Document:

exv10w5

 

Exhibit 10.5

NONQUALIFIED STOCK OPTION AGREEMENT

FLOWSERVE CORPORATION

2004 STOCK COMPENSATION PLAN

          This Nonqualified Stock Option Agreement (the “Agreement”) is made and entered into by and
between Flowserve Corporation, a New York corporation (the “Company”) and                                          (the
“Participant”) as of                                          (the “Date of Grant”).

W I T N E S S E T H

          WHEREAS, the Company has adopted the Flowserve Corporation 2004 Stock Compensation Plan (the
“Plan”) to strengthen the ability of the Company to attract, motivate and retain Employees, Outside
Directors and Consultants who possess superior capabilities and to encourage such persons to have a
proprietary interest in the Company; and

          WHEREAS, the Organization and Compensation Committee of the Board of Directors of the Company
believes that the granting of the Stock Option described herein to the Participant is consistent
with the stated purposes for which the Plan was adopted; and

          NOW, THEREFORE, in consideration of the mutual covenants and conditions hereafter set forth
and for other good and valuable consideration, the Company and the Participant agree as follows:

	 	1.	 	Grant of Stock Option

          The Company hereby grants to the Participant the right and option (the “Stock Option”) to
purchase an aggregate of                     shares (the “Shares”) (such number being subject to adjustment as
provided in Paragraph 10 hereof) of the Common Stock of the Company (the “Common Stock”) on the
terms and conditions herein set forth. This Stock Option may be exercised in whole or in part and
from time to time hereinafter. This Stock Option is not intended to qualify as an “incentive stock
option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
“Code”). Therefore, the Participant will not be required to satisfy any specific holding period
requirements that might otherwise apply with respect to the Common Stock issuable upon exercise of
the Stock Option.

	 	2.	 	Exercise Price

          The price at which the Participant shall be entitled to purchase the Common Stock covered by
the Stock Option shall be $      per share.

	 	3.	 	Term of Stock Option

          The Stock Option granted hereby shall be and remain in force and effect during the “Option
Period,” which shall begin on the Date of Grant and end (the “Expiration Date”) on the first to
occur of:

	 	(a)	 	the date that is ten (10) years from the Date of Grant; or
	 
	 	(b)	 	in the case of termination of employment with the Company or a
Subsidiary, any other date specified in Paragraph 7.

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	 	4.	 	Exercise of Stock Option

          This Stock Option shall vest and become exercisable over three years and a day following the
Date of Grant in accordance with the following table; provided, however, that this Stock Option
shall cease to vest following the Participant’s termination of employment and shall cease to be
exercisable with respect to any portion that has been previously exercised or when the Stock Option
lapses.

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Aggregate Number of Shares Subject to this Stock Option which
	Date	 	 	 	 	 	are Vested and Exercisable
	Insert Date
	 	 	 	 	 	 	                    	 
	Insert Date
	 	 	 	 	 	 	                    	 
	Insert Date
	 	 	 	 	 	 	                    	 

	 	5.	 	Method of Exercising Stock Option

	 	(a)	 	Subject to the terms and conditions of this Agreement, this
Stock Option may be exercised by delivering written notice to the Organization
and Compensation Committee of the Board of Directors of the Company, or any
officer or officers delegated with the authority to act on such Committee’s
behalf pursuant to Section 3.3 of the Plan (the “Committee”), setting forth:

	 	(i)	 	the number of shares of Common Stock with
respect to which the Stock Option is to be exercised;
	 
	 	(ii)	 	the Exercise Date;
	 
	 	(iii)	 	the Social Security number of the Participant;
	 
	 	(iv)	 	the method of payment elected (see Paragraph 6 hereof); and
	 
	 	(v)	 	the exact name in which the shares will be
registered.

	 	(b)	 	The notice described in Paragraph 5(a) above must be signed by
the Participant and shall be accompanied by payment of the purchase price of
such Shares. If the Stock Option is exercised by a person or persons other
than the Participant pursuant to Paragraph 7 hereof, such notice must be signed
by such other person or persons and must be accompanied by proof acceptable to
the Committee of the legal right of such person or persons to exercise the
Stock Option.

	 	6.	 	Method of Payment for the Stock Option

	 	(a)	 	As a general rule, the full purchase price for the Shares
purchased upon the exercise of the Stock Option (i.e., the number of shares
being purchased multiplied by the price per share) must be paid in cash. The
Committee may, however, in its discretion, allow the Participant to pay for the
Common Stock:

	 	(i)	 	in an equivalent acceptable to the Committee;
	 
	 	(ii)	 	by assigning and delivering to the Company
shares of Common Stock owned by the Participant or by surrendering
another Award; or

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	 	(iii)	 	by combination of cash, Common Stock or one or
more Awards equal in value to the purchase price.
	 
	 	 	 	In addition, at the request of the Participant and to the extent
permitted by applicable law, the Committee may approve an arrangement
with a brokerage firm, under which the brokerage firm, on behalf of
the Participant, will pay for shares of Stock purchased upon the
exercise of the Stock Option.

	 	 	 	In addition, at the request of the Participant and to the extent permitted
by applicable law, the Committee may approve an arrangement with a brokerage
firm, under which the brokerage firm, on behalf of the Participant, will pay
for shares of Stock purchased upon the exercise of the Stock Option.
	 
	 	(b)	 	For purposes of this Agreement, any Common Stock used or Award
surrendered to pay all or a part of the purchase price of the Stock Option will
be valued at the Fair Market Value on the exercise date. Further, such payment
must be accompanied by an assignment of such Common Stock on a duly executed
stock power, which is on a form separate from the certificate(s) for the Common
Stock, authorizing the transfer of such shares to the Company.

	 	7.	 	Termination of Employment

          The Option Period will end and the Stock Option, whether or not then exercisable, will lapse
upon the termination of employment of a Participant as follows:

	 	(a)	 	If the termination of employment is due to any reason other
than Cause (as defined in Paragraph 7(b)), death, Disability (as defined in
Paragraph 7(c)) or Retirement (as defined in Paragraph 7(d)), the Participant
may continue to exercise the Stock Option, in whole or in part, until the
earliest of:

	 	(i)	 	the date specified in Paragraph 3(a); or
	 
	 	(ii)	 	the date which is six (6) months following the
latter of the last date of active employment or the release or lapse of
trading restrictions.

	 	(b)	 	If the termination of employment is due to Cause (as defined in
this Paragraph 7(b)), the Option Period shall end, and the Stock Option
shall cease to be exercisable, as of the date of termination of the
Participant’s employment. “Cause” shall, in all cases, be determined by the
Committee, in its sole and absolute discretion, and shall mean the willful and
continued failure to substantially perform the duties of employment (other than
due to death or Disability), willful conduct that is injurious to the Company
or a Subsidiary, any act of dishonesty, the commission of a felony or violation
of any legal duty to the Company or a Subsidiary.
	 
	 	(c)	 	In the event of the Participant’s death or total and permanent
disability (“Disability”), the Participant (or in the case of death, the
Participant’s designated beneficiary) may continue to exercise the Stock
Option, in whole or in part, until the earliest of:

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	 	(i)	 	the date specified in Paragraph 3(a); or
	 
	 	(ii)	 	the date which is one (1) year following the
Participant’s death or Disability (as determined by the Committee).

	 	(d)	 	In the event of the Participant’s Retirement (as defined in
this Paragraph 7(d)), the Participant may continue to exercise the Stock
Option, to the extent then vested, in whole or in part, until the earlier of:
(i) the expiration of the term of the Stock Option (as specified in Paragraph
3) or (ii) five (5) years after the Participant’s Retirement date, but only if,
and so long as, the Participant shall refrain from competing against the
Company or any Subsidiary. “Retirement” shall, in all cases, be determined by
the Committee, in its sole and absolute discretion, and shall mean the
Participant’s termination of employment with the Company and all Subsidiaries
after reaching age sixty (60) with at least ten (10) years of service with the
Company or a Subsidiary.

	 	8.	 	Forfeiture and Disgorgement Upon Competition

	 	(a)	 	Notwithstanding any provisions in this Agreement to the
contrary, in the event either (A) the Participant violates the provisions of
Paragraph 8(b) or the provisions of any restrictive covenants agreement by and
between the Company or its subsidiaries and the Participant or (B) the
Participant or anyone acting on the Participant’s behalf brings a claim against
the Company seeking to declare any term of this Paragraph 8 void or
unenforceable or the provisions of any other restrictive covenants agreement by
and between the Company or its subsidiaries and the Participant void or
unenforceable, then:

	 	(i)	 	the Stock Option will immediately cease to vest
and any portion of the Stock Option that has not previously vested as
of the date of such violation shall be forfeited by the Participant to
the Company;
	 
	 	(ii)	 	the Participant will immediately sell to the
Company all shares acquired by the Participant pursuant to the exercise
of any portion of the Stock Option that vested within the last twelve
(12) months and that Participant still owns on the date of such
violation for the lesser of (a) the exercise price paid by the
Participant for such Shares or (b) the Fair Market Value of such Shares
on the date of sale to the Company;
	 
	 	(iii)	 	the Participant will immediately pay to the
Company any gain that the Participant realized on the sale of any
Shares acquired pursuant to the exercise of the Stock Option and which
vested within the last twelve (12) months; and
	 
	 	(iv)	 	the Company shall be entitled to payment by the
Participant of its attorneys’ fees and costs incurred in enforcing the
provisions of this Paragraph 8, in addition to any other legal
remedies.

	 	(b)	 	By execution of this Agreement, the Participant, either
individually or as a principal, partner, stockholder, manager, agent,
consultant, contractor, employee, lender, investor, volunteer or as a director
or officer of any corporation or association, or in any other manner or
capacity whatsoever, agrees to the

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	 	 	 	following from the date of grant until the date one (1) year immediately
following his or her termination of employment (for any reason):

	 	 	 	The Participant shall not, whether directly or indirectly, without the express prior
written consent of the Company:

	 	(i)	 	Non-Competition
	 
	 	 	 	Become employed by, advise, perform services or otherwise engage in
any capacity with a Competing Business in the Restricted Area. For
purposes of this Agreement, “Competing Business” means any entity or
business that is in the business of providing flow management
products and related repair and/or replacement services. Because the
scope and nature of the Company’s business is international in scope
and the Participant’s job duties are international in scope, the
“Restricted Area” is worldwide. However, the Participant may own,
directly or indirectly, solely as an investment, securities of any
business traded on any national securities exchange or NASDAQ,
provided that the Participant is not a controlling person of, or
member of a group that controls such business, and provided further
that the Participant does not, directly or indirectly, own three
percent (3%) or more of any class of securities of such business;

	 	(ii)	 	Non-Solicitation
	 
	 	 	 	Solicit business from, attempt to transact business with, or transact
business with any customer or prospective customer of the Company
with whom the Company transacted business or solicited within the
preceding twenty-four (24) months, and which either: (1) the
Participant contacted, called on, serviced, conducted business with
or had contact with during the Participant’s employment or that the
Participant attempted to contact, call on, service, or do business
with during the Participant’s employment; or (2) the Participant
became acquainted with or dealt with, for any reason, as a result of
the Participant’s employment with the Company. This restriction
applies only to business that is in the scope of services or products
provided by the Company; or
	 
	 	(iii)	 	Non-Recruitment
	 
	 	 	 	Hire, solicit for employment, induce or encourage to leave the
employment of the Company, any current employee of the Company or its
subsidiaries or any former employee of the Company or its
subsidiaries whose employment with the Company or its subsidiaries
ceased less than three (3) months earlier.

	 	(c)	 	Confidential Information
	 
	 	 	 	Immediately upon the Participant’s execution of this Agreement, and
continuing on an ongoing basis during the Participant’s employment, the
Company agrees to provide the Participant with new Confidential Information
(defined in this

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	 	 	 	Paragraph 8(c)) to which the Participant has not previously had access. For
purposes of this Agreement, “Confidential Information” includes any trade
secrets or confidential or proprietary information of the Company,
including, but not limited to, the following:

	 	(i)	 	Information concerning customers, clients,
marketing, business and operational methods of the Company and their
customers or clients, contracts, financial or other data, technical
data, e-mail and other correspondence or any other confidential or
proprietary information possessed, owned or used by the Company;
	 
	 	(ii)	 	Business records, product construction, product
specifications, financial information, audit processes, pricing,
business strategies, marketing and promotional practices (including
internet-related marketing) and management methods and information;
	 
	 	(iii)	 	Financial data, strategies, systems, research,
plans, reports, recommendations and conclusions;
	 
	 	(iv)	 	Names, arrangements with, or other information
relating to, any of the Company’s customers, clients, suppliers,
financiers, owners, representatives and other persons who have business
relationships with the Company or who are prospects for business
relationships with the Company; and
	 
	 	(v)	 	Any non-public matter or thing obtained or
ascertained by the Participant through the Participant’s association
with the Company, the use or disclosure of which might reasonably be
construed to be contrary to the best interests of the Company.

	 	(d)	 	Non-Disclosure
	 
	 	 	 	In exchange for the Company’s promise to provide the Participant with
Confidential Information, the Participant shall not, during the period of
the Participant’s employment or at any time thereafter, disclose to anyone,
or publish, or use for any purpose, any Confidential Information, except as:
(i) required in the ordinary course of the Company’s business or
the Participant’s work for the Company; (ii) required by law; or (iii)
directed and authorized in writing by the Company. Upon the termination of
the Participant’s employment for any reason, Participant shall immediately
return and deliver to the Company any and all Confidential Information,
computers, hard-drives, papers, books, records, documents, memoranda,
manuals, e-mail, electronic or magnetic recordings or data, including all
copies thereof, which belong to the Company or relate to the Company’s
business and which are in the Participant’s possession, custody or control,
whether prepared by the Participant or others. If at any time after
termination of the Participant’s employment, for any reason, the Participant
determines that the Participant has any Confidential Information in the
Participant’s possession or control, the Participant shall immediately
return to the Company all such Confidential Information in the Participant’s
possession or control, including all copies and portions thereof.

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	 	(e)	 	By execution of this Agreement, the Participant agrees that the
provisions of this Paragraph 8 shall apply to all grants (including, without
limitation, grants of incentive stock options, nonqualified stock options and
restricted stock) made to the Participant pursuant to the Plan in 2006 and, to
the extent the provisions of such grants are inconsistent with any of the
provisions of this Paragraph 8, the Company and the Participant agree that (i)
the provisions of this Paragraph 8 shall control and (ii) the provisions of any
such award agreements are hereby amended by the terms of this Paragraph 8.
	 
	 	(f)	 	The provisions of Paragraph 8 shall survive the termination or
expiration of this Agreement.

	 	9.	 	Non-Transferability

          The Stock Option granted by this Agreement may only be exercisable during the term of the
Option Period provided in Paragraph 3 hereof and, except as provided in Paragraph 7, only by the
Participant during the Participant’s lifetime. No Stock Option granted by this Agreement is
transferable by the Participant other than by will or pursuant to applicable laws of descent and
distribution. The Stock Option and any rights and privileges in connection therewith, cannot be
transferred, assigned, pledged or hypothecated by operation of law, or otherwise, and is not
otherwise subject to execution, attachment, garnishment or similar process. In the event of such
occurrence, this Agreement will automatically terminate and will thereafter be null and void.

	 	10.	 	Adjustments in Number of Shares and Option Price; Change in Control

          Except as provided below, in the event that the outstanding Common Stock of the Company is
increased, decreased, or exchanged for a different number or kind of shares or other securities, or
if additional, new or different shares or securities are distributed with respect to the Common
Stock through merger, consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, stock dividend, stock split, reverse stock split or other
distribution with respect to such Common Stock, each remaining share of Common Stock subject to
this Stock Option will be substituted utilizing the principles set forth in Section 424(a) of the
Code.

	 	11.	 	Delivery of Shares

          No shares of Common Stock shall be delivered to the Participant upon the exercise of the Stock
Option until:

	 	(a)	 	the purchase price is paid in full in the manner herein
provided, if applicable;
	 
	 	(b)	 	all of the applicable taxes required to be withheld have been
paid or withheld in full;
	 
	 	(c)	 	the approval of any governmental authority required in
connection with the Stock Option, or the issuance of shares thereunder, has
been received by the Company; and
	 
	 	(d)	 	if required by the Committee, the Participant has delivered to
the Committee an “Investment Letter” in form and content satisfactory to the
Company as provided in Paragraph 12 hereof.

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	 	12.	 	Securities Act

          The Company will not be required to deliver any shares of Common Stock pursuant to the
exercise of all or any part of the Stock Option if, in the opinion of counsel for the Company, such
issuance would violate the Securities Act of 1933, as amended (the “Securities Act”) or any other
applicable federal or state securities laws or regulations. The Committee may require that the
Participant, prior to the issuance of any such shares pursuant to exercise of the Stock Option sign
and deliver to the Company a written statement (“Investment Letter”):

	 	(a)	 	stating that the Participant is purchasing the shares for
investment and not with a view to the sale or distribution thereof;
	 
	 	(b)	 	stating that the Participant will not sell any shares of Common
Stock that the Participant may then own or thereafter acquire except either:

	 	(i)	 	through a broker on a national securities
exchange; or
	 
	 	(ii)	 	with the prior written approval of the Company;
and

	 	(c)	 	containing such other terms and conditions as counsel for the
Company may reasonably require to assure compliance with the Securities Act or
other applicable federal or state securities laws and regulations.
	 
	 	 	 	Such Investment Letter shall be in a form and content acceptable to the
Committee, in its sole discretion.

	 	13.	 	Federal and State Taxes

	 	(a)	 	Upon the exercise of the Stock Option, or any part thereof, the
Participant may incur certain liabilities for federal, state or local taxes and
the Company may be required by law to withhold such taxes for payment to taxing
authorities. Upon a determination by the Company that an amount is required to
be withheld in order to satisfy federal, state or local taxes, absent an
election described in by the Participant to the contrary, the Company shall
withhold from the Common Stock to be issued to the Participant a number of
shares necessary to satisfy the Company’s withholding obligations. The number
of shares of Common Stock to be withheld shall be based upon the Fair Market
Value of the shares on the date of withholding.
	 
	 	(b)	 	Notwithstanding Paragraph 13(a) above, if the Participant
elects, and the Committee agrees, the Company’s withholding obligations may
instead by satisfied as follows:

	 	(i)	 	the Participant may direct the Company to
withhold cash that is otherwise payable to the Participant;
	 
	 	(ii)	 	the Participant may deliver to the Company a
sufficient number of shares of Common Stock then owned by the
Participant to satisfy the Company’s withholding obligations, based on
the Fair Market Value of the shares as of the date of withholding;

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	 	(iii)	 	the Participant may deliver sufficient cash to
the Company to satisfy its withholding obligations; or
	 
	 	(iv)	 	any combination of the alternatives described
in Paragraphs 13(b)(i) through 13(b)(iii) above.

	 	(c)	 	Authorization of the Participant to the Company to withhold
taxes pursuant to one or more of the alternatives described in Paragraph 13(b)
above must be in a form and content acceptable to the Committee. The payment
or authorization to withhold taxes by the Participant shall be completed prior
to the deliver of any shares pursuant to this Agreement. An authorization to
withhold taxes pursuant to this provision will be irrevocable unless and until
the tax liability of the Participant has been fully paid.

	 	14.	 	Definitions; Copy of Plan

          Except as specifically provided otherwise herein, all capitalized terms used in this Agreement
shall have the same meanings ascribed to them in the Plan. By the execution of this Agreement, the
Participant acknowledges receipt of a copy of the Plan.

	 	15.	 	Administration

          This Agreement is subject to the terms and conditions of the Plan. The Plan will be
administered by the Committee in accordance with its terms. The Committee has sole and complete
discretion with respect to all matters reserved to it by the Plan and the decisions of the majority
of the Committee with respect to the Plan and this Agreement shall be final and binding upon the
Participant and the Company. In the event of any conflict between the terms and conditions of this
Agreement and the Plan, the provisions of the Plan shall control.

	 	16.	 	Continuation of Employment

          This Agreement shall not be construed to confer upon the Participant any right to continued
employment with the Company or a Subsidiary and shall not limit the right of the Company or a
Subsidiary (as applicable), in its sole discretion, to terminate the employment of the Participant
at any time.

	 	17.	 	No Right to Stock

          No Participant and no beneficiary or other person claiming under or through such Participant
shall have any right, title or interest in any shares of Common Stock allocated or reserved under
the Plan or subject to this Stock Option, except as to such shares of Common Stock, if any, that
have been issued or transferred to such Participant.

	 	18.	 	Obligation to Exercise

          The Participant shall have no obligation to exercise any Stock Option granted by this
Agreement.

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	 	19.	 	Notice

          Any notice to be given to the Company or the Committee shall be addressed to the Company in
care of its Secretary at its principal office. Any such notice shall be in writing and shall be
delivered personally or shall be sent by first class mail, postage prepaid, to the Company.

	 	20.	 	Governing Law

          This Agreement shall be interpreted and administered under the laws of the State of Texas.

	 	21.	 	Amendments

          This Agreement may be amended only by a written agreement executed by the Company and the
Participant. Any such amendment shall be made only upon the mutual consent of the parties, which
consent (of either party) may be withheld for any reason.

	 	22.	 	Termination

          The Company may terminate the Plan at any time; however, such termination will not modify the
terms and conditions of the Stock Option granted hereunder without the Participant’s consent.

          IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by its officers
thereunto duly authorized, and the Participant has hereunto set his hand as of the day and year
first above written.

	 	 	 	 	 
	 	 	FLOWSERVE CORPORATION
	 
	 	 	 	 
	 

	 	   By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Lewis M. Kling

President and Chief Executive Officer
	 
	 	 	 	 
	 	 	PARTICIPANT
	 
	 	 	 	 
	 

	 	 	 	 

10exv10w37

 

Exhibit 10.37

January 12, 2005

Moshe Gavrielov

1900 Webster St.

Palo Alto, CA 94301

Dear Moshe:

We are very pleased to offer you employment in the position of Executive Vice President and General
Manager, Verification Division, with Cadence Design Systems, Inc. (“Cadence”), following the
completion of the merger of Verisity Ltd., an Israeli corporation (the “Company”), with a
wholly-owned subsidiary (“Scioto River Ltd.”) of Cadence (the “Transaction”). In this position,
your responsibilities will be to manage the entire Verification Division of Cadence and you will
report directly to the Chief Executive Officer of Cadence. This letter agreement (the “Agreement”)
sets forth the terms of our offer of employment to you as well as other related matters for your
approval and signature. This offer will become effective upon consummation of the Transaction (the
“Effective Time”) and is conditioned upon consummation of the Transaction and upon your
successfully passing the Cadence background verification check. However, should the merger
agreement among Cadence, Scioto River Ltd. and the Company (the “Merger Agreement”) be terminated
for any reason, this Agreement shall immediately and automatically terminate and be of no further
force or effect.

     1. Your annualized base salary as a full-time employee will be $400,000 per year, paid
semi-monthly in accordance with Cadence’s normal payroll practices. Payments of salary and other
compensation will be subject to customary tax and other withholding.

     2. Even though your employment with Cadence will start after the beginning of the measurement
period under Cadence’s Key Contributor Incentive Plan (the “Plan”), you will be eligible to
participate in the Plan for an annualized bonus targeted at 75% of your annual base salary in
accordance with the terms of the Plan, in lieu of participating in the Company bonus plan.
Regardless of the actual date of the Effective Time, you will receive credit for your participation
in the Plan as of January 1, 2005. Actual payment is based on company performance and your
individual achievements, as well as your continued employment by Cadence through the applicable
payout date.

     3. In addition, within 20 days after the Effective Time, Cadence will pay you $100,000 (the
“Signing Bonus”); provided, however, that if your employment with Cadence is terminated for “cause”
(as defined below) or you resign for reasons other than “good reason” (as defined below) prior to
the first anniversary of the Effective Time, the entire Signing Bonus shall be repaid by you to
Cadence on your termination date. Payment of the Signing Bonus will be subject to customary tax
and other withholding. You hereby agree that any amount due Cadence with respect to the Signing
Bonus may be offset and deducted in full against any amount due you, including any amount that
would otherwise be paid to you in your final paycheck, whether with respect to salary, benefits or
otherwise.

     4. Please note that, upon consummation of the Transaction, (i) your options to acquire Company
ordinary shares (the “Options”) will automatically be converted into options for Cadence common
stock and, subject to the existing terms and conditions of the plans under which the Options were
granted and the related option agreements, the Options will continue to vest in accordance with
their terms, as long as you are employed by Cadence or any of its subsidiaries, and (ii) the Merger
Consideration (as defined in the Merger Agreement) you receive in exchange for your shares of
restricted Company ordinary shares, if any, pursuant to the Merger Agreement will be subject to
restrictions similar to the restrictions currently affecting your restricted Company ordinary
shares prior to the Effective Time, in each case in the manner described in the Merger Agreement.
In addition, you will be granted a nonqualified stock option for 300,000 shares of Cadence common
stock, which will be granted by the Compensation Committee shortly after the Effective Time, at the
average of the high and low market price of Cadence common stock on the date of grant. This option
will vest as to 25% of the shares on the

 

 

first anniversary of the Effective Time and as to 1/48th of the shares monthly thereafter on
the last day of each month during your employment. You will also be granted 100,000 shares of
Cadence restricted stock, which will be granted by the Compensation Committee shortly after the
Effective Time and will vest as to 25% of the shares on each of the first four (4) anniversaries of
the Effective Time.

     5. While you are a full-time Cadence employee, you will receive benefits comparable in the
aggregate to the health and other benefits that are generally available to the rest of Cadence’s
full-time U.S.-based employees (provided, of course, you meet the standard eligibility requirements
for such benefits). You will receive full credit for service as an employee of the Company for
eligibility and/or vesting purposes, subject to applicable law and the terms and conditions of
Cadence’s benefit plans. In addition, you hereby acknowledge and agree that you shall receive a
lump sum payout within 45 days after the Effective Time, as a result of the Merger, with respect to
any accrued and unpaid vacation hours to which you are entitled to under the Company’s vacation
policy as of the Effective Time. As an executive of Cadence, you may take personal time off at
your discretion, with your manager’s approval. Thus, you will not accrue vacation, and you will
have flexibility with respect to taking time off from work. The cash and other benefits payable
under this Agreement are intended to constitute reasonable compensation for the services you render
to Cadence after the Effective Time.

     6. As part of this offer of employment, Cadence agrees that, should your employment with
Cadence (or one of its subsidiaries) be terminated without “cause” (as defined below) or due to
death or disability, or you resign for “good reason” (as defined below), at any time during the
three (3) years following the Effective Time (the “Term”), then, subject to your signing Cadence’s
standard release agreement and in lieu of your receiving any other severance or termination
benefits of any sort from Cadence, Cadence will provide you with (i) a one-time lump sum payment on
or about the effective date of your termination (the “Termination Date”), but in no event later
than ten (10) days after the effective date of the release agreement, in an amount equal to the
aggregate of (A) any base salary (without bonus) earned but unpaid during the year which includes
the Termination Date, (B) your base salary (at the rate in effect on the Termination Date, without
bonus) that you would have earned from the day following the Termination Date until the earlier of
(1) the last day of the Term or (2) the date that is one year after the Termination Date, and (C)
one year’s target bonus (at the rate in effect on the Termination Date); unless there is less than
one year remaining in the Term after the Termination Date, in which case the amount to be paid
under this clause (C) shall be prorated (i.e., if there are nine months left in the Term after the
Termination Date, the amount to be paid under this clause (C) shall be 9/12th of one year’s target
bonus in effect on the Termination Date), (ii) continuation of your health benefits for the lesser
of 12 months and the remainder of the Term, and (iii) immediate vesting of all Options granted to
you prior to the date of this Agreement that are converted into options to purchase Cadence common
stock upon the consummation of the Transaction which remain unvested on the Termination Date, and
(iv) immediate vesting of any options to purchase shares of Cadence common stock and shares of
Cadence restricted stock granted to you from and after the date of this Agreement which remain
unvested on the Termination Date and which would have vested over the 12-month period beginning on
the Termination Date. Cadence will withhold from all such payments taxes and any other amounts
required by law. All employee benefits, other than those described above, will terminate on the
Termination Date regardless of the reason for your termination of employment.

If you resign without “good reason” (as defined below) or you are terminated for “cause” (as
defined below), or if you become a consultant to Cadence during the Term, Cadence will have no
obligation to provide you with compensation or benefits other than earned but unpaid wages
(including accrued but unused vacation, if any). If you are terminated after the end of the Term,
Cadence will have no obligation to pay you any salary (other than earned wages, including, without
limitation, accrued but unused vacation, if any), benefits or severance upon your termination of
employment.

As discussed more fully below, your employment relationship with Cadence will be “at will” and may
be terminated by either you or Cadence during the Term or thereafter, for any reason, with or
without cause or notice.

You shall be considered to have been terminated with “cause” if your employment with Cadence (or
any of its subsidiaries) is terminated for any of the following reasons: (A) an act of dishonesty,
fraud, theft or material

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misappropriation of Cadence property taken in connection with your responsibilities as an employee,
(B) your commission of, or plea of nolo contendere to, a felony, or your commission of an act of
moral turpitude, (C) your willful insubordination or willful refusal to follow the lawful
directives of the Board of Directors, officers or executives of Cadence, (D) your violation of the
non-disclosure, non-competition or proprietary information and inventions agreement between you and
Cadence, (E) your gross negligence or willful misconduct in the performance of your duties as an
employee of Cadence, (F) your violation of Cadence’s Code of Business Conduct, as such code may be
revised from time to time, (G) your engagement in conduct that is injurious, whether directly or
indirectly, to Cadence or any of its affiliates, or (H) your material failure to perform your
assigned duties as determined by the Chief Executive Officer of Cadence in good faith, and, where
such failure is curable, if such failure is not cured within fifteen (15) days following receipt of
written notice thereof from Cadence.

You shall be considered to have resigned with “good reason” if you resign within thirty (30) days
following and as a result of (i) a relocation of your employment by more than thirty (30) miles,
(ii) a reduction in your base salary set forth in Section 1 above of more than 10% which is not in
connection with such reductions for all those similarly situated employees, (iii) you no longer
report to the Chief Executive Officer of Cadence, or (iv) a change in your title or a material
adverse change in your responsibilities or duties, in each case only if such relocation, reduction
or change is effected by Cadence or any of its existing or future affiliates without your written
consent.

     7. This Agreement supersedes (i) any written or oral employment agreements between you and the
Company or any of its affiliates (the “Employment Agreements”) and (ii) any and all provisions
relating to acceleration of vesting of any capital stock (including, without limitation, shares of
restricted Company ordinary shares converted into the Merger Consideration (as defined in the
Merger Agreement) in connection with the Transaction) or options to purchase ordinary shares of the
Company (including, without limitation, Company options granted after the date of this Agreement)
and any stock option agreement or restricted stock purchase agreement related thereto or any other
agreement or plan, that are triggered solely by the consummation of the Transaction (collectively,
the “Acceleration Provisions”), and, upon your acceptance of this offer of employment, the
Employment Agreements and the Acceleration Provisions shall be null and void; provided, however,
that this Agreement does not affect your pre-existing obligations under any employment agreement or
confidential information and invention assignment agreement you executed with the Company or any of
its affiliates, any vested rights you may have under the Company’s benefit plans or any
indemnification rights you may have pursuant to Section 4.10 of the Merger Agreement. This
Agreement contains Cadence’s entire understanding of the subject matter hereof with you, and
supersedes all prior and contemporaneous agreements and understandings relating to the subject
matter hereof.

     8. While employed by Cadence, you shall not engage in any activity in competition with the
businesses of Cadence or any existing or future affiliate of Cadence at such time.

     9. Cadence is an at-will employer. You are not being promised any particular term of
employment. The employment relationship may be terminated by either you or Cadence at any time,
with or without cause, and with or without notice. No one at Cadence is empowered, unless
specifically authorized in writing by the VP overseeing Human Resources, to make any promise,
express or implied, that employment is for any minimum or fixed term or that cause is required for
the termination of the employment relationship.

     10. All notices and other communications pursuant to this Agreement shall be in writing and
shall be deemed given if delivered personally, faxed, sent by nationally-recognized overnight
courier or mailed by registered or certified mail (return receipt requested), postage prepaid, to
the parties at the address of Cadence (for Cadence) and as set forth below at the signature line
(for you) or to such other address as the party to whom notice is to be given may have furnished to
the other parties hereto in writing in accordance herewith.

     11. From time to time, at Cadence’s request and without further consideration, you shall
execute and deliver such additional documents and take all such further action as reasonably
requested by Cadence to be necessary or desirable to make effective, in the most expeditious manner
possible, the terms of this Agreement.

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     12. You must sign an Employee Proprietary Information and Inventions Agreement, a copy of
which is attached for your signature. In addition, Cadence has a policy prohibiting your
disclosure, to anyone within Cadence, of any confidential and/or proprietary information pertaining
to your former employers or any entity with whom you have a non-disclosure agreement. Accordingly,
please do not use or disclose to Cadence any proprietary information belonging to your former
employers or any other person or company with which you have signed such an agreement.

     13. In accordance with the Immigration Reform and Control Act of 1986, you must be a U.S.
citizen, or have authorization to work in the United States. In either case, verification of your
right to work is required within 72 hours after commencement of your employment with Cadence.

     14. (a) This Agreement shall be construed in accordance with the laws of the State of
California. Each of the parties expressly agrees that, to the extent permitted by law and to the
extent that the enforceability of this Agreement is not thereby impaired, any and all disputes,
controversies or claims between you and Cadence shall be determined exclusively by final and
binding arbitration before a single JAMS arbitrator in accordance with the JAMS Arbitration Rules
and Procedures, or successor rules then in effect, and that judgment upon the award of the
arbitrator may be rendered in any court of competent jurisdiction. This includes, without
limitation, any and all disputes, controversies, and/or claims arising out of or concerning your
employment by Cadence or its termination of this Agreement, whether arising under theories of
liability or damages based on contract, tort or statute, to the extent permitted by law. Such
claims include, without limitation, statutory claims for employment discrimination based on race,
color, national origin, sex, religion, disability, age, harassment of any type, and other statutory
or constitutional claims for employment discrimination, including claims arising under Title VII of
the Civil Rights Act of 1967, the Age Discrimination in Employment Act of 1967, the Americans with
Disabilities Act and/or any applicable California state statutes; claims for wrongful termination
including employment termination in violation of public policy; and claims for personal injury
including, without limitation, defamation, fraud, and infliction of emotional distress. As a
material part of this agreement to arbitrate claims, the parties expressly waive all rights to a
jury trial in court on all statutory or other claims including, without limitation, those
identified in this Section 14. This Section does not purport to limit either party’s ability to
recover any remedies provided for by statute, including attorneys’ fees. You understand that
nothing in this Section 14 should be construed to preclude you from filing a charge with a state,
federal or local administrative agency.

       (b) The arbitration shall be held in the San Jose, California metropolitan area, and shall be
administered by JAMS. Under such proceeding, the parties shall select a mutually acceptable,
neutral arbitrator from among the JAMS panel of arbitrators. Except as provided herein, the
Federal Arbitration Act shall govern the interpretation and enforcement of such arbitration
proceeding. The arbitrator shall apply the substantive law (and the law of remedies, if
applicable) of the State of California, or Federal law, if California law is preempted, and the
arbitrator is without jurisdiction to apply any different substantive law. The parties agree that
both parties will be allowed to engage in adequate discovery, the scope of which will be determined
by the arbitrator, consistent with the nature of the claims in dispute. The arbitrator shall have
the authority to entertain a motion to dismiss and/or a motion for summary judgment by any party
and shall apply the standards governing such motions under the Federal Rules of Civil Procedure.
The arbitrator shall render an award that shall include a written statement of opinion setting
forth the arbitrator’s findings of fact and conclusions of law. Judgment upon the award may be
entered in any court having jurisdiction thereof. The parties intend this arbitration provision to
be valid, enforceable, irrevocable and construed as broadly as possible.

       (c) Cadence shall be responsible for payment of the arbitrator’s fees as well as all
administrative fees associated with the arbitration. The parties shall be responsible for their
own attorneys’ fees and costs (including expert fees and costs), except that if any party prevails
on a statutory claim that entitles the prevailing party to a reasonable attorneys’ fee (with or
without expert fees) as part of the costs, then the arbitrator may award reasonable attorneys’ fees
(with or without expert fees) to the prevailing party in accord with such statute.

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       (d) The parties agree, however, that damages would be an inadequate remedy for Cadence in the
event of a breach or threatened breach of any provision of the Employee Proprietary Information and
Inventions Agreement. In the event of any such breach or threatened breach, Cadence may, either
with or without pursuing any potential damage remedies, obtain from a court of competent
jurisdiction, and enforce, an injunction prohibiting violation of any provision of the Employee
Proprietary Information and Inventions Agreement and requiring you to comply with the terms of
those agreements.

       (e) For the avoidance of doubt, neither this Section 14 nor any other provision of this
Agreement shall be deemed to apply to or to modify the Noncompetition Agreement between you and
Cadence.

     15. If any provision of this Agreement shall otherwise contravene or be invalid under the laws
of any state, country or other jurisdiction where this Agreement is applicable but for such
contravention or invalidity, such contravention or invalidity shall not invalidate all of the
provisions of this Agreement but rather it shall be construed, insofar as the laws of that state or
other jurisdiction are concerned, as not containing the provision or provisions contravening or
invalid under the laws of that state or jurisdiction, and the rights and obligations created hereby
shall be construed and enforced accordingly.

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     We are excited about the potential represented by the Transaction and we are pleased
you will be joining us as a key part of the new team.

	 	 	 	 	 
	 	Sincerely,

CADENCE DESIGN SYSTEMS, INC.

 	 
	 	By:  	/s/ Tim Burch
 	 
	 	 	Name:  	Tim Burch 	 
	 	 	Title:  	Senior Vice President of Human Resources and Organizational Development
	 	Cadence Design Systems, Inc.

2655 Seely Avenue

San Jose, CA  95134 
	 

Acknowledged and agreed:

	 	 	 	 	 
	/s/ Moshe Gavrielov
 	 	 
	Moshe Gavrielov	 	 
	Address:	 
	 	 
	 	 
	 	 

Date: January 12, 2005

Enclosures

6

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