of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide
cash price or other consideration for which the Holder proposes to transfer the
Shares (the "Offered Price"), and the Holder shall offer the Shares at the
Offered Price to the Company or its assignee(s).
<PAGE>
(b) Exercise of Right of First Refusal. At any time within thirty (30)
----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder,elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the option
-------
of the Company or its assignee(s), in cash (by check), by cancellation of all or
a portion of any outstanding indebtedness of the Holder to the Company (or, in
the case of repurchase by an assignee, to the assignee), or by any combination
thereof within 30 days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee. If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares upon 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 Securities and Exchange Commission under the
Securities Act of 1933, as amended.
6. Tax Consultation. Optionee understands that Optionee may suffer adverse
----------------
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax consultants
Optionee deems advisable in connection with
-2-
<PAGE>
the purchase or disposition of the Shares and that Optionee is not relying on
the Company for any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN
THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF
THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
8. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
9. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such
-3-
<PAGE>
dispute at its next regular meeting. The resolution of such a dispute by the
Administrator shall be final and binding on all parties.
10. Governing Law; Severability. This Agreement is governed by the internal
---------------------------
substantive laws, but not the choice of law rules, of California.
11. Entire Agreement. The Plan and Option Agreement are incorporated herein
----------------
by reference. This Agreement, the Plan, the Restricted Stock Purchase Agreement,
the Option Agreement and the Investment Representation Statement constitute the
entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee.
Submitted by: Accepted by:
OPTIONEE: NUMERICAL TECHNOLOGIES, INC.
- --------------------------------- -------------------------------
Signature By
- --------------------------------- -------------------------------
Print Name Its
Address: Address:
- ------- -------
- --------------------------------- 80 West Plumeria Drive
San Jose, CA 95134-2134
- ---------------------------------
------------------------------
Date Received
-4-
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : NUMERICAL TECHNOLOGIES, INC.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, and any other legend
required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of the grant of the Option to the Optionee, the exercise will be
exempt from registration
<PAGE>
under the Securities Act. In the event the Company becomes subject to the
reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the Securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including: (1) the resale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934); and, in the case of
an affiliate, (2) the availability of certain public information about the
Company, (3) the amount of Securities being sold during any three month period
not exceeding the limitations specified in Rule 144(e), and (4) the timely
filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
-------------------------------------
Date: ,
--------------------------------
-2-
<PAGE>
EXHIBIT C-1
-----------
NUMERICAL TECHNOLOGIES, INC.
1997 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between ____________________________________ (the
"Purchaser") and Numerical Technologies, Inc. (the "Company") as of
__________________, _____.
RECITALS
--------
(1) Pursuant to the exercise of the stock option granted to Purchaser under
the Company's 1997 Stock Plan (the "Plan") and pursuant to the Stock Option
Agreement (the "Option Agreement") dated ____________, _____ by and between the
Company and Purchaser with respect to such grant, which Plan and Option
Agreement are hereby incorporated by reference, Purchaser has elected to
purchase _________ of those shares which have not become vested under the
vesting schedule set forth in the Option Agreement ("Unvested Shares"). The
Unvested Shares and the shares subject to the Option Agreement which have become
vested are sometimes collectively referred to herein as the "Shares".
(2) As required by the Option Agreement, as a condition to Purchaser's
election to exercise the option, Purchaser must execute this Restricted Stock
Purchase Agreement, which sets forth the rights and obligations of the parties
with respect to Shares acquired upon exercise of the Option.
1. Repurchase Option.
-----------------
(a) If Purchaser's status as a Service Provider is terminated for any
reason, including for cause, death, and disability, the Company shall have the
right and option to purchase from Purchaser, or Purchaser's personal
representative, as the case may be, all of the Purchaser's Unvested Shares as of
the date of such termination at the price paid by the Purchaser for such Shares
(the "Repurchase Option").
(b) Upon the occurrence of a termination, the Company may exercise its
Repurchase Option by delivering personally or by registered mail, to Purchaser
(or his transferee or legal representative, as the case may be), within ninety
(90) days of the termination, a notice in writing indicating the Company's
intention to exercise the Repurchase Option and setting forth a date for closing
not later than thirty (30) days from the mailing of such notice. The closing
shall take place at the Company's office. At the closing, the holder of the
certificates for the Unvested Shares being transferred shall deliver the stock
certificate or certificates evidencing the Unvested Shares, and the Company
shall deliver the purchase price therefor.
<PAGE>
(c) At its option, the Company may elect to make payment for the
Unvested Shares to a bank selected by the Company. The Company shall avail
itself of this option by a notice in writing to Purchaser stating the name and
address of the bank, date of closing, and waiving the closing at the Company's
office.
(d) If the Company does not elect to exercise the Repurchase Option
conferred above by giving the requisite notice within ninety (90) days following
the termination, the Repurchase Option shall terminate.
(e) The Repurchase Option shall terminate in accordance with the
Vesting Schedule in Optionee's Option Agreement.
2. Transferability of the Shares; Escrow.
-------------------------------------
(a) Purchaser hereby authorizes and directs the secretary of the
Company, or such other person designated by the Company, to transfer the
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) To insure the availability for delivery of Purchaser's Unvested
Shares upon repurchase by the Company pursuant to the Repurchase Option under
Section 1, Purchaser hereby appoints the secretary, or any other person
designated by the Company as escrow agent, as its attorney-in-fact to sell,
assign and transfer unto the Company, such Unvested Shares, if any, repurchased
by the Company pursuant to the Repurchase Option and shall, upon execution of
this Agreement, deliver and deposit with the secretary of the Company, or such
other person designated by the Company, the share certificates representing the
Unvested Shares, together with the stock assignment duly endorsed in blank,
attached hereto as Exhibit C-2. The Unvested Shares and stock assignment shall
-----------
be held by the secretary in escrow, pursuant to the Joint Escrow Instructions of
the Company and Purchaser attached as Exhibit C-3 hereto, until the Company
-----------
exercises its purchase right as provided in Section 1, until such Unvested
Shares are vested, or until such time as this Agreement no longer is in effect.
As a further condition to the Company's obligations under this Agreement, the
spouse of the Purchaser, if any, shall execute and deliver to the Company the
Consent of Spouse attached hereto as Exhibit C-4. Upon vesting of the Unvested
-----------
Shares, the escrow agent shall promptly deliver to the Purchaser the certificate
or certificates representing such Shares in the escrow agent's possession
belonging to the Purchaser, and the escrow agent shall be discharged of all
further obligations hereunder; provided, however, that the escrow agent shall
nevertheless retain such certificate or certificates as escrow agent if so
required pursuant to other restrictions imposed pursuant to this Agreement.
(c) The Company, or its designee, shall not be liable for any act it
may do or omit to do with respect to holding the Shares in escrow and while
acting in good faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and the
Exercise Notice executed by the Purchaser with respect to any
-2-
<PAGE>
Unvested Shares purchased by Purchaser and shall acknowledge the same by signing
a copy of this Agreement.
3. Ownership, Voting Rights, Duties. This Agreement shall not affect in any
--------------------------------
way the ownership, voting rights or other rights or duties of Purchaser, except
as specifically provided herein.
4. Legends. The share certificate evidencing the Shares issued hereunder
-------
shall be endorsed with the following legend (in addition to any legend required
under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
5. Adjustment for Stock Split. All references to the number of Shares and
--------------------------
the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
6. Notices. Notices required hereunder shall be given in person or by
-------
registered mail to the address of Purchaser shown on the records of the Company,
and to the Company at their respective principal executive offices.
7. Survival of Terms. This Agreement shall apply to and bind Purchaser and
-----------------
the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
8. Section 83(b) Election. Purchaser hereby acknowledges that he or she has
----------------------
been informed that, with respect to the exercise of an Option for unvested
Shares, an election may be filed by the Purchaser with the Internal Revenue
Service, within 30 days of the purchase of the Shares, electing pursuant to
--------------
Section 83(b) of the Code to be taxed currently on any difference between the
purchase price of the Shares and their Fair Market Value on the date of
purchase. In the case of a Nonstatutory Stock Option, this will result in a
recognition of taxable income to the Purchaser on the date of exercise, measured
by the excess, if any, of the fair market value of the Shares, at the time the
Option is exercised over the purchase price for the Shares. Absent such an
election, taxable income will be measured and recognized by Purchaser at the
time or times on which the Company's Repurchase Option lapses. In the case of an
Incentive Stock Option, such an election will result in a recognition of income
to the Purchaser for alternative minimum tax purposes on the date of exercise,
measured by the excess, if any, of the fair market value of the Shares, at the
time the option is exercised, over the purchase price for the Shares. Absent
such an election, alternative minimum taxable income will be measured and
recognized by Purchaser at the time or times on which the Company's Repurchase
Option lapses. Purchaser is strongly encouraged to seek the advice of his or her
own tax consultants in connection with the purchase of the Shares and the
advisability of filing
-3-
<PAGE>
of the Election under Section 83(b) of the Code. A form of Election under
Section 83(b) is attached hereto as Exhibit C-5 for reference.
-----------
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND NOT
THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASER'S
BEHALF.
9. Representations. Purchaser has reviewed with his own tax advisors the
---------------
federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. Purchaser is relying solely on such
advisors and not on any statements or representations of the Company or any of
its agents. Purchaser understands that he (and not the Company) shall be
responsible for his own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
10. Governing Law. This Agreement shall be governed by the internal
-------------
substantive laws, but not the choice of law rules, of California.
Purchaser represents that he has read this Agreement and is familiar with
its terms and provisions. Purchaser hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set
forth above.
"COMPANY"
NUMERICAL TECHNOLOGIES, INC
------------------------------------
By
------------------------------------
Title
"PURCHASER"
-----------------------------------
Signature
-----------------------------------
Printed Name
-----------------------------------
Soc. Sec. No.
Address:
-------
-----------------------------------
-----------------------------------
-5-
<PAGE>
EXHIBIT C-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto Numerical Technologies, Inc. (__________) shares of the Common
Stock of Numerical Technologies, Inc. standing in my name of the books of said
corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint to transfer the said stock on the books of
the within named corporation with full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement between Numerical Technologies, Inc. and the
undersigned dated ______________, _____.
Dated: _______________, ______
Signature:
-------------------------------
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
"repurchase option," as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT C-3
-----------
JOINT ESCROW INSTRUCTIONS
------------, -----
Numerical Technologies, Inc.
80 West Plumeria Drive
San Jose, CA 95134-2134
Attention: Secretary
Dear:
As Escrow Agent for both Numerical Technologies, Inc. (the "Company"), and
the undersigned purchaser of stock of the Company (the "Purchaser"), you are
hereby authorized and directed to hold the documents delivered to you pursuant
to the terms of that certain Restricted Stock Purchase Agreement ("Agreement")
between the Company and the undersigned, in accordance with the following
instructions:
1. In the event the Company and/or any assignee of the Company (referred to
collectively for convenience herein as the "Company") exercises the Company's
repurchase option set forth in the Agreement, the Company shall give to
Purchaser and you a written notice specifying the number of shares of stock to
be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company. Purchaser and the Company hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a stockholder of the Company while the
stock is held by you.
<PAGE>
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's repurchase option.
Within 120 days after cessation of Purchaser's continuous employment by or
services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's repurchase
option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked only
by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts as
you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
-2-
<PAGE>
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Numerical Technologies, Inc.
80 West Plumeria Drive
San Jose, CA 95134-2134
Attention: Secretary
PURCHASER:
ESCROW AGENT: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
-3-
<PAGE>
18. These Joint Escrow Instructions shall be governed by the internal
substantive laws, but not the choice of law rules, of California.
NUMERICAL TECHNOLOGIES, INC.
------------------------------------
By
------------------------------------
Title
PURCHASER
-----------------------------------
Signature
-----------------------------------
Typed or Printed Name
ESCROW AGENT
WILSON SONSINI GOODRICH & ROSATI
-----------------------------------
By
-----------------------------------
Title
-4-
<PAGE>
EXHIBIT C-4
-----------
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and
approve the foregoing Agreement. In consideration of granting of the right to my
spouse to purchase shares of ____________________________, as set forth in the
Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the
exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in said Agreement
or any shares issued pursuant thereto under the community property laws or
similar laws relating to marital property in effect in the state of our
residence as of the date of the signing of the foregoing Agreement.
Dated: _______________, _____
<PAGE>
EXHIBIT C-5
-----------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Sections 55 and 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
or alternative minimum taxable income, as the case may be, for the current
taxable year the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: shares (the ------------------------------ "Shares") of the Common
Stock of ___________________________ (the "Company").
3. The date on which the property was transferred is: _____________, _____.
4. The property is subject to the following restrictions:
The Shares may not be transferred and are subject to forfeiture under the
terms of an agreement between the taxpayer and the Company. These restrictions
lapse upon the satisfaction of certain conditions contained in such agreement.
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, of
such property is: $_____________________.
6. The amount (if any) paid for such property is: $_________________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: ___________________, _____ -------------------------------
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, _____ -------------------------------
<PAGE>
EXHIBIT 10.20
NUMERICAL TECHNOLOGIES, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT -- EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
Harvey Jones
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Date of Grant: July 15, 1998
Vesting Commencement Date: June 24, 1998
Exercise Price per Share: $0.50
Total Number of Shares Granted: 100,000
Total Exercise Price: $50,000.00
Type of Option: Incentive Stock Option
-----
X Nonstatutory Stock Option
-----
Term/Expiration Date: Ten Years/July 15, 2008*
- ---------------
* Or earlier, pursuant to the termination period set forth below.
Exercise and Vesting Schedule:
-----------------------------
This Option is exercisable immediately, in whole or in part, and shall vest
according to the following vesting schedule:
<PAGE>
One-fourth (1/4th) of the Shares subject to the Option shall vest twelve
months after the Vesting Commencement Date, and one-sixteenth (1/16th) of the
Shares subject to the Option shall vest on the last day of each three month
anniversary thereafter, subject to your continuing to be a Service Provider on
such dates. Notwithstanding the foregoing, if the Company merges with or into
another entity, sells all or substantially all of its assets, or enters into any
other similar transaction or reorganization as a result of which the
shareholders of the Company immediately prior to such transaction will not hold
at least 50% of the voting power of the surviving, purchasing or continuing
entity, as applicable (taking into account any securities issued to the
shareholders of the Company in the transaction) (a "Change of Control
Transaction"), then the Option shall become fully vested and exercisable
simultaneously with the closing of the Change of Control Transaction (or, in the
case of a merger, as of any earlier date that is necessary to permit the
Optionee, if he exercises the Option in whole or in part, to receive the same
per Share merger consideration (to the extent of Optioned Shares acquired upon
exercise) that will be paid to the other holders of Shares). The Board shall
notify the Optionee at least fifteen (15) days prior to the closing of a Change
of Control Transaction (or at such earlier time as the Board, in its reasonable
judgment, deems necessary to give effect to the intent of this provision), and
such notification shall include a statement as to whether or not the Option will
be assumed by the surviving or purchasing entity or whether an equivalent, fully
vested, substitute option will be provided by such entity.
Termination Period:
------------------
You may exercise this Option for thirty days after you cease to be a
Service Provider. Upon your death or disability, this Option may be exercised
for one year after you cease to be a Service Provider. In no event may you
exercise this Option after the Term/Expiration Date as provided above.
II. AGREEMENT
---------
1. Grant of Option. The Plan Administrator of the Company hereby grants to
---------------
the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 14(c) of the Plan and
except as set forth above under "Exercise and Vesting Schedule", in the event of
a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option as defined in
Section 422 of the Code. Nevertheless, to the extent that it exceeds the
$100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option. This Option shall be exercisable during its term in
------------------
accordance with the provisions of Section 9 of the Plan as follows:
-2-
<PAGE>
(a) Right to Exercise.
-----------------
(i) Subject to subsections 2(a)(ii) and 2(a)(iii) below, this
Option shall be exercisable cumulatively according to the vesting schedule set
forth in the Notice of Grant. Alternatively, at the election of the Optionee,
this option may be exercised in whole or in part at any time as to Shares which
have not yet vested. For purposes of this Stock Option Agreement, Shares subject
to the Option shall vest based on continued employment of Optionee with the
Company. Vested Shares shall not be subject to the Company's repurchase right
(as set forth in the Restricted Stock Purchase Agreement, attached hereto as
Exhibit C-1).
- -----------
(ii) As a condition to exercising this Option for unvested Shares,
the Optionee shall execute the Restricted Stock Purchase Agreement.
(iii) This Option may not be exercised for a fraction of a Share.
(b) Method of Exercise. This Option shall be exercisable by delivery of
------------------
an exercise notice in the form attached as Exhibit A (the "Exercise Notice")
---------
which shall state the election to exercise the Option, the number of Shares with
respect to which the Option is being exercised, and such other representations
and agreements as may be required by the Company. The Exercise Notice
shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by the aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
3. Optionee's Representations. In the event the Shares have not been
--------------------------
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as Exhibit
-------
B.
- -
4. Lock-Up Period. Optionee hereby agrees that, if so requested by the
--------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under
-3-
<PAGE>
the Securities Act. The Company may impose stop-transfer instructions with
respect to securities subject to the foregoing restrictions until the end of
such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall be by
-----------------
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or
(d) surrender of other Shares which, (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised Shares.
6. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. Non-Transferability of Option. This Option may not be transferred in any
-----------------------------
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by Optionee. The terms of the
Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
9. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A
TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there will be
---------------
no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
-4-
<PAGE>
(b) Exercise of ISO Following Disability. If the Optionee ceases to be
------------------------------------
an Employee as a result of a disability that is not a total and permanent
disability as defined in Section 22(e)(3) of the Code, to the extent permitted
on the date of termination, the Optionee must exercise an ISO within three
months of such termination for the ISO to be qualified as an ISO.
(c) Exercise of Nonstatutory Stock Option. There may be a regular
-------------------------------------
federal income tax liability upon the exercise of a Nonstatutory Stock Option.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
Employee or a former Employee, the Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(d) Disposition of Shares. In the case of an NSO, if Shares are held for
---------------------
at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and at least two years after the Date of Grant, any gain
realized on disposition of the Shares will also be treated as long-term capital
gain for federal income tax purposes. If Shares purchased under an ISO are
disposed of within one year after exercise or two years after the Date of Grant,
any gain realized on such disposition will be treated as compensation income
(taxable at ordinary income rates) to the extent of the difference between the
Exercise Price and the lesser of (i) the Fair Market Value of the Shares on the
date of exercise, or (ii) the sale price of the Shares. Any additional gain will
be taxed as capital gain, short-term depending on the period that the ISO Shares
were held.
(e) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (i) the date two years after the Date of Grant, or (ii) the
date one year after the date of exercise, the Optionee shall immediately notify
the Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
(f) Section 83(b) Election for Unvested Shares Purchased Pursuant to
----------------------------------------------------------------
Options. With respect to the exercise of an Option for unvested Shares, an
- -------
election may be filed by the Optionee with the Internal Revenue Service, within
------
30 days of the purchase of the Shares, electing pursuant to Section 83(b) of the
- -------
Code to be taxed currently on any difference between the purchase price of the
Shares and their Fair Market Value on the date of purchase. In the case of a
Nonstatutory Stock Option, this will result in a recognition of taxable income
to the Optionee on the date of exercise, measured by the excess, if any, of the
fair market value of the Shares, at the time the Option is exercised over the
purchase price for the Shares. Absent such an election, taxable income will be
measured and recognized by Optionee at the time or times on which the Company's
Repurchase Option lapses. In the case of an Incentive Stock Option, such an
election will result in a
-5-
<PAGE>
recognition of income to the Optionee for alternative minimum tax purposes on
the date of exercise, measured by the excess, if any, of the fair market value
of the Shares, at the time the option is exercised, over the purchase price for
the Shares. Absent such an election, alternative minimum taxable income will be
measured and recognized by Optionee at the time or times on which the Company's
Repurchase Option lapses. Optionee is strongly encouraged to seek the advice of
his or her own tax consultants in connection with the purchase of the Shares and
the advisability of filing of the Election under Section 83(b) of the Code. A
form of Election under Section 83(b) is attached hereto as Exhibit C-5 for
-----------
reference.
OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY AND NOT THE
COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF OPTIONEE
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON OPTIONEE'S
BEHALF.
10. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of California.
11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
-6-
<PAGE>
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
OPTIONEE: NUMERICAL TECHNOLOGIES, INC.
- -------------------------------- ----------------------------------
Signature By
- -------------------------------- ----------------------------------
Print Name Title
- --------------------------------
- --------------------------------
Residence Address
-7-
<PAGE>
EXHIBIT A
---------
1997 STOCK PLAN
EXERCISE NOTICE
Numerical Technologies, Inc.
2630 Walsh Avenue
Santa Clara, CA 95051
Attention: Secretary
1. Exercise of Option. Effective as of today, __________, ____, the
------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_______ shares of the Common Stock (the "Shares") of Numerical Technologies,
Inc. (the "Company") under and pursuant to the 1997 Stock Plan (the "Plan") and
the [ ] Incentive [ ] Nonstatutory Stock Option Agreement dated __________,
19__ (the "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the full
-------------------
purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as evidenced by
---------------------
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by Optionee or
--------------------------------
any transferee (either being sometimes referred to herein as the "Holder") may
be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall deliver
---------------------------
to the Company a written notice (the "Notice") stating: (i) the Holder's bona
fide intention to sell or otherwise transfer such Shares; (ii) the name of each
proposed purchaser or other transferee
<PAGE>
("Proposed Transferee"); (iii) the number of Shares to be transferred to each
Proposed Transferee; and (iv) the bona fide cash price or other consideration
for which the Holder proposes to transfer the Shares (the "Offered Price"), and
the Holder shall offer the Shares at the Offered Price to the Company or its
assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty (30)
----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the option
-------
of the Company or its assignee(s), in cash (by check), by cancellation of all or
a portion of any outstanding indebtedness of the Holder to the Company (or, in
the case of repurchase by an assignee, to the assignee), or by any combination
thereof within 30 days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee. If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
-2-
<PAGE>
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares upon 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 Securities and Exchange Commission under the
Securities Act of 1933, as amended.
6. Tax Consultation. Optionee understands that Optionee may suffer adverse
----------------
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax consultants
Optionee deems advisable in connection with the purchase or disposition of the
Shares and that Optionee is not relying on the Company for any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN
THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF
THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
-3-
<PAGE>
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
8. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
9. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Administrator shall be final and binding on
all parties.
10. Governing Law; Severability. This Agreement is governed by the internal
---------------------------
substantive laws, but not the choice of law rules, of California.
11. Entire Agreement. The Plan and Option Agreement are incorporated herein
----------------
by reference. This Agreement, the Plan, the Restricted Stock Purchase Agreement,
the Option Agreement and the Investment Representation Statement constitute the
entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee.
Submitted by: Accepted by:
OPTIONEE: NUMERICAL TECHNOLOGIES, INC.
- --------------------------------- -------------------------------
Signature By
- --------------------------------- -------------------------------
Print Name Its
Address: Address:
- ------- -------
2630 Walsh Avenue
- --------------------------------- Santa Clara, CA 95051
- ---------------------------------
------------------------------
Date Received
-4-
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : NUMERICAL TECHNOLOGIES, INC.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, and any other legend
required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to
<PAGE>
the satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the Optionee,
the exercise will be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or
such longer period as any market stand-off agreement may require) the Securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including: (1) the resale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, (3) the amount of Securities being
sold during any three month period not exceeding the limitations specified in
Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
-----------------------------------
Date: _______________________, 19__
-2-
<PAGE>
EXHIBIT C-1
-----------
NUMERICAL TECHNOLOGIES, INC.
1997 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between __________________ (the "Purchaser") and
Numerical Technologies, Inc. (the "Company") as of __________, 199_.
RECITALS
--------
(1) Pursuant to the exercise of the stock option granted to Purchaser under
the Company's 1997 Stock Plan (the "Plan") and pursuant to the Stock Option
Agreement (the "Option Agreement") dated __________, 199_ by and between the
Company and Purchaser with respect to such grant, which Plan and Option
Agreement are hereby incorporated by reference, Purchaser has elected to
purchase of those shares which have not become vested under the
-------
vesting schedule set forth in the Option Agreement ("Unvested Shares"). The
Unvested Shares and the shares subject to the Option Agreement which have become
vested are sometimes collectively referred to herein as the "Shares".
(2) As required by the Option Agreement, as a condition to Purchaser's
election to exercise the option, Purchaser must execute this Restricted Stock
Purchase Agreement, which sets forth the rights and obligations of the parties
with respect to Shares acquired upon exercise of the Option.
1. Repurchase Option.
-----------------
(a) If Purchaser's status as a Service Provider is terminated for any
reason, including for cause, death, and disability, the Company shall have the
right and option to purchase from Purchaser, or Purchaser's personal
representative, as the case may be, all of the Purchaser's Unvested Shares as of
the date of such termination at the price paid by the Purchaser for such Shares
(the "Repurchase Option").
(b) Upon the occurrence of a termination, the Company may exercise its
Repurchase Option by delivering personally or by registered mail, to Purchaser
(or his transferee or legal representative, as the case may be), within ninety
(90) days of the termination, a notice in writing indicating the Company's
intention to exercise the Repurchase Option and setting forth a date for closing
not later than thirty (30) days from the mailing of such notice. The closing
shall take place at the Company's office. At the closing, the holder of the
certificates for the Unvested Shares being transferred shall deliver the stock
certificate or certificates evidencing the Unvested Shares, and the Company
shall deliver the purchase price therefor.
<PAGE>
(c) At its option, the Company may elect to make payment for the
Unvested Shares to a bank selected by the Company. The Company shall avail
itself of this option by a notice in writing to Purchaser stating the name and
address of the bank, date of closing, and waiving the closing at the Company's
office.
(d) If the Company does not elect to exercise the Repurchase Option
conferred above by giving the requisite notice within ninety (90) days following
the termination, the Repurchase Option shall terminate.
(e) The Repurchase Option shall terminate in accordance with the
Vesting Schedule in Optionee's Option Agreement.
2. Transferability of the Shares; Escrow.
-------------------------------------
(a) Purchaser hereby authorizes and directs the secretary of the
Company, or such other person designated by the Company, to transfer the
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) To insure the availability for delivery of Purchaser's Unvested
Shares upon repurchase by the Company pursuant to the Repurchase Option under
Section 1, Purchaser hereby appoints the secretary, or any other person
designated by the Company as escrow agent, as its attorney-in-fact to sell,
assign and transfer unto the Company, such Unvested Shares, if any, repurchased
by the Company pursuant to the Repurchase Option and shall, upon execution of
this Agreement, deliver and deposit with the secretary of the Company, or such
other person designated by the Company, the share certificates representing the
Unvested Shares, together with the stock assignment duly endorsed in blank,
attached hereto as Exhibit C-2. The Unvested Shares and stock assignment shall
-----------
be held by the secretary in escrow, pursuant to the Joint Escrow Instructions of
the Company and Purchaser attached as Exhibit C-3 hereto, until the Company
-----------
exercises its purchase right as provided in Section 1, until such Unvested
Shares are vested, or until such time as this Agreement no longer is in effect.
As a further condition to the Company's obligations under this Agreement, the
spouse of the Purchaser, if any, shall execute and deliver to the Company the
Consent of Spouse attached hereto as Exhibit C-4. Upon vesting of the Unvested
-----------
Shares, the escrow agent shall promptly deliver to the Purchaser the certificate
or certificates representing such Shares in the escrow agent's possession
belonging to the Purchaser, and the escrow agent shall be discharged of all
further obligations hereunder; provided, however, that the escrow agent shall
nevertheless retain such certificate or certificates as escrow agent if so
required pursuant to other restrictions imposed pursuant to this Agreement.
(c) The Company, or its designee, shall not be liable for any act it
may do or omit to do with respect to holding the Shares in escrow and while
acting in good faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and the
Exercise Notice executed by the Purchaser with respect to any
-2-
<PAGE>
Unvested Shares purchased by Purchaser and shall acknowledge the same by signing
a copy of this Agreement.
3. Ownership, Voting Rights, Duties. This Agreement shall not affect in any
--------------------------------
way the ownership, voting rights or other rights or duties of Purchaser, except
as specifically provided herein.
4. Legends. The share certificate evidencing the Shares issued hereunder
-------
shall be endorsed with the following legend (in addition to any legend required
under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
5. Adjustment for Stock Split. All references to the number of Shares and
--------------------------
the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
6. Notices. Notices required hereunder shall be given in person or by
-------
registered mail to the address of Purchaser shown on the records of the Company,
and to the Company at their respective principal executive offices.
7. Survival of Terms. This Agreement shall apply to and bind Purchaser and
-----------------
the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
8. Section 83(b) Election. Purchaser hereby acknowledges that he or she has
----------------------
been informed that, with respect to the exercise of an Option for unvested
Shares, an election may be filed by the Purchaser with the Internal Revenue
Service, within 30 days of the purchase of the Shares, electing pursuant to
--------------
Section 83(b) of the Code to be taxed currently on any difference between the
purchase price of the Shares and their Fair Market Value on the date of
purchase. In the case of a Nonstatutory Stock Option, this will result in a
recognition of taxable income to the Purchaser on the date of exercise, measured
by the excess, if any, of the fair market value of the Shares, at the time the
Option is exercised over the purchase price for the Shares. Absent such an
election, taxable income will be measured and recognized by Purchaser at the
time or times on which the Company's Repurchase Option lapses. In the case of an
Incentive Stock Option, such an election will result in a recognition of income
to the Purchaser for alternative minimum tax purposes on the date of exercise,
measured by the excess, if any, of the fair market value of the Shares, at the
time the option is exercised, over the purchase price for the Shares. Absent
such an election, alternative minimum taxable income will be measured and
recognized by Purchaser at the time or times on which the Company's Repurchase
Option lapses. Purchaser is strongly encouraged to seek the advice of his or her
own tax consultants in connection with the purchase of the Shares and the
advisability of filing of the Election under Section 83(b) of the Code. A form
of Election under Section 83(b) is attached hereto as Exhibit C-5 for reference.
-----------
-3-
<PAGE>
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND NOT
THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASER'S
BEHALF.
9. Representations. Purchaser has reviewed with his own tax advisors the
---------------
federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. Purchaser is relying solely on such
advisors and not on any statements or representations of the Company or any of
its agents. Purchaser understands that he (and not the Company) shall be
responsible for his own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
10. Governing Law. This Agreement shall be governed by the internal
-------------
substantive laws, but not the choice of law rules, of California.
Purchaser represents that he has read this Agreement and is familiar with
its terms and provisions. Purchaser hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set
forth above.
"COMPANY"
NUMERICAL TECHNOLOGIES, INC
------------------------------------
By
------------------------------------
Title
"PURCHASER"
-----------------------------------
Signature
-----------------------------------
Printed Name
-----------------------------------
Soc. Sec. No.
Address:
-------
-----------------------------------
-----------------------------------
-5-
<PAGE>
EXHIBIT C-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto Numerical Technologies, Inc. (__________) shares of the Common
Stock of Numerical Technologies, Inc. standing in my name of the books of said
corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint ________________________ to transfer the said
stock on the books of the within named corporation with full power of
substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement between Numerical Technologies, Inc. and the
undersigned dated ______________, 19__.
Dated: _______________, 19__
Signature:
--------------------------------
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
"repurchase option," as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT C-3
-----------
JOINT ESCROW INSTRUCTIONS
_____, 19__
Numerical Technologies, Inc.
2630 Walsh Avenue
Santa Clara, CA 95051
Attention: Secretary
Dear :
As Escrow Agent for both Numerical Technologies, Inc. (the "Company"), and
the undersigned purchaser of stock of the Company (the "Purchaser"), you are
hereby authorized and directed to hold the documents delivered to you pursuant
to the terms of that certain Restricted Stock Purchase Agreement ("Agreement")
between the Company and the undersigned, in accordance with the following
instructions:
1. In the event the Company and/or any assignee of the Company (referred to
collectively for convenience herein as the "Company") exercises the Company's
repurchase option set forth in the Agreement, the Company shall give to
Purchaser and you a written notice specifying the number of shares of stock to
be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company. Purchaser and the Company hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a stockholder of the Company while the
stock is held by you.
<PAGE>
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's repurchase option.
Within 120 days after cessation of Purchaser's continuous employment by or
services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's repurchase
option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked only
by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts as
you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
-2-
<PAGE>
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Numerical Technologies, Inc.
2630 Walsh Avenue
Santa Clara, CA 95051
Attention: Secretary
PURCHASER:
ESCROW AGENT: Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
-3-
<PAGE>
18. These Joint Escrow Instructions shall be governed by the internal
substantive laws, but not the choice of law rules, of California.
NUMERICAL TECHNOLOGIES, INC.
------------------------------------
By
------------------------------------
Title
PURCHASER
-----------------------------------
Signature
-----------------------------------
Typed or Printed Name
ESCROW AGENT
WILSON SONSINI GOODRICH & ROSATI
-----------------------------------
By
-----------------------------------
Title
-4-
<PAGE>
EXHIBIT C-4
-----------
CONSENT OF SPOUSE
-----------------
I, , spouse of , have read
-------------------- ---------------------
and approve the foregoing Agreement. In consideration of granting of the right
to my spouse to purchase shares of , as set forth
---------------------------
in the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect
to the exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in said Agreement
or any shares issued pursuant thereto under the community property laws or
similar laws relating to marital property in effect in the state of our
residence as of the date of the signing of the foregoing Agreement.
Dated: , 19
------------- --
<PAGE>
EXHIBIT C-5
-----------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Sections 55 and 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
or alternative minimum taxable income, as the case may be, for the current
taxable year the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: shares (the "Shares") of the Common Stock of
--------------
(the "Company").
- ---------------------------
3. The date on which the property was transferred is: 19 .
-------- --
4. The property is subject to the following restrictions:
The Shares may not be transferred and are subject to forfeiture under the
terms of an agreement between the taxpayer and the Company. These restrictions
lapse upon the satisfaction of certain conditions contained in such agreement.
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, of
such property is: $ .
--------------
6. The amount (if any) paid for such property is: $ .
--------------
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: , 19
---------- -- ------------------------------------
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: , 19
---------- -- ------------------------------------
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
Transcription Enterprises, Inc., a Delaware Corporation
<PAGE>
Exhibit 23.2
Consent of Independent Accountants
We hereby consent to the use in this Registration Statement on Form S-1 of both
our report dated January 27, 2000 relating to the financial statements of
Numerical Technologies, Inc. and our report dated January 21, 2000 relating to
the financial statements of Transcription Enterprises Ltd., which appear in such
Registration Statement. We also consent to the reference to us under the
headings "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
San Jose, California
January 27, 2000
<TABLE> <S> <C>
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 13,486
<SECURITIES> 0
<RECEIVABLES> 1,189
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,699
<PP&E> 1,613
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<TOTAL-ASSETS> 17,605
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0
1
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<SALES> 5,492
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<CGS> 307
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<NET-INCOME> (8,828)
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