1
EXHIBIT 10.4
EVEREST DESIGN AUTOMATION INC.
STOCK PURCHASE AGREEMENT
AGREEMENT made this______ day of _______________, 199__, by
and between Everest Design Automation Inc., a California corporation, and
_________________, Optionee.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
I. EXERCISE OF OPTION
1. Exercise. Optionee hereby purchases shares of Common Stock
(the "Purchased shares") pursuant to that certain option (the "Option") granted
Optionee on __________, 199_ (the "Grant Date") to purchase up to __________
shares of Common Stock (the "Option Shares") at the exercise price of $____ per
share (the "Exercise Price").
2. Payment. Concurrently with the delivery of this Agreement
to the Corporation, Optionee shall pay the Exercise Price for the Purchased
Shares in accordance with the provisions of the Option Agreement and shall
deliver whatever additional documents may be required by the Option Agreement as
a condition for exercise, together with a duly-executed blank Assignment
Separate from Certificate (in the form attached hereto as Exhibit I)
with respect to the Purchased Shares.
3. Shareholder Rights. Until such time as the Corporation
exercises the Repurchase Right or the First Refusal Right, Optionee (or any
successor in interest) shall have all the rights of a shareholder (including
voting, dividend and liquidation rights) with respect to the Purchased Shares,
subject, however, to the transfer restrictions of Articles B and C.
A. SECURITIES LAW COMPLIANCE
1. Restricted Securities. The Purchased Shares have not been
registered under the 1933 Act and are being issued to Optionee in reliance upon
the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit agreements, such as the Compensation
Agreement. Optionee hereby confirms that Optionee has been informed that the
Purchased Shares are restricted securities under the 1933 Act and may not be
resold or transferred unless the Purchased Shares are first registered under the
Federal securities laws or unless an exemption from such registration is
available. Accordingly, Optionee hereby acknowledges that Optionee is prepared
to hold the Purchased Shares for an indefinite period and that Optionee is aware
that SEC Rule 144 issued under the 1933 Act which exempts certain resales of
unrestricted securities is not presently available to exempt the resale of the
Purchased Shares from the registration requirements of the 1933 Act.
2. Representations and Warranties of Optionee. Optionee hereby
represents and warrants that:
2
(i) The Purchased Shares are being acquired for
investment purposes only for the Optionee's own account, and not with a
view to the resale or distribution of all or any part of the Purchased
Shares. Optionee is prepared to hold the Purchased Shares for an
indefinite period and has no present intention of selling, granting any
participation in, or otherwise distributing any of the Purchased
Shares. Optionee does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant a participating
interest in, any of the Purchased Shares.
(ii) Optionee has been furnished with, and has had
access to, such information as he considers necessary or appropriate
for deciding whether to invest in the Purchased Shares, and Optionee
has had an opportunity to ask questions and receive answers from the
Corporation regarding the terms and conditions of the issuance of the
Purchased Shares.
(iii) Optionee is able to fend for himself in the
transactions contemplated by this Agreement, can bear the economic risk
of investment in the Purchased Shares and has such knowledge and
experience in financial or business matters to be capable of evaluating
the merits and risks of the investment in the Purchased Shares.
3. Restrictions on Disposition of Purchased Shares. Optionee
shall make no disposition of the Purchased Shares (other than a Permitted
Transfer) unless and until there is compliance with all of the following
requirements:
(i) Optionee shall have provided the Corporation with
a written summary of the terms and conditions of the proposed
disposition.
(ii) Optionee shall have complied with all
requirements of this Agreement applicable to the disposition of the
Purchased Shares.
(iii) Optionee shall have provided the Corporation
with written assurances, in form and substance satisfactory to the
Corporation, that (a) the proposed disposition does not require
registration of the Purchased Shares under the 1933 Act or (b) all
appropriate action necessary for compliance with the registration
requirements of the 1933 Act or any exemption from registration
available under the 1933 Act (including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its
books any Purchased Shares which have been sold or transferred in violation of
the provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
4. Restrictive Legends. The stock certificates for the
Purchased Shares shall be endorsed with one or more of the following restrictive
legends:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933. The shares may not be
sold or offered for sale in the absence of (a) an
2.
3
effective registration statement for the shares under such Act, (b) a
"no action" letter of the Securities and Exchange Commission with
respect to such sale or offer or (c) satisfactory assurances to the
Corporation that registration under such Act is not required with
respect to such sale or offer."
"The shares represented by this certificate are
subject to certain repurchase rights and rights of first refusal
granted to the Corporation and accordingly may not be sold, assigned,
transferred, encumbered, or in any manner disposed of except in
conformity with the terms of a written agreement dated, 199 between the
Corporation and the registered holder of the shares (or the predecessor
in interest to the shares). A copy of such agreement is maintained at
the Corporation's principal corporate offices."
5. Condition of Issuance. THE SALE OF THE PURCHASED SHARES HAS
NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, AND THE ISSUANCE OF SUCH SHARES OR THE PAYMENT OR RECEIPT OF ANY
PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL
UNLESS THE SALE OF SUCH SHARES IS EXEMPT FROM QUALIFICATION BY SECTION 25100,
25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO
THIS AGREEMENT ARE EXPRESSLY CONDITIONED UNLESS THE SALE IS SO EXEMPT.
B. TRANSFER RESTRICTIONS
1. Restriction on Transfer. Except for any Permitted Transfer,
Optionee shall not transfer, assign, encumber or otherwise dispose of any of the
Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right or the Market Stand-Off.
2. Transferee Obligations. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound by
the provisions of this Agreement and that the transferred shares are subject to
(i) the Repurchase Right, (ii) the First Refusal Right and (iii) the Market
Stand-Off, to the same extent such shares would be so subject if retained by
Optionee.
3. Market Stand-Off.
(a) In connection with any underwritten public
offering by the Corporation of its equity securities pursuant to an effective
registration statement filed under the 1933 Act, including the Corporation's
initial public offering, Owner shall not sell, make any short sale of, loan,
hypothecate, pledge, grant any option for the purchase of, or otherwise dispose
or transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to, any Purchased Shares without the prior written
consent of the Corporation or its underwriters. Such restriction (the "Market
Stand-Off") shall be in effect for such period of time from and after the
effective date of the final prospectus for
3.
4
the offering as may be requested by the Corporation or such underwriters. In
no event, however, shall such period exceed one hundred eighty (180) days and
the Market Stand-Off shall in all events terminate two (2) years after the
effective date of the Corporation's initial public offering.
(b) Owner shall be subject to the Market Stand-Off
provided and only if the officers and directors of the Corporation are also
subject to similar restrictions.
(c) Any new, substituted or additional securities
which are by reason of any Recapitalization or Reorganization distributed with
respect to the Purchased Shares shall be immediately subject to the Market
Stand-Off, to the same extent the Purchased Shares are at such time covered by
such provisions.
(d) In order to enforce the Market Stand-Off, the
Corporation may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
C. REPURCHASE RIGHT
1. Grant. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Optionee ceases for any reason to remain in Service, to
repurchase at the Exercise Price any or all of the Purchased Shares in which
Optionee is not, at the time of his or her cessation of Service, vested in
accordance with the Vesting Schedule applicable to those shares or the
provisions of Paragraph D.6 of this Agreement (such shares to be hereinafter
referred to as the "Unvested Shares").
2. Exercise of Repurchase Right. The Repurchase Right shall be
exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the sixty (60)-day exercise period. The notice shall
indicate the number of Unvested Shares to be repurchased and the date on which
the repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the Unvested Shares
to be repurchased shall be delivered to the Corporation on or before the close
of business on the date specified for the repurchase. Concurrently with the
receipt of such stock certificates, the Corporation shall pay to Owner, in cash
or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Exercise Price previously paid for the
Unvested Shares which are to be repurchased from Owner.
3. Termination of Repurchase Right. The Repurchase Right shall
terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Optionee vests in accordance with the Vesting Schedule. All Purchased
Shares as to which the Repurchase Right lapses shall, however, remain subject to
the First Refusal Right and the Market Stand-Off.
4. Aggregate Vesting Limitation. If the Option is exercised in
more than one increment so that Optionee is a party to one or more other Stock
Purchase Agreements (the "Prior Purchase Agreements") which are executed prior
to the date of this Agreement, then the total number
4.
5
of Purchased Shares as to which Optionee shall be deemed to have a fully-vested
interest under this Agreement and all Prior Purchase Agreements shall not exceed
in the aggregate the number of Option Shares in which Optionee would otherwise
at the time be vested, in accordance with the Vesting Schedule, had all the
Purchased Shares (including those acquired under the Prior Purchase Agreements)
been acquired exclusively under this Agreement.
5. Recapitalization. Any new, substituted or additional
securities or other property (including cash paid other than as a regular cash
dividend) which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the Repurchase Right and
any escrow requirements hereunder, but only to the extent the Purchased Shares
are at the time covered by such right or escrow requirements. Appropriate
adjustments to reflect such distribution shall be made to the number and/or
class of Purchased Shares subject to this Agreement and to the price per share
to be paid upon the exercise of the Repurchase Right in order to reflect the
effect of any such Recapitalization upon the Corporation's capital structure;
provided, however, that the aggregate purchase price shall remain the same.
6. Corporate Transaction.
(a) Upon the occurrence of a Corporate Transaction,
to the extent outstanding, the Repurchase Right shall be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction. However, to the extent the successor corporation (or parent
thereof) does not accept such assignment, the Repurchase Right shall terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full.
(b) To the extent the Repurchase Right remains in
effect following a Corporate Transaction, such right shall apply to any new
securities or other property (including any cash payments) received in exchange
for the Purchased Shares in consummation of the Corporate Transaction, but only
to the extent the Purchased Shares are at the time covered by such right.
Appropriate adjustments shall be made to the price per share payable upon
exercise of the Repurchase Right to reflect the effect of the Corporate
Transaction upon the Corporation's capital structure; provided, however, that
the aggregate purchase price shall remain the same. The new securities or other
property (including any cash payments) issued or distributed with respect to the
Purchased Shares in consummation of the Corporate Transaction shall be
immediately deposited in escrow with the Corporation (or the successor entity)
and shall not be released from escrow until Optionee vests in such securities or
other property in accordance with the same Vesting Schedule in effect for the
Purchased Shares.
(c) The Repurchase Right may also be subject to
termination in whole or in part on an accelerated basis, and the Purchased
Shares subject to immediate vesting, in accordance with any special Addendum
attached to this Agreement.
D. RIGHT OF FIRST REFUSAL
1. Grant. The Corporation is hereby granted the right of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which
5.
6
Optionee has vested in accordance with the provisions of the Vesting Schedule.
For purposes of this Article E, the term "transfer" shall include any sale,
assignment, pledge, encumbrance or other disposition of the Purchased Shares
intended to be made by Owner, but shall not include any Permitted Transfer.
2. Notice of Intended Disposition. In the event any Owner of
Purchased Shares in which Optionee has vested desires to accept a bona fide
third-party offer for the transfer of any or all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the offer, including the purchase
price and the identity of the third-party offeror, and (ii) provide satisfactory
proof that the disposition of the Target Shares to such third-party offeror
would not be in contravention of the provisions set forth in Articles B and C.
3. Exercise of the First Refusal Right. The Corporation shall,
for a period of twenty-five (25) days following receipt of the Disposition
Notice, have the right to repurchase any or all of the Target Shares subject to
the Disposition Notice upon the same terms as those specified therein or upon
such other terms (not materially different from those specified in the
Disposition Notice) to which Owner consents. Such right shall be exercisable by
delivery of written notice (the "Exercise Notice") to Owner prior to the
expiration of the twenty-five (25)-day exercise period. If such right is
exercised with respect to all the Target Shares, then the Corporation shall
effect the repurchase of such shares, including payment of the purchase price,
not more than five (5) business days after delivery of the Exercise Notice; and
at such time the certificates representing the Target Shares shall be delivered
to the Corporation.
Should the purchase price specified in the Disposition Notice
be payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within twenty (20) days after the Corporation's receipt of
the Disposition Notice, each shall select an appraiser of recognized standing
and the two (2) appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such value. The cost of such
appraisal shall be shared equally by Owner and the Corporation. The closing
shall then be held on the later of (i) the fifth (5th) business day following
delivery of the Exercise Notice or (ii) the fifth (5th) business day after such
valuation shall have been made.
4. Non-Exercise of the First Refusal Right. In the event the
Exercise Notice is not given to Owner prior to the expiration of the twenty-five
(25)-day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase price) no more favorable to such third-party offeror than those
specified in the Disposition Notice; provided, however, that any such sale or
disposition must not be effected in contravention of the provisions of Articles
B and C. The third-party offeror shall acquire the Target Shares free and clear
of the
6.
7
Repurchase Right and the First Refusal Right, but the acquired shares shall
remain subject to the provisions of Article B and Paragraph C.3. In the event
Owner does not effect such sale or disposition of the Target Shares within the
specified thirty (30)-day period, the First Refusal Right shall continue to be
applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses.
5. Partial Exercise of the First Refusal Right. In the event
the Corporation makes a timely exercise of the First Refusal Right with respect
to a portion, but not all, of the Target Shares specified in the Disposition
Notice, Owner shall have the option, exercisable by written notice to the
Corporation delivered within five (5) business days after Owner's receipt of the
Exercise Notice, to effect the sale of the Target Shares pursuant to either of
the following alternatives:
(i) sale or other disposition of all the Target Shares to the
third-party offeror identified in the Disposition Notice, but in full
compliance with the requirements of Paragraph E.4, as if the
Corporation did not exercise the First Refusal Right; or
(ii) sale to the Corporation of the portion of the Target
Shares which the Corporation has elected to purchase, such sale to be
effected in substantial conformity with the provisions of Paragraph
E.3. The First Refusal Right shall continue to be applicable to any
subsequent disposition of the remaining Target Shares until such right
lapses.
Owner's failure to deliver timely notification to the
Corporation shall be deemed to be an election by Owner to sell the Target Shares
pursuant to alternative (i) above.
6. Recapitalization/Reorganization.
(a) Any new, substituted or additional securities or
other property which is by reason of any Recapitalization distributed with
respect to the Purchased Shares shall be immediately subject to the First
Refusal Right, but only to the extent the Purchased Shares are at the time
covered by such right.
(b) In the event of a Reorganization, the First
Refusal Right shall remain in full
force and effect and shall apply to the new capital stock or other property
received in exchange for the Purchased Shares in consummation of the
Reorganization, but only to the extent the Purchased Shares are at the time
covered by such right.
7. Lapse. The First Refusal Right shall lapse upon the
earliest to occur of (i) the first date on which shares of the Common Stock are
held of record by more than five hundred (500) persons, (ii) a determination is
made by the Board that a public market exists for the outstanding shares of
Common Stock or (iii) a firm commitment underwritten public offering, pursuant
to an effective registration statement under the 1933 Act, covering the offer
and sale of the Common Stock in the aggregate amount of at least ten million
dollars ($10,000,000). However, the Market Stand-Off shall continue to remain in
full force and effect following the lapse of the First Refusal Right.
E. SPECIAL TAX ELECTION
7.
8
The acquisition of the Purchased Shares may result in adverse
tax consequences which may be avoided or mitigated by filing an election under
Code Section 83(b). Such election must be filed within thirty (30) days after
the date of this Agreement. A description of the tax consequences applicable to
the acquisition of the Purchased Shares and the form for making the Code Section
83(b) election are set forth in Exhibit II. OPTIONEE SHOULD CONSULT WITH HIS OR
HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED
SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(b)
ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY, AND
NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN
IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING
ON HIS OR HER BEHALF.
F. GENERAL PROVISIONS
1. Assignment. The Corporation may assign the Repurchase Right
and/or the First Refusal Right to any person or entity selected by the Board,
including (without limitation) one or more shareholders of the Corporation.
2. No Employment or Service Contract. Nothing in this
Agreement shall confer upon Optionee any right to continue in Service for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Parent or Subsidiary employing or
retaining Optionee) or of Optionee, which rights are hereby expressly reserved
by each, to terminate Optionee's Service at any time for any reason, with or
without cause.
3. Notices. Any notice required to be given under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the U.S. mail, registered or certified, postage
prepaid and properly addressed to the party entitled to such notice at the
address indicated below such party's signature line on this Agreement or at such
other address as such party may designate by ten (10) days advance written
notice under this paragraph to all other parties to this Agreement.
4. No Waiver. The failure of the Corporation in any instance
to exercise the Repurchase Right or the First Refusal Right shall not constitute
a waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and Optionee. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.
5. Cancellation of Shares. If the Corporation shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement). Such shares shall be
deemed purchased in accordance with the applicable provisions
8.
9
hereof, and the Corporation shall be deemed the owner and holder of such shares,
whether or not the certificates therefor have been delivered as required by this
Agreement.
G. MISCELLANEOUS PROVISIONS
1. Optionee Undertaking. Optionee hereby agrees to take
whatever additional action and execute whatever additional documents the
Corporation may deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either Optionee or the
Purchased Shares pursuant to the provisions of this Agreement.
2. Agreement is Entire Contract. This Agreement constitutes
the entire contract between the parties hereto with regard to the subject matter
hereof.
3. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without resort
to that State's conflict-of-laws rules.
4. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
5. Successors and Assigns. The provisions of this Agreement
shall inure to the benefit of, and be binding upon, the Corporation and its
successors and assigns and upon Optionee, Optionee's permitted assigns and the
legal representatives, heirs and legatees of Optionee's estate, whether or not
any such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
IN WITNESS WHEREOF, the parties have executed this
Agreement on the day and year first indicated above.
EVEREST DESIGN AUTOMATION INC.
By: _____________________________
Title: __________________________
Address: ________________________
________________________
_________________________________
OPTIONEE
Address: ________________________
________________________
9.
10
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of Optionee has read and hereby
approves the foregoing Stock Purchase Agreement. In consideration of the
Corporation's granting Optionee the right to acquire the Purchased Shares in
accordance with the terms of such Agreement, the undersigned hereby agrees to be
irrevocably bound by all the terms of such Agreement, including (without
limitation) the right of the Corporation (or its assigns) to purchase any
Purchased Shares in which Optionee is not vested at time of his or her cessation
of Service.
_________________________________
OPTIONEE'S SPOUSE
Address: ________________________
_________________________________
11
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED hereby sell(s), assign(s) and transfer(s)
unto Everest Design Automation Inc. (the "Corporation"), () shares of the Common
Stock of the Corporation standing in his or her name on the books of the
Corporation represented by Certificate No. herewith and do(es) hereby
irrevocably constitute and appoint Attorney to transfer the said stock on the
books of the Corporation with full power of substitution in the premises.
Dated:_____________________
Signature _____________________________
Instruction: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Optionee.
12
EXHIBIT II
FEDERAL INCOME TAX CONSEQUENCES AND
SECTION 83(b) TAX ELECTION
II. Federal Income Tax Consequences and Section 83(b) Election For Exercise of
Non-Statutory Option. If the Purchased Shares are acquired pursuant to the
exercise of a Non-Statutory Option, as specified in the Grant Notice, then under
Code Section 83, the excess of the Fair Market Value of the Purchased Shares on
the date any forfeiture restrictions applicable to such shares lapse over the
Exercise Price paid for such shares will be reportable as ordinary income on the
lapse date. For this purpose, the term "forfeiture restrictions" includes the
right of the Corporation to repurchase the Purchased Shares pursuant to the
Repurchase Right. However, Optionee may elect under Code Section 83(b) to be
taxed at the time the Purchased Shares are acquired, rather than when and as
such Purchased Shares cease to be subject to such forfeiture restrictions. Such
election must be filed with the Internal Revenue Service within thirty (30) days
after the date of the Agreement. Even if the Fair Market Value of the Purchased
Shares on the date of the Agreement equals the Exercise Price paid (and thus no
tax is payable), the election must be made to avoid adverse tax consequences in
the future. The form for making this election is attached as part of this
exhibit. FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE THIRTY (30)-DAY
PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME BY OPTIONEE AS THE
FORFEITURE RESTRICTIONS LAPSE.
III. Federal Income Tax Consequences and Conditional Section 83(b) Election For
Exercise of Incentive Option. If the Purchased Shares are acquired pursuant to
the exercise of an Incentive Option, as specified in the Grant Notice, then the
following tax principles shall be applicable to the Purchased Shares:
(i) For regular tax purposes, no taxable income will
be recognized at the time the Option is exercised.
(ii) The excess of (a) the Fair Market Value of the
Purchased Shares on the date the Option is exercised or (if later) on
the date any forfeiture restrictions applicable to the Purchased Shares
lapse over (b) the Exercise Price paid for the Purchased Shares will be
includible in Optionee's taxable income for alternative minimum tax
purposes.
(iii) If Optionee makes a disqualifying disposition
of the Purchased Shares, then Optionee will recognize ordinary income
in the year of such disposition equal in amount to the excess of (a)
the Fair Market Value of the Purchased Shares on the date the Option is
exercised or (if later) on the date any forfeiture restrictions
applicable to the Purchased Shares lapse over (b) the Exercise Price
paid for the Purchased Shares. Any additional gain recognized upon the
disqualifying disposition will be either short-term or long-term
capital gain depending upon the period for which the Purchased Shares
are held prior to the disposition.
(iv) For purposes of the foregoing, the term
"forfeiture restrictions" will include the right of the Corporation to
repurchase the Purchased Shares pursuant to the
13
Repurchase Right. The term "disqualifying disposition" means any sale
or other disposition1/ of the Purchased Shares within two (2) years
after the Grant Date or within one (1) year after the exercise date of
the Option.
(v) In the absence of final Treasury Regulations
relating to Incentive Options, it is not certain whether Optionee may,
in connection with the exercise of the Option for any Purchased Shares
at the time subject to forfeiture restrictions, file a protective
election under Code Section 83(b) which would limit (a) Optionee's
alternative minimum taxable income upon exercise and (b) Optionee's
ordinary income upon a disqualifying disposition to the excess of the
Fair Market Value of the Purchased Shares on the date the Option is
exercised over the Exercise Price paid for the Purchased Shares.
Accordingly, such election if properly filed will only be allowed to
the extent the final Treasury Regulations permit such a protective
election. Page 2 of the attached form for making the election should be
filed with any election made in connection with the exercise of an
Incentive Option.
--------
1/ Generally, a disposition of shares purchased under an Incentive Option
includes any transfer of legal title, including a transfer by sale, exchange or
gift, but does not include a transfer to the Optionee's spouse, a transfer into
joint ownership with right of survivorship if Optionee remains one of the joint
owners, a pledge, a transfer by bequest or inheritance or certain tax free
exchanges permitted under the Code.
14
SECTION 83(b) ELECTION
This statement is being made under Section 83(b) of the
Internal Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being
made is _______ shares of the common stock of Everest Design Automation
Inc.
(3) The property was issued on, 199__.
(4) The taxable year in which the election is being made is the calendar
year 199__.
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's employment with the issuer is
terminated. The issuer's repurchase right lapses in a series of
installments over a two-year period ending on _________, 199__.
(6) The fair market value at the time of transfer (determined without
regard to any restriction other than a restriction which by its terms
will never lapse) is $_______ per share.
(7) The amount paid for such property is $____ per share.
(8) A copy of this statement was furnished to Everest Design Automation
Inc. for whom taxpayer rendered the services underlying the transfer of
property.
(9) This statement is executed on, 199__.
------------------------------------ -------------------------------------
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center
with which taxpayer files his or her Federal income tax returns and must be made
within thirty (30) days after the execution date of the Stock Purchase
Agreement. This filing should be made by registered or certified mail, return
receipt requested. Optionee must retain two (2) copies of the completed form for
filing with his or her Federal and state tax returns for the current tax year
and an additional copy for his or her records.
15
The property described in the above Section 83(b) election is
comprised of shares of common stock acquired pursuant to the exercise of an
incentive stock option under Section 422 of the Internal Revenue Code (the
"Code"). Accordingly, it is the intent of the Taxpayer to utilize this election
to achieve the following tax results:
1. The purpose of this election is to have the alternative
minimum taxable income attributable to the purchased shares measured by the
amount by which the fair market value of such shares at the time of their
transfer to the Taxpayer exceeds the purchase price paid for the shares. In the
absence of this election, such alternative minimum taxable income would be
measured by the spread between the fair market value of the purchased shares and
the purchase price which exists on the various lapse dates in effect for the
forfeiture restrictions applicable to such shares. The election is to be
effective to the full extent permitted under the Code.
2. Section 421(a)(1) of the Code expressly excludes from
income any excess of the fair market value of the purchased shares over the
amount paid for such shares. Accordingly, this election is also intended to be
effective in the event there is a "disqualifying disposition" of the shares,
within the meaning of Section 421(b) of the Code, which would otherwise render
the provisions of Section 83(a) of the Code applicable at that time.
Consequently, the Taxpayer hereby elects to have the amount of disqualifying
disposition income measured by the excess of the fair market value of the
purchased shares on the date of transfer to the Taxpayer over the amount paid
for such shares. Since Section 421(a) presently applies to the shares which are
the subject of this Section 83(b) election, no taxable income is actually
recognized for regular tax purposes at this time, and no income taxes are
payable, by the Taxpayer as a result of this election.
THIS PAGE 2 IS TO BE ATTACHED TO ANY SECTION 83(b) ELECTION FILED IN CONNECTION
WITH THE EXERCISE OF AN INCENTIVE STOCK OPTION UNDER THE FEDERAL TAX LAWS.
2.
16
APPENDIX
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Purchase Agreement.
B. Board shall mean the Corporation's Board of Directors.
C. Code shall mean the Internal Revenue Code of 1986, as amended.
D. Common Stock shall mean the Corporation's common stock.
E. Compensation Agreement shall mean the compensation agreement entered
into on _________, 199__ between the Corporation and Optionee.
F. Corporate Transaction shall mean either of the following
shareholder-approved transactions:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all
or substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
G. Corporation shall mean Everest Design Automation Inc., a California
corporation, and any successor corporation to all or substantially all of the
assets or voting stock of Everest Design Automation Inc.
H. Disposition Notice shall have the meaning assigned to such term in
Paragraph E.2.
I. Exercise Notice shall have the meaning assigned to such term in
Paragraph E.3.
J. Exercise Price shall have the meaning assigned to such term in
Paragraph A.1.
K. Fair Market Value of a share of Common Stock on any relevant date,
prior to the initial public offering of the Common Stock, shall be determined by
the Board after taking into account such factors as it shall deem appropriate.
L. First Refusal Right shall mean the right granted to the Corporation
in accordance with Article X.
X. Xxxxx Date shall have the meaning assigned to such term in Paragraph
A.1.
A-1
17
X. Xxxxx Notice shall mean the Notice of Grant of Stock Option pursuant
to which Optionee has been informed of the basic terms of the Option.
O. Incentive Option shall mean an option which satisfies the
requirements of Code Section 422.
P. Market Stand-Off shall mean the market stand-off restriction
specified in Paragraph C.3.
Q. 1933 Act shall mean the Securities Act of 1933, as amended.
R. Non-Statutory Option shall mean an option not intended to satisfy
the requirements of Code Section 422.
S. Option shall have the meaning assigned to such term in Paragraph
A.1.
T. Option Agreement shall mean all agreements and other documents
evidencing the Option.
U. Optionee shall mean the person to whom the Option is granted.
V. Owner shall mean Optionee and all subsequent holders of the
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Optionee.
W. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
X. Permitted Transfer shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Optionee obtains the Corporation's prior
written consent to such transfer, (ii) a transfer of title to the Purchased
Shares effected pursuant to Optionee's will or the laws of intestate succession
following Optionee's death or (iii) a transfer to the Corporation in pledge as
security for any purchase-money indebtedness incurred by Optionee in connection
with the acquisition of the Purchased Shares.
Y. Prior Purchase Agreement shall have the meaning assigned to such
term in Paragraph D.4.
Z. Purchased Shares shall have the meaning assigned to such term in
Paragraph A.1.
AA. Recapitalization shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
A-2
18
BB. Reorganization shall mean any of the following transactions:
(i) a merger or consolidation in which the Corporation is not
the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the
surviving entity but in which the Corporation's outstanding voting
securities are transferred in whole or in part to a person or persons
different from the persons holding those securities immediately prior
to the merger, or
(iv) any transaction effected primarily to change the state in
which the Corporation is incorporated or to create a holding company
structure.
CC. Repurchase Right shall mean the right granted to the Corporation in
accordance with Article D.
DD. SEC shall mean the Securities and Exchange Commission.
EE. Service shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an employee,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance, a non-employee member
of the board of directors or an independent consultant.
FF. Subsidiary shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
GG. Target Shares shall have the meaning assigned to such term in
Paragraph E.2.
HH. Vesting Schedule shall mean the vesting schedule specified in the
Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a
series of installments over his or her period of Service.
II. Unvested Shares shall have the meaning assigned to such term in
Paragraph D.1.
A-3
