Document:

<PAGE>

                                                                     Exhibit 4.1

                      EMBEDDED SUPPORT TOOLS CORPORATION
                          FIRST AMENDED AND RESTATED
                        FOUNDING SHAREHOLDERS AGREEMENT

     This FIRST AMENDED AND RESTATED FOUNDING SHAREHOLDERS' AGREEMENT is made as
of the 1/st/ day of July, 1999 ("Effective Date") by and among Peter S. Dawson,
                                 --------------
an individual residing at 1931 Washington Street, Canton, Massachusetts 02021
("Dawson"), John T.W. Baggott, an individual residing at 88 Wayside Inn Road,
Marlborough, Massachusetts ("Baggott"), James E. Watkins, an individual residing
                             -------
at 34 Braddock Park, Number 3, Boston, Massachusetts, 02116 ("Watkins" and,
                                                              -------
together with Dawson and Baggott, the "Founders"), and Embedded Support Tools
                                       --------
Corporation, a Massachusetts corporation with a principal place of business at
120 Royall Street, Canton, Massachusetts (the "Company").
                                               -------

     WHEREAS, the parties hereto are parties to a certain Shareholders'
Agreement dated as of April 18, 1991 (the "Original Shareholders' Agreement");
                                           --------------------------------

     WHEREAS, the Founders are the sole stockholders of the Company, owning the
following number of shares of common stock, no par value per share, of the
Company (the "Common Stock"):
              ------------

               Dawson        2,833,500
               Watkins       1,111,000
               Baggott       1,111,000
               -------       ---------
               Total         5,055,500

     WHEREAS, the Company has agreed to redeem shares of Common Stock from the
Founders and/or make loans to the Founders from time to time pursuant to the
terms hereof in order to permit the Founders to liquidate a portion of their
equity in the Company; and

     WHEREAS, the parties hereto now wish to amend and restate the Original
Shareholders' Agreement in its entirety to take into account (i) the change in
circumstances since the date of that agreement and (ii) the redemption and loan
terms included herein.

     NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:

     1.   Current Capital Structure; Future Issuance of Capital Stock of the
          ------------------------------------------------------------------
 Company
 -------
          1.1  The parties hereto hereby acknowledge and agree that the total
issued and outstanding shares (the "Shares") of common stock, no par value per
                                    ------
share, of the Company ("Common Stock") as of the date hereof is as follows,
                        ------------
which constitutes all of the issued and outstanding capital stock of the Company
as of the date hereof:
<PAGE>

                                   No. of Shares
                                   -------------

          Peter S. Dawson            2,833,500
          John T.W. Baggott          1,111,000
          James E. Watkins           1,111,000
                                     ---------
               Total                 5,055,500

          1.2  The parties hereto hereby acknowledge and agree that the Company
has issued the following mirror stock and stock options representing the
following percentages of fully-diluted equity in the Company (assuming full
vesting of all mirror stock and options):
                                                     Fully-Diluted
                             No. of Shares           Percentage
                             -------------           ----------

     Mirror Stock             1,062,000                 15.58%
     Special Option             329,500                  4.83%
     Stock Options              369,000                  5.41%
                              ---------                 -----
          Total               1,760,500                 25.82%

          1.3  Unless waived by unanimous action of the Founders, each Founder
shall have the right, for as long as such Founder is one of the ten (10) largest
stockholders in the Company, to participate in the issuance by the Company of
any capital stock, or any rights to acquire capital stock of the Company, to the
extent of such Founder's proportionate ownership of the Common Stock at the time
of such issuance upon the terms offered to any other person. In the event that a
Founder declines to participate fully under this subsection, the securities not
purchased by such Founder may be purchased by the other Founders in the
foregoing manner. The Company shall not be entitled to issue stock, stock
options, warrants, mirror stock or any other capital stock or rights to acquire
capital stock of the Company to any one of the Founders without the prior
consent of the other Founders.

          1.4  Notwithstanding the foregoing, however, the Company shall be
entitled to issue shares of Common Stock, or options, warrants or other rights
to acquire Common Stock, mirror stock and other quasi-equity rights to new or
existing employees or new or existing consultants of the Company other than the
other Founders pursuant to a Stock Option Plan or similar plan or plans adopted
by the Board of Directors of the Company from time to time.  In addition, the
foregoing restrictions shall not apply to any issuance of capital stock or
rights to acquire capital stock as part of a Change in Control or IPO.

     2.   Covenant against Competition.  So long as he is a Director or officer
          ----------------------------
or employed by the Company, each Founder agrees that he will not, directly or
indirectly, as an employee, consultant, partner, owner or stockholder of, or in
any other capacity with, any person, firm, corporation or other organization,
without prior written consent of the Company; (i) engage in competition with the
Company in any business in which the Company is engaged (or

                                      -2-
<PAGE>

has taken preliminary steps to become engaged), or (ii) induce any employee of
the Company to leave the employ of the Company. Each Founder acknowledges that
the remedy at law for any breach of this section will be inadequate, and the
Company shall, in addition to whatever other remedies it may have, be entitled
to injunctive relief.

     3.   Compliance with the Securities Act.  Each Founder represents and
          ----------------------------------
warrants that he acquired his Shares for his own account for investment and not
with a view to any distribution thereof so as to cause a violation of the
Securities Act of 1933, as amended (the "Securities Act"), or any rules or
                                         --------------
regulations thereunder, and agrees that he will not sell, transfer, distribute
or otherwise dispose of any of the Shares except (i) pursuant to an effective
registration statement under the Securities Act as then in effect covering such
Shares and such proposed distribution or (ii) upon first furnishing to the
Company an opinion of counsel satisfactory to the Company stating that the
proposed sale, transfer, distribution or other disposition is not in violation
of the registration requirements of the Securities Act and such undertakings and
agreements with the Company by the proposed transferee as the Company may
reasonably require to insure continued compliance with the Securities Act.

     Each Founder acknowledges that his Shares are restricted securities that
are unregistered, and that he must hold them indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available; that one such exemption, Rule 144 under the
Securities Act, will not provide a meaningful way of disposing of the Shares
should he decide to do so at some future date since the procedure under Rule 144
presupposes the existence of an independent public market for the Shares; and
that the Company is under no obligation to register the Shares or to comply with
any such exemption.

     4.   Restrictions on the Transfer of Shares.
          --------------------------------------

          4.1  Notwithstanding any provisions set forth in the Company's
Articles of Organization or By-Laws, before any of the Shares may be sold,
transferred, pledged or otherwise encumbered, including a transfer by operation
of law (such as under the laws of intestacy or in accordance with a divorce
decree), other than a transfer or pledge of Shares pursuant to Sections 10 and
11 of this Agreement, the holder of such Shares proposing such sale or transfer
or his representative (the "Transferor") shall first give written notice thereof
                            ----------
to the Company and each other Founder stating the proposed transferee, the
number of Shares proposed to be transferred, the purchase price, if any, and the
terms of the proposed transaction.  The Company shall thereupon have the option,
but not the obligation, to acquire some or all of the Shares proposed to be
transferred at the Purchase Price provided in Section 6 (the "Purchase Price").
                                                              --------------
Within 30 days after the giving of such notice by the Transferor, the Company
shall give written notice to the Transferor and to the other Founders stating
whether or not it elects to exercise the option to purchase, the number of
Shares, if any, it elects to purchase and a date and time (the "Closing Date")
                                                                ------------
for consummation of the purchase no more than 90 days after the giving of such
notice.  Failure by the Company to give such notice within such time period
shall be deemed an election by the Company not to exercise

                                      -3-
<PAGE>

such option. The Transferor shall not be entitled to vote, either as a
Stockholder or Director of the Company, in connection with the decision of the
Company whether to exercise its option to purchase his Shares, provided that if
his vote is required for valid corporate action he shall vote in accordance with
the decision of the majority of the other Directors. If, however, the other
Directors are split on whether to exercise the Company's option hereunder, the
Founders may, by a vote of a majority of the Shares held by those Founders other
than the Transferor, direct the Board to exercise the Company's option
hereunder.

          4.2  If the Company fails to exercise such option with respect to all
of the Shares proposed to be transferred, each of the other Founders shall
thereupon have the option, but not the obligation, to purchase for the Purchase
Price that portion of all of the Shares proposed to be transferred as to which
the Company has not exercised its option in proportion to their then ownership
of Shares.  Within 45 days after the giving of the notice provided in subsection
4.1 hereof by the Transferor, each other Founder shall give written notice to
the Transferor, the other Founders and the Company stating whether or not he
elects to exercise his option, the number of Shares, if any, which he elects to
purchase, and a Closing Date no more than 60 days after the giving of such
notice.  If any Founder elects not to exercise his option with respect to some
or all of the Shares which he is entitled to purchase, the other Founders may
elect to purchase such Shares in the manner provided in this subsection.
Failure by any Founder to give such notice within such time period shall be
deemed an election by him not to exercise his option.

          4.3  Notwithstanding anything herein to the contrary, the Transferor
shall in no event be required to sell hereunder less than all of the Shares
proposed to be transferred in accordance with his notice under subsection 4.1.

          4.4  If the Shares offered hereunder are not purchased within the
respective time periods stated above, the Transferor may transfer such Shares at
any time during the 30-day period after the termination of the applicable time
period, but only upon the terms and to the transferee stated in his notice under
subsection 4.1.  After such Shares are so transferred, or if the transfer is not
consummated within such period, the Shares shall again become subject to the
terms of this agreement.

          4.5  Article V of the Articles of Organization of the Company contains
restrictions on the transfer of shares of Common Stock.  The Founders and the
Company understand and expressly acknowledge that (i) the provisions contained
in this Agreement shall in all respects supersede any and all conflicting
provisions contained in the Articles of Organization and (ii) none of such
provisions in Article V with respect to the transfer of shares of Common Stock
by a Founder shall apply to the Founders.

     5.   Company's Option to Purchase Shares.
          -----------------------------------

          5.1  Upon the occurrence of the following events:

                                      -4-
<PAGE>

          (i)   the death of a Founder;

          (ii)  the permanent disability of a Founder; and

          (iii) in the case of Dawson and Watkins, only, the retirement or
     termination of full-time employment for any reason with the Company, the
     Company shall have the option, but not the obligation (except in the event
     of death in which case the Company shall have the obligation), to purchase
     all Shares then owned by such Founder or owned by such Founder at his
     death, as the case may be, at the Purchase Price (as determined in
     accordance with Section 6.1 below).]  The Company may exercise the
     foregoing option at any time within 30 days after the date of retirement or
     termination of employment or, in the case of death, within 30 days after
     the appointment of the Founder's legal representative, by written notice to
     the Founder whose Shares are to be purchased, or his legal representatives
     in the case of death, stating a date and time for consummation of the
     purchase not less than 30 or more than 60 days after the giving of such
     notice.  The Company's option to purchase Shares hereunder shall remain in
     effect notwithstanding any transfer of the Shares by a Founder or any
     subsequent holder.

          5.2  The Company may assign its option under this Section, in whole or
in part, to the continuing Founders who shall accept such assignment in
proportion to their then proportionate ownership of Shares.  The Founder whose
Shares are subject to the option (or his legal representative) shall not be
entitled to vote, either as a Stockholder or Director of the Company, in
connection with the decision of the Company whether to exercise or assign its
option to purchase his Shares, provided that if his vote is required for valid
corporate action he shall vote in accordance with the decision of the majority
of the other Directors.  If, however, the other Directors are split on whether
to exercise (or assign) the Company's option hereunder, the Founders may, by a
vote of a majority of the Shares held by those Founders other than the
Transferor, direct the Board to exercise (or assign) the Company's option
hereunder.

          5.3  It is the intention of the Founders to maintain low cost
insurance on the lives of the Founders in order to pay a portion of the Purchase
Price for each Founder's Shares upon the death of such Founder.  The Board of
Directors shall, in its discretion, obtain and maintain such insurance policies,
provided, however, that the Company shall not reduce the current level of
insurance on each of the Founder's lives.

          5.4  With respect to Shares purchased by the Company under Sections 4
and 5, the Company may elect to pay the Purchase Price in installments in
accordance with the following terms (notwithstanding the fact that Section 10
calls for payments for redeemed shares to be made in cash):

                                      -5-
<PAGE>

          (i)  The Company shall pay the Purchase Price in five (5) equal annual
     installments of principal with interest on the unpaid balance of principal
     at the per annum rate of interest designated from time to time by Fleet
     Boston, or its successor, as its prime rate or, if no such rate is so
     designated, the nearest equivalent, payable on the date of the Closing of
     the sale. Prepayment in whole or in part without penalty may be made at any
     time.  In the event that the Company is in default in the payment of any
     installment of principal or interest, the principal balance and all accrued
     interest shall become immediately due and payable at the option of the
     payee.  In the event that legally available funds are insufficient to pay
     an installment, the Company shall take such reasonable action, including
     without limitation a recapitalization or revaluation of assets, as may be
     legally permissible to create sufficient available funds for such payment;

          (ii) The certificates for the Shares purchased by the Company shall be
     held by the seller and pledged as security for the payment of the Purchase
     Price, and such certificates shall be delivered to the Company, duly
     endorsed, concurrently with the payment of the last installment of Purchase
     Price.  Shares purchased by the Company shall not be considered outstanding
     or entitled to vote so long as the Company is not in default of its
     obligation described herein.

          5.5  Notwithstanding the foregoing, any amounts received by the
Company in respect of the insurance policies referred to above shall be
immediately applied to the Purchase Price (whether the deceased Founder's Shares
are purchased by the Company or by the surviving Founders) and the balance, if
any, may be paid in five (5) equal installments in accordance with the foregoing
Section 5.4.

          5.6  The Company may elect to exercise or assign its option under this
Section 5 notwithstanding a proposed sale or transfer to which Section 4 is
applicable.

     6.   The Purchase Price.
          ------------------

          6.1  The Purchase Price shall be determined as follows:

          (i)  In the case of a proposed sale or transfer under Section 4 to a
     third party in a bona fide transaction for fair value payable in cash or
     the equivalent currently or in future installments, the Purchase Price for
     such Shares shall be the value offered by such third party payable upon
     substantially similar terms, provided, however, that the Company may elect
     to pay the Purchase Price in installments, in which case payment shall be
     made in accordance with Section 5.4 above in the event that such third
     party offers to purchase Shares for cash.

                                      -6-
<PAGE>

          (ii)  In the case of the death of a Founder, the Purchase Price shall
     be equal to the fair market value of the deceased Founder's Shares which
     shall be determined by appraisal.  The Company, on the one hand, and the
     estate of the deceased Founder, on the other hand, shall mutually agree on
     an appraiser and, if they shall fail to agree within twenty (20) days of
     the death of the Founder, then they each shall select their own independent
     appraiser and those two (2) appraisers shall select a third appraiser.  The
     appraiser or the appraisers, as the case may be, shall be instructed to
     deliver his, her or their determination of the Purchase Price within thirty
     (30) days of the date of his, her or their selection.  The appraiser(s)
     shall be instructed to take into account all relevant factors in making
     his, her or their determination of the fair market value of the Shares of
     the deceased Founder, such as, but not limited to, the percentage interest
     held by the deceased Founder, the lack of a public market for the Shares
     and the impact on the business resulting from the death of the Founder.  If
     a single appraiser is used, the Company, on the one hand, and the estate of
     the deceased Founder, on the other hand, shall share equally the costs of
     such appraiser.  If three (3) appraisers are used, then each party shall
     bear the costs of the appraiser selected by such party and shall share
     equally the costs of the third appraiser.

          (iii) In all other cases, including without limitation a proposed
     transfer or other disposition not constituting a sale described in
     subsection 6.1(i), the Purchase Price per share shall be determined in
     accordance with the formula and method set forth in Section 11.2 of this
     Agreement provided, however, that the "Determination Date" shall be the
     date on which the event giving rise to the Company's purchase option
     occurred.

     7.   Legend; Transfers of Record.  Each certificate for Shares shall bear a
          ---------------------------
legend satisfactory to counsel for the Company reflecting this agreement. No
Shares shall be transferred on the books of the Company except upon compliance
with the restrictions on transfer contained in this agreement.

     8.   Subsequent Transfers of Common Stock
          ------------------------------------

          8.1  In the event that, at any time or from time to time, any Shares
are transferred to any person or entity pursuant to any provision hereof, such
person or entity shall hold such Shares pursuant to all provisions,
restrictions, rights, conditions and covenants of this Agreement and, as a
condition precedent to the transfer of such Shares, such person or entity shall
agree (for and on behalf of such person or entity, his, her or its legal
representatives and his, her or its transferees and assigns) in writing in
accordance with Section 8.3 below to be bound by all provisions of this
Agreement as a party hereto and in the capacity of a Founder.

                                      -7-
<PAGE>

          8.2  In the event that there shall be any transfer to any person or
entity pursuant to any provision of this Agreement, all references herein to the
Founders or to any Founder shall thereafter be deemed to include such person or
entity, and all provisions of this Agreement shall thereafter be applicable to
such person or entity and, unless otherwise specifically provided herein, not
the transferor Participating Stockholder.

          8.3  Any person or entity other than a person who is already a Founder
who becomes a party hereto by acquiring Shares after the date hereof from an
existing Founder pursuant to the terms hereof ("Additional Stockholder") shall,
                                                ----------------------
as a condition to his, her or its acquisition of such Common Stock, evidence
his, her or its intention to be bound by the terms hereof by executing a
Counterpart Signature Page in the form attached hereto as Exhibit A and, even
                                                          ---------
though not executed by the other parties hereto, such other parties hereby agree
to continue to be bound by the terms of this Agreement as amended by the
inclusion of the Additional Stockholder.

     9.   S Status.  The Company and each Founder, for and on behalf of himself,
          --------
his estate, his executors or administrators and transferees, direct or indirect,
covenant and agree not to do any act or fail to do any act, the commission or
omission of which would voluntarily or involuntarily cause the termination of
the election of the Company and the stockholders of the Company to be treated as
an S Corporation under and pursuant to Subchapter S of the Internal Revenue Code
of 1986, as amended, unless and until all of the Founders agree to such
termination.  For as long as the Company remains an S corporation, the parties
hereto agree that the Company shall make Tax Distributions to the Founders each
year.  For purposes hereof, "Tax Distributions" shall mean an amount equal to
                             -----------------
the net taxable income and/or net gain of the Company required to be reported by
the Founders, multiplied by a percentage, accurate to three decimal points, that
is equal to the highest "effective combined income-tax rate" applicable to any
Founder, such effective combined income-tax rate to take into account the
combined effects of federal and state income taxation (but not city or other
local income taxes), including but not limited to any deduction, for federal
purposes, of state income taxes paid.  The determination of the effective
combined income-tax rate referred to in the preceding sentence shall be made by
the accountants retained by the Company to prepare its tax returns for each
year, and such determination shall be conclusive.  The purpose of the Tax
Distribution is to pay the Founders an amount not less than the federal and
state income tax liabilities incurred by them with respect to the Company's
taxable income and gain in each year, as a result of the Company's status as an
S corporation. The Tax Distribution for each tax year shall be declared by the
Board of Directors and distributed in accordance with the prevailing tax laws
governing estimated tax payments, and shall be expressly denominated by the
Board of Directors as a Tax Distribution.

     10.  Optional Redemption of Shares of Common Stock
          ---------------------------------------------

          10.1 During the period (the "Optional Redemption Period") beginning on
                                       --------------------------
the Effective Date and ending on the earlier to occur of (i) an IPO (as defined
below), or (ii) a Change in Control (as defined below), each Founder shall be
entitled to sell to the Company and, if such election to sell is made by a
Founder, the Company shall be required to purchase

                                      -8-
<PAGE>

up to 10%, per year of their respective shares of Common Stock owned by them as
of the date hereof (as adjusted for any stock splits, stock dividends or other
reorganization) upon the terms and conditions set forth below, subject to the
limitations contained in Section 12 below. For purposes hereof, an "IPO" shall
                                                                    ---
be defined as an initial public offering of shares of the Company's capital
stock pursuant to the provisions of the Securities Act, the Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations of the
United States Securities and Exchange Commission (the "Commission") or any other
                                                       ----------
federal agency at the time administering the Securities Act and the Exchange
Act; and a "Change in Control" shall be defined as a merger or consolidation of
            -----------------
the Company with another corporation or entity in which the Company is not the
surviving corporation, or which results in the acquisition of substantially all
of the Company's outstanding Common Stock by a single person, entity or group of
persons or entities acting in concert, or the sale or transfer of all or
substantially all of the assets of the Company.

          10.2 The price to be paid by the Company for any such shares of Common
Stock purchased from a Founder pursuant to the terms of this Agreement (the "Per
                                                                             ---
Share Value") shall be the fair market value which the parties hereto hereby
-----------
agree shall, for purposes of this Agreement, be equal to the number obtained by
the following formula rounded up to the next $.25.

     Formula:       1.3 x A
                    -------
                     B - C

               Where:                  A   =    The consolidated annual sales
                                                for the Company during the
                                                Prior Year (as defined below)
                                                as determined by the Company's
                                                auditors.

                                       B   =    The total number of shares of
                                                Common Stock issued and
                                                outstanding as of the
                                                Determination Date (as defined
                                                below).

                                       C   =    Any Pledged Shares as of the
                                                Determination Date.

     As used herein, "Prior Year" shall mean:
                      ----------

        (i) The immediately preceding calendar year, if the Determination Date
     is between April 1 and December 31 of any year; or

                                      -9-
<PAGE>

        (ii) The calendar year preceding the immediately preceding calendar year
     if the Determination Date is between January 1 and March 30 of any year.

     Example 1:  Assume that on June 1, 1999, a Founder notifies the Company
     ---------
that he wishes to redeem 111,100 shares of Stock, and the Company's consolidated
annual sales for 1998 was $19,000,000. Then the Per Share Value would be $5.00
[(1.3 x $19,000,000) / 5,055,000 = $4.89, which is then rounded up to the next
$.25 = $5.00] and the Redemption Price payable to such Founder would be
$555,500.

     Example 2:  Assume that after the above redemption is completed, a Founder
     ---------
notifies the Company on February 1, 2000 that he wishes to redeem a further
50,000 shares of Common Stock. Since the Determination Date is between January 1
and March 30, the consolidated annual sales figure to be used will be 1998
audited sales ($19,000,000) and the total outstanding shares of Common Stock
will be 4,943,900, which takes into account the prior redemption of 111,100
shares. Therefore, the Per Share Value would be $5.00 [(1.3 x $19,000,000) /
4,943,900 = $4.996, which is then rounded up to the next $.25 = $5.00] and the
Redemption Price payable to such Founder would be $250,000.

     Example 3:  Assume that after the above two redemptions, the Founder
     ---------
notifies the Company on November 1, 2000 that he wishes to redeem a further
50,000 shares of Common Stock and that the Company's consolidates sales figures
for 1999 was $24,000,000. The Per Share Value would be $6.50 [(1.3 x
$24,000,000) / 4,893,900 = $6.38, which is then rounded up to the next $.25 =
$6.50] and the Redemption Price payable to such Founder would be $325,000.

          10.3 In the event a Founder does not exercise his right to redeem his
maximum number of shares of Common Stock in any given year during the Optional
Redemption Period, he shall have the right to redeem such unredeemed shares (the
"Carry-Over Shares") in subsequent years, provided, however, that the
 -----------------
Determination Date used to calculate the Per Share Value for such Carry-Over
Shares shall be deemed to be December 31 of the year during which such Carry-
Over Shares were first redeemable by such Founder. In addition, a Founder's
redemption of any Carry-Over Shares in subsequent years shall not affect such
Founder's right to redeem his entire 10% share allotment becoming redeemable in
respect of each subsequent year.

     Example 4:  Assume that after the above three redemptions are made, the
     ---------
Founder notifies the Company on June 1, 2001 that he wishes to redeem his full
allotment of 111,100 shares ( in this case, either Watkins or Baggott) together
with the 11,100 shares not redeemed in 2000, and assume the Company's
consolidated sales for 2000 were $26,000,000.  The Per Share Value for the
11,100 Carry-Over Shares would be $6.50 [(1.3 x $24,000,000) / 4,843,900 =
$6.44, which is then rounded up to the next $.25 = $6.50].  The Per Share Value
for the 111,100 shares that become redeemable during 2001 would be $7.00 [(1.3 x
$26,000,000) / 4,832,800 = $6.99, which is then rounded up to the next $.25 =
$7.00].  Therefore, the Redemption Price payable to such Founder for all 122,200
shares would be $849,850.00 [($6.50 x 11,100) + ($7.00 x 111,100)].

                                      -10-
<PAGE>

          10.4  A Founder shall provide notice to the Company of his election
to sell shares of Common Stock to the Company (a "Redemption Notice"). The
                                                  -----------------
Redemption Notice shall set forth the number of shares of Common Stock being
sold to the Company (the "Redeemed Shares"). The date of such Redemption Notice
                          ---------------
shall be referred to herein as the "Determination Date". The Company shall,
                                    ------------------
within thirty (30) days of the Determination Date, calculate the aggregate
purchase price for the Redeemed Shares (the "Redemption Price"). Unless the
                                             ----------------
Company and the electing Founder otherwise agree, the closing of the redemption
of the Redeemed Shares shall take place on the thirtieth (30/th/) day following
the Determination Date or, if that day shall be a Saturday, Sunday or legal
holiday, on the next following business day, at the principal offices of the
Company. Payment of the Redemption Price shall be made by Company check, wire
transfer or other form reasonably acceptable to the Founder. At the closing, the
Founder shall execute and deliver a stock power, his original stock certificate
and/or other documents reasonably requested by counsel to the Company evidencing
the sale of the Redeemed Shares to the Company.

          10.5  Each Founder hereby represents and warrants to the Company as
follows (which representations and warranties shall be true and correct as of
the Effective Date and as of the closing of any redemption hereunder and on the
closing of any Loan pursuant to Section 11 below):

          (i)   He has good and marketable title to the shares of Common Stock
     registered in his name, free and clear of any and all covenants,
     conditions, restrictions, voting trust arrangements, liens, charges,
     encumbrances, options, warrants and adverse claims or rights of purchase or
     conversion whatsoever other than the Pledged Shares, if any.

          (ii)  He has the full right, power and authority to enter into this
     Agreement and to transfer, convey and sell to the Company the Redeemed
     Shares as of the Effective Date hereof and as of the date of any redemption
     thereof.

          (iii) This Agreement and the performance of the transactions
     contemplated hereby and thereby are each binding upon and enforceable
     against him in accordance with its respective terms.

          (iv)  The execution, delivery and performance of this Agreement and
     the consummation of the transactions contemplated hereby (i) do not require
     the consent, waiver or approval of any person or public authority and (ii)
     do not conflict with, or result in a breach of any provision of any
     material agreement or any judgement, order, writ, prohibition, injunction
     or decree of any court or other governmental body to which he is a party.

                                      -11-
<PAGE>

     11.  Company Loans
          -------------

          11.1  During the Optional Redemption Period, each Founder shall be
entitled to obtain loans from the Company (individually, a "Loan" and,
                                                            ----
collectively, the "Loans") in lieu of redeeming shares of Common Stock pursuant
                   -----
to Section 10 above.  Such Loans shall be secured by a pledge of shares of
Common Stock and shall be on the terms and conditions set forth in the form of
Promissory Note attached hereto as Exhibit B (the "Note").
                                   ---------       ----

          11.2  Each Founder may obtain Loans in any given year during the
Optional Redemption Period in an aggregate original principal amount not to
exceed the Per Share Value (determined using the formula in Section 10 above)
multiplied by the amount by which 10% of such Founder's Shares as of the date
hereof (as adjusted for any stock splits, stock dividends or other
reorganization) exceeds the number of Redeemed Shares in respect of such year,
subject to the limitations contained in Section 12 below.  It is the intention
of the parties that each Founder's right to obtain Loans is in lieu of his right
                                                            -- ---- --
to redeem his shares of Common Stock.  Therefore, in respect of any given year
during the Optional Redemption Period, each Founder shall not be entitled to
receive proceeds from the Company, whether in the form of Loans or Redemption
Price, in excess of 10% of such Founder's Shares multiplied by the Per Share
Value (using the immediately preceding year's sales figure for such
calculation).

          11.3  Each Founder shall provide notice to the Company of his election
to obtain a Loan from the Company (a "Loan Notice"), provided, however, that all
                                      -----------
Loans must be in multiples of $25,000.  The Loan Notice shall set forth the
number of Pledged Shares in respect of such Loan.  The date of such Loan Notice
shall be used as the Determination Date in calculating the amount of the Loan.
The Company shall, within thirty (30) days of the Determination Date, calculate
the Loan Amount.  Unless the Company and the Founder seeking the Loan otherwise
agree, the closing of the Loan shall take place on the thirtieth (30/th/) day
following the Determination Date or, if that day shall be a Saturday, Sunday or
legal holiday, on the next following business day, at the principal offices of
the Company.  Payment of the proceeds of the Loan shall be made by company
check, wire transfer or other form reasonably acceptable to the Founder seeking
the Loan.  At the closing, the Founder seeking the Loan shall execute and
deliver to the Company a Note, a Pledge Agreement together with a stock power
signed in blank and original stock certificates relating to the Pledged Shares
and/or any other documents reasonably requested by counsel to the Company
evidencing the Loan and the pledge of the Pledged Shares.

          11.4  Each Founder's right to obtain Loans shall carry-over from year
to year in a manner similar to his right to redeem shares of Common Stock such
that, if a Founder does not obtain the full amount of the Loans to which he is
entitled in any given year (taking into account any Redeemed Shares during such
year), he shall be entitled to obtain Loans in subsequent years during the
Optional Redemption Period (taking into

                                      -12-
<PAGE>

account any redemption of Carry-Over Shares) provided that the computation of
such Loans shall be based upon such prior year's Per Share Value.

          11.5  All Loans shall be secured by a pledge of shares of Common Stock
pursuant to a pledge agreement substantially in the form attached hereto as

Exhibit C (the "Pledge Agreement").  The shares of Common Stock so pledged are
---------       ----------------
referred to herein as "Pledged Shares."
                       --------------

          11.6  Each Note shall bear simple interest at a rate (computed at the
time of issuance of the Note) equal to the greater of (i) the Applicable Federal
Rate or (ii) the spread between the rate of interest earned by the Company on
liquid assets and the rate of interest payable by the Company on short-term
borrowings.  All Loans shall be due and payable upon the earlier to occur of (i)
five (5) years from the date of issuance, or (ii) one (1) year after the
expiration of any Lock-Up (as defined below) following an IPO, or (iii) a Change
in Control.  Payments of interest only shall be made in cash on December 31 of
each year.  All payments of principal shall be made in the form of cash or in
the form of Pledged Shares.  The parties hereby agree that if a Founder elects
to repay all or any portion of the principal balance of any Note using Pledged
Shares, the value of such Pledged Shares for purposes of repaying such Loan
shall be equal to the Per Share Value used to compute the face amount of such
Loan at the time the Founder obtained such Loan.  The parties also agree and
acknowledge that in the event the Founder defaults under a Note, the Company
shall have the right to acquire the Pledged Shares securing the payment of such
Note from the defaulting Founder and apply such Pledged Shares against the
amounts owed to the Company under the Note at a valuation based upon the Per
Share Value for such Pledged Shares at the time the Founder obtained the Loan,
notwithstanding the fact that the Per Share Value for other shares of Common
Stock may be higher at such time.

     Example 5:  Assume that in Example 1 above, instead of redeeming the full
     ---------
10% of his Share Ownership he is entitled to redeem each year, the Founder
redeems 50,000 shares and elects to pledge the remaining 61,100 shares as
security for a Loan.  The total proceeds paid to such Founder by the Company
would be the same as in Example 1 above (i.e., $5.00 x 111,100 = $555,500)
however, $250,000 of this would be paid to him as a Redemption Price for his
50,000 Redeemed Shares and $305,500 would be the original principal balance of a
Loan which would be secured by a pledge of the remaining 61,100 shares.  Upon
the maturity of the Note, the Founder could elect to repay the Loan in cash or
by transferring the 61,100 Pledged Shares to the Company.

     12.  Limitations on Redemptions and Borrowings.  Beginning on April 1,
          -----------------------------------------
2001, the following additional limitations shall apply to the Founders' right to
redeem their Shares and obtain Loans from the Company.

          12.1  If the consolidated annual sales of the Company (as determined
by the Company's auditors) in respect of the Prior Year shall be less than the
Company's consolidated annual sales (as determined by the Company's auditor's)
in respect of the year

                                      -13-
<PAGE>

immediately preceding the Prior Year, then no Founder shall be entitled to
redeem any of his Shares or obtain any Loans. Nevertheless, the Founders' rights
to redeem their Shares and obtain Loans shall accrue and shall be deemed to be
"Carry-Over Shares". The Determination Date used to calculate the Per Share
Value for such Carry-Over Shares shall be deemed to be December 31 of the year
during which the right to redeem such Carry-Over Shares first accrued.

     Example 6:  Assume consolidated annual sales in 1998, 1999, 2000 and 2001
     ---------
were $19,000,000, $25,000,000, $24,000,000 and $27,000,000, respectively.
During the period when 2000 is the Prior Year, none of the Founders would be
allowed to exercise their rights to redeem their Shares or obtain Loans.
However, when 2001 becomes the Prior Year, then the Founders shall be entitled
to exercise a further twenty (20%) of their Shares (or obtain equivalent Loans),
but the Per Share Valuation of the ten percent (10%) Carry-Over Shares from the
Prior Year shall be based upon annual sales in 2000 of $24,000,000.

          12.2   In the event the Company declares and pays a distribution to
the Founders above and beyond a Tax Distribution (a "Non-Tax Distribution"), the
                                                     --------------------
portion of any such Non-Tax Distribution paid to a Founder shall reduce (i) the
aggregate amount of Shares that such Founder would otherwise be entitled to
redeem hereunder during such year, and (ii) the aggregate amount of Loans such
Founder would otherwise be entitled to obtain hereunder during such year.

          12.3   In the event that a Founder has obtained a Loan during any
given year, and the Company declares and pays a Non-Tax Distribution, such
Founder shall be required to apply the portion of such Non-Tax Distribution
allocated to such Founder against the outstanding balance of any Loan obtained
by such Founder during such year. Such amount may not be re-borrowed by such
Founder during that year. The Company may, in its sole discretion, retain such
Founder's portion of a Non-Tax Distribution and apply the proceeds of such
distribution against the amounts due under the relevant Note from such Founder.
To the extent such Founder's portion of such Non-Tax Distribution exceeds the
aggregate amount due under the relevant Note, such excess shall be paid to the
Founder.

     13.  IPO and Change in Control.  In the event of an IPO or a Change in
          -------------------------
Control, each Founder's right to redeem his shares of Common Stock and his right
to obtain Loans shall immediately terminate.

     14.  "Piggy Back" Registration Rights.  If at any time the Company shall
           -------------------------------
determine to register under the Securities Act any of the shares of Common Stock
held a Founder and if, within twenty (20) days from the date of such notice,
either of the other Founders shall request in writing, the Company shall use its
best efforts to include in such registration statement all or any portion of all
of the requesting Founder's shares of Common Stock, other than any Pledged
Shares, that such Founder shall request to be registered, except that if, in
connection with any underwritten public offering, the Lead Underwriter shall
impose a limitation on the number of shares of Common Stock which may be
included in any such registration statement because, in

                                      -14-
<PAGE>

its judgment, such limitation is necessary to affect an orderly public
distribution, and such limitation is imposed pro rata among the Founders
                                             --- ----
according to the number of shares of Common Stock which each of them had
requested to be included in the registration statement, then the Company shall
be obligated to include in such registration statement only such limited portion
of such Founder's shares of Common Stock.

     15.  Fees and Expenses.  Except as otherwise set forth herein, the Founders
          -----------------
and the Company shall each pay their respective expenses, including, but not
limited to, legal and accounting expenses incident to the preparation and
carrying out of this Agreement and the consummation of the transactions
contemplated hereby, provided, however, that to the extent the Company pays
expenses of any Founder in connection with an IPO, Change of Control or
"piggyback" registration rights, the Company shall also pay the comparable
expenses of the other Founders.

     16.  Broker.  Each party hereto represents and warrants to the other that
          ------
no person, firm or corporation has acted in the capacity of broker or finder on
its behalf to bring about the negotiation of this Agreement.  Each party agrees
to indemnify and hold harmless the other against any claims or liabilities
asserted against either of them by any person acting or claiming to act as a
broker or finder on behalf of such party.

     17.  Preparation of Agreement.  The Founders acknowledge that the Company's
          ------------------------
counsel, Holland & Knight, LLP, prepared this Agreement on behalf of and in the
course of their representation of the Company, as directed by its Board of
Directors, and that each of them have been advised that a conflict may exist
between his interests and those of the Company and each has had the opportunity
to seek the advice of independent counsel.

     18.  Amendment and Termination.  This Agreement may be modified or amended
          -------------------------
upon the written consent of all of the Founders, except that this Agreement may
be modified by an agreement in writing signed by the party against whom the
enforcement of any waiver, changes, modification or discharge is sought.  This
Agreement shall terminate upon the earlier to occur of the following:

          (i)   an IPO;

          (ii)  Change in Control;

          (iii) at such time as there is only one Founder;

          (iv)  upon the unanimous written consent of all of the Founders;

          (v)   the redemption of all of the Founders' Shares.

                                      -15-
<PAGE>

     In the event of termination of this Agreement, each then living Founder
shall have the right to purchase from the Company for an amount equal to the
then unamortized prepaid gross premium one or more of the then in force policies
insuring his life referred to in subsection 5.3.

     19.  Board of Directors.  For as long as a Founder remains one of the ten
          ------------------
(10) largest stockholders in the Company, the other Founders hereby agree to
elect such Founder to the Board of Directors of the Company provided, that  such
Founder attends (either in person or by telephone) at least one-half of all
regularly-scheduled Board Meetings during any 12-month period.

     20.  Captions and Headings.  Captions and headings of the paragraphs and
          ---------------------
subparagraphs of this Agreement are for convenience and reference only, and the
words contained therein shall in no way be held to explain, modify, amplify, or
aid in the interpretation, construction or meaning of the provisions of this
Agreement.

     21.  Severability.  In the event that any provision of this Agreement or
          ------------
the application thereof to any person or in any circumstances shall be
determined to be invalid, unlawful, or unenforceable to any extent, the
remainder of this Agreement, and the application of such provision to persons or
circumstances other than those as to which it is determined to be invalid,
unlawful or unenforceable, shall not be affected thereby, and each remaining
provision of this Agreement shall continue to be valid and may be enforced to
the fullest extent permitted by law.

     22.  Counterparts.  This Agreement may be executed simultaneously in two or
          ------------
more counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.

     23.  Publicity and Disclosures.  No press releases or public disclosure,
          -------------------------
either written or oral, of the transactions contemplated by this Agreement,
shall be made without the prior knowledge and written consent of the parties
hereto.

     24.  Miscellaneous.
          -------------

          24.1 Any notice hereunder shall be personally delivered or mailed by
registered or certified mail, postage prepaid, and addressed to any Founder at
his address as appearing in the records of the Company and to the Company at its
principal office, or at such other address as may be specified by a party to the
other parties by notice given in the manner herein provided.

          24.2 No waiver by a party hereto of a breach of any provision of this
agreement shall be deemed to be a waiver of any preceding or subsequent breach
of the same or any other provision hereof.

          24.3 This Agreement shall be governed by the laws of Massachusetts;

                                      -16-
<PAGE>

          24.4 This Agreement, including the Exhibits attached hereto, set forth
the entire agreement among the parties concerning the subject matter hereof and
supersedes all prior agreements and understandings relating to the subject
matter hereof, including, without limitation, the Prior Shareholders' Agreement.

          24.5 This agreement shall bind and benefit the parties hereto and
their respective successors and legal representatives, provided that the rights
of a Founder under Section 1 may not be assigned to a transferee of such Founder
without the prior written consent of the other Founders.  The Company may assign
its rights hereunder to purchase shares of Common Stock from a Founder and may
assign all of its rights and obligations in connection with a Change in Control.
Otherwise, the Company may not assign its rights or obligations hereunder
without the prior written consent of each of the Founders.

     Except as expressly set forth herein, nothing herein expressed or implied
is intended or shall be construed to confer upon or give to any person or entity
other than the parties hereto and their successors or permitted assigns, any
rights or remedies under or by reason of this Agreement including, without
limitation, any right to continued employment.

                 [Remainder of Page Intentionally Left Blank]

                                      -17-
<PAGE>

     IN WITNESS WHEREOF, the parties have executed this agreement under seal on
the date first above written.

                         EMBEDDED SUPPORT TOOLS CORPORATION, a
                         Massachusetts corporation

                         By:     /s/ Peter Dawson
                              --------------------------------
                              Peter S. Dawson, President

                         By:     /s/ Peter Dawson
                              --------------------------------
                              Peter S. Dawson, Individually

                         By:     /s/ James Watkins
                              --------------------------------
                              James E. Watkins, Individually

                         By:     /s/ John Baggott
                              --------------------------------
                              John T.W. Baggott, Individually

                                      -18-
<PAGE>

                                                                       Exhibit A
                                                                       ---------

                          COUNTERPART SIGNATURE PAGE
                          --------------------------

     The undersigned hereby executes this Counterpart Signature Page as a part
of the First Amended and Restated Founding Shareholders' Agreement, dated as of
July 1, 1999, by and among, Embedded Support Tools Corporation, a Massachusetts
corporation, and its stockholders (the "Shareholders' Agreement") and hereby
accepts and agrees to be bound by all the terms and conditions of the
Shareholders' Agreement.

     IN WITNESS WHEREOF, the undersigned has executed this instrument under seal
as of the date set forth below.

     ___________________________        _____________________________
     Witness                            Stockholder's Signature

                            Print Name  ______________________________

                                  Date  ______________________________

                                      -19-<PAGE>

                                                                     Exhibit 4.2

                              FIRST AMENDMENT TO
                          FIRST AMENDED AND RESTATED
                        FOUNDING SHAREHOLDERS AGREEMENT

     Agreement made this 17 day of December, 1999 by and between Peter S. Dawson
                         --
("Dawson"), John T.W. Baggott ("Baggott"), James E. Watkins ("Watkins") and
Embedded Support Tools Corporation ("Company").

     Reference is made to the First Amended and Restated Founding Shareholders
Agreement dated July 1, 1999 (the "First Restated Agreement").

     WHEREAS, the individual parties (the "Founders") and the Company desire to
make certain changes in the First Restated Agreement with a view to facilitating
the Company's completion of possible equity financing or merger transactions in
the future;

     WHEREAS, the parties deem such changes and the other agreements set forth
herein to be in each of their and the Company's mutual best interests;

     NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:

     1.   For the six months period beginning with the date of this agreement,
each of the Founders:

          (a) hereby waives and agrees not to exercise his rights, as more fully
     set forth in Section 1.3 of the First Restated Agreement, to participate in
     the issuance by the Company of any capital stock or any rights to acquire
     capital stock of the Company;

          (b) hereby waives and agrees not to exercise his rights, as more fully
     set forth in Section 11 of the First Restated Agreement, to obtain loans
     from the Company provided that this shall not have effect upon any loans
     which a Founder presently has outstanding from the Company pursuant to the
     First Restated Agreement;

          (c) hereby waives and agrees not to exercise his rights, as more fully
     set forth in Section 10 of the First Restated Agreement, to sell shares of
     his Common Stock to the Company
<PAGE>

     2.   The parties agrees that section 19 of the First Restated Agreement,
providing for each Founder to vote, under certain circumstances, for the
election of each of the others as a director of the Company, be terminated and
of no force and effect.

     3.   Except as set forth above, the First Restated Agreement shall remain
in full force and effect.

     IN WITNESS WHEREOF, the parties have executed this agreement under seal on
the date first above written.

                              EMBEDDED SUPPORT TOOLS CORPORATION, a
                              Massachusetts corporation

                              By: /s/ Peter Dawson
                                  --------------------------------
                                  Peter S. Dawson, President

                              By: /s/ Peter Dawson
                                  --------------------------------
                                  Peter S. Dawson, Individually

                              By: /s/ James E. Watkins
                                  --------------------------------
                                  James E. Watkins, Individually

                              By: /s/ John T.W. Baggott
                                  --------------------------------
                                  John T.W. Baggott, Individually

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00001-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00001-of-00352.parquet"}]]