-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BTo7g4pb2pUbG3G5fRoaWSLmq+QZCtQle2kXiR7ASy6kut220GIDiSVjJiaC4KkC PVl7oztiyj+Ns1etNaxDzw== 0000891618-96-000443.txt : 19960517 0000891618-96-000443.hdr.sgml : 19960517 ACCESSION NUMBER: 0000891618-96-000443 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960330 FILED AS OF DATE: 19960514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CADENCE DESIGN SYSTEMS INC CENTRAL INDEX KEY: 0000813672 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 770148231 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10606 FILM NUMBER: 96564588 BUSINESS ADDRESS: STREET 1: 555 RIVER OAKS PKWY CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4089431234 MAIL ADDRESS: STREET 1: 555 RIVER OAKS PARKWAY CITY: SAN JOSE STATE: CA ZIP: 95134 FORMER COMPANY: FORMER CONFORMED NAME: ECAD INC /DE/ DATE OF NAME CHANGE: 19880609 10-Q 1 FORM 10-Q FOR PERIOD ENDED 3/30/96 1 ------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) /x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 30, 1996 ------------------------------------- OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------------------------------------ Commission file number 1-10606 CADENCE DESIGN SYSTEMS, INC. (Exact name of registrant as specified in its charter) Delaware 77-0148231 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 555 River Oaks Parkway, San Jose, California 95134 (Address of principal executive offices) (Zip Code) (408) 943-1234 Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- At April 30, 1996 there were 77,909,685 shares of the registrant's Common Stock, $0.01 par value outstanding. 2 CADENCE DESIGN SYSTEMS, INC. INDEX
PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets: March 30, 1996 and December 30, 1995 3 Condensed Consolidated Statements of Income: Three Months Ended March 30, 1996 and April 1, 1995 4 Condensed Consolidated Statements of Cash Flows: Three Months Ended March 30, 1996 and April 1, 1995 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 14 Signatures
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CADENCE DESIGN SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
March 30, December 30, 1996 1995 ----------- ------------ (Unaudited) ASSETS Current Assets: Cash and cash investments $ 73,436 $ 84,867 Short-term investments 9,722 11,774 Accounts receivable, net 90,908 88,503 Inventories 6,620 8,203 Prepaid expenses and other 17,698 13,576 --------- --------- Total current assets 198,384 206,923 Property, Plant and Equipment, net 133,004 124,103 Software Development Costs, net 25,644 25,793 Purchased Software and Intangibles, net 11,221 8,268 Other Assets 10,607 8,948 --------- --------- Total assets $ 378,860 $ 374,035 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of capital lease obligations $ 1,420 $ 1,497 Accounts payable 17,527 17,592 Accrued liabilities 68,527 74,407 Income taxes payable 9,547 14,524 Deferred revenue 114,460 92,407 --------- --------- Total current liabilities 211,481 200,427 --------- --------- Long-Term Liabilities: Long-term portion of capital lease obligations 1,651 1,619 Deferred income taxes 4,701 7,307 Minority interest liability 13,075 12,167 Other long-term liabilities 18,400 18,434 --------- --------- Total long-term liabilities 37,827 39,527 --------- --------- Stockholders' Equity: Common stock and capital in excess of par value 318,122 299,544 Treasury stock at cost (37,679 and 35,231 shares, respectively) (338,534) (290,884) Retained earnings 150,050 124,471 Accumulated translation adjustment (86) 950 --------- --------- Total stockholders' equity 129,552 134,081 --------- --------- Total liabilities and stockholders' equity $ 378,860 $ 374,035 ========= =========
The accompanying notes are an integral part of these statements. 3 4 CADENCE DESIGN SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended ----------------------------------- March 30, April 1, 1996 1995 --------- -------- (Unaudited) REVENUE: Product $ 90,182 $ 62,110 Service 23,098 10,477 Maintenance 50,150 43,446 -------- -------- Total revenue 163,430 116,033 -------- -------- COSTS AND EXPENSES: Cost of product 10,887 11,853 Cost of service 17,597 9,213 Cost of maintenance 5,155 3,897 Marketing and sales 52,193 42,220 Research and development 26,013 20,863 General and administrative 13,012 9,498 -------- -------- Total costs and expenses 124,857 97,544 -------- -------- INCOME FROM OPERATIONS 38,573 18,489 Other expense, net 395 423 -------- -------- Income before provision for income taxes 38,178 18,066 Provision for income taxes 12,599 4,516 -------- -------- NET INCOME $ 25,579 $ 13,550 ======== ======== NET INCOME PER SHARE $ .28 $ .14 ======== ======== Weighted average common and common equivalent shares outstanding 91,272 94,733 ======== ========
The accompanying notes are an integral part of these statements. 4 5 CADENCE DESIGN SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Three Months Ended ---------------------------- March 30, April 1, 1996 1995 --------- -------- (Unaudited) CASH AND CASH INVESTMENTS AT BEGINNING OF PERIOD $ 84,867 $ 75,011 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income 25,579 13,550 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 12,365 11,496 Deferred income taxes, noncurrent (2,606) 476 Write-offs of equipment and other long-term assets 6 241 Increase in other long-term liabilities and minority interest expense 895 582 Changes in current assets and liabilities: Accounts receivable (2,876) 18,277 Inventories (270) (730) Prepaid expenses and other (4,258) (1,501) Accrued liabilities and payables 4,324 (5,861) Deferred revenue 22,496 17,436 -------- -------- Net cash provided by operating activities 55,655 53,966 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Maturities of short-term investments 4,072 17,074 Purchases of short-term investments (2,020) (8,484) Purchases of property and equipment (13,616) (8,150) Capitalization of software development costs (3,222) (2,968) Purchased software and intangibles and other assets (6,804) (4,328) -------- -------- Net cash used for investing activities (21,590) (6,856) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on capital lease obligations (546) (1,028) Sale of common stock 6,450 8,712 Purchases of treasury stock (50,294) (21,376) Purchase of warrant -- (12,125) -------- -------- Net cash used for financing activities (44,390) (25,817) -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,106) 1,616 -------- -------- (DECREASE) INCREASE IN CASH AND CASH INVESTMENTS (11,431) 22,909 -------- -------- CASH AND CASH INVESTMENTS AT END OF PERIOD $ 73,436 $ 97,920 ======== ========
The accompanying notes are an integral part of these statements. 5 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) BASIS OF PRESENTATION The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's annual report on Form 10-K for the fiscal year ended December 30, 1995. The unaudited condensed consolidated financial statements included herein reflect all adjustments (which include only normal, recurring adjustments) that are, in the opinion of management, necessary to state fairly the results for the periods presented. The results for such periods are not necessarily indicative of the results to be expected for the full fiscal year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company's fiscal year is determined based upon the 52 - 53 week period ending on the Saturday closest to December 31. NEW ACCOUNTING STANDARD In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based Compensation" which was adopted by the Company this year. SFAS No. 123 allows companies that have stock-based compensation arrangements with employees to adopt a new fair-value basis of accounting for stock options and other equity instruments, or to continue to apply the existing rules under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" but with additional financial statement disclosure. The Company continues to account for employee stock-based compensation arrangements under APB Opinion No. 25, and therefore SFAS No. 123 did not have a material impact on its financial position, results of operations or cash flows. NET INCOME PER SHARE Net income per share for each period is calculated by dividing net income by the weighted average shares of common stock and common stock equivalents outstanding during the period (calculated using the modified treasury stock method). Common stock equivalents consist of dilutive shares issuable upon the exercise of outstanding common stock options and warrants. Fully diluted net income per share is substantially the same as primary net income per share. Net income per share has been adjusted to retroactively reflect the three-for-two stock split discussed in the Subsequent Events note to the Notes to Condensed Consolidated Financial Statements. 6 7 INVENTORIES Inventories, which consist primarily of test equipment, are stated at the lower of cost (first-in, first-out method) or market. Cost includes labor, material and manufacturing overhead. Inventories consisted of the following (in thousands):
March 30, December 30, 1996 1995 ----------- ------------ (Unaudited) Raw materials and supplies $2,312 $2,335 Work-in-process 3,363 3,825 Finished goods 945 2,043 ------ ------ Total $6,620 $8,203 ====== ======
COMMITMENTS AND CONTINGENCIES The Company is involved in various disputes and litigation matters which have arisen in the ordinary course of business. These include disputes and lawsuits related to intellectual property, contract law and employee relations matters. The Company filed a complaint in the United States District Court for the Northern District of California on December 6, 1995 against Avant! Corporation (formerly known as ArcSys, Inc., "Avant!") and certain of its employees for misappropriation of trade secrets, copyright infringement, conspiracy and other illegalities. On January 16, 1996, Avant! filed various counterclaims against the Company and the Company's President and CEO, alleging, inter alia, that the Company and its President and CEO had cooperated with the Santa Clara County District Attorney and initiated and pursued its complaint against Avant! for anticompetitive reasons, engaged in wrongful activity in an attempt to manipulate Avant!'s stock price and utilized certain pricing policies and other acts to unfairly compete against Avant! in the marketplace. The counterclaim also alleges that certain unspecified Company insiders engaged in illegal insider trading with respect to Avant!'s stock. On April 12, 1996, Avant! filed a First Amended Counterclaim against the Company and its President and CEO. The Company and its President and CEO continue to believe that each has meritorious defenses to Avant!'s amended counterclaims, and each intends to defend such action vigorously. On April 19, 1996, the Company filed a motion seeking a preliminary injunction to prevent Avant! from continuing to market ArcCell and ArcCell XO, two software lines which the Company alleges were misappropriated. A hearing on the motion is anticipated to take place in the third quarter of 1996. Management believes that the ultimate resolution of the disputes and litigation matters discussed above will not have a material adverse impact on the Company's financial position or results of operations. PUT WARRANTS AND CALL OPTIONS The Company has an authorized stock repurchase program. In total, as of March 30, 1996, the Company had authorized the repurchase of 55.6 million shares of which approximately 43.0 million shares had been repurchased. The Company repurchases common stock in part to satisfy estimated requirements for shares to be issued under its employee stock option and stock purchase plans as well as in connection with acquisitions. Since 1994, as part of its authorized stock repurchase program, the Company sold 15.1 million put warrants through private placement. As of March 30, 1996, 14.4 million of these warrants had expired out of the money. The remaining outstanding .7 million warrants entitle the holder to sell one share of common stock to the Company on a specified date at a specified price ranging from $22.00 to $22.02 per share. Additionally, during this same period, the Company purchased approximately 11.4 million call options that entitled the Company to buy on a specified date one share of common stock, at a specified price. As of March 30, 1996, the Company had repurchased 10.8 million common shares pursuant to the exercise of call options for $112.7 million. The remaining .6 million outstanding call options range in price from $22.22 to $22.24 per share. 7 8 The Company has the right to settle the put warrants with stock, cash or a combination of stock and cash equal to the difference between the exercise price and the fair value at the date of exercise. Settlement of the put warrants with stock could cause the Company to issue a substantial number of shares, depending on the amounts of the repurchase obligations and the per share fair value of the Company's common stock at the time of exercise. In addition, settlement of put warrants in stock or cash could lead to the disposition by put warrant holders of shares of the Company's common stock that such holders may have accumulated in anticipation of the exercise of the put warrants or call options, which may impact the trading price of the Company's common stock. At March 30, 1996, the Company had both the unconditional right and the intent to settle these put warrants with stock, and therefore, no amount was classified out of stockholders' equity in the accompanying balance sheet. The effect of the exercise of these put warrants and call options is reported in stockholders' equity. SUBSEQUENT EVENTS In April 1996, the Company entered into a senior secured revolving credit facility (the "Facility") which allows the Company to borrow up to $120 million through April 1999. The security for the Facility includes the majority of the Company's property, plant and equipment, cash, investments, intangibles, and certain other assets. The Company has the option to pay interest based upon LIBOR (London Interbank Offering Rate) plus 1.5% or the higher of the federal funds effective rate plus .5% or prime. The Company must comply with certain covenants and conditions as defined in the Facility. As of May 10, 1996, the Company had no outstanding borrowings under the Facility. On May 3, 1996, the Company's Board of Directors declared a three-for-two stock split, payable May 31, 1996, in the form of a dividend of one additional share of the Company's common stock for every two shares owned by stockholders as of the record date, May 16, 1996. Par value remained at $0.01 per share. The stock split will result in the issuance of approximately 26.0 million additional shares of common stock from authorized but unissued shares. Accordingly, all share and per share data have been adjusted to retroactively reflect the stock split. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for the historical information contained herein, the following discussion contains forward looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below in Factors That May Affect Future Results. RESULTS OF OPERATIONS REVENUE
March 30, 1996 April 1, 1995 % Change -------------- ------------- -------- (In millions) Product $ 90.2 $ 62.1 45% Service 23.1 10.5 120% Maintenance 50.1 43.4 15% ------ ------ Total revenue $163.4 $116.0 41% ====== ====== Sources of Revenue as a Percent of Total Revenue Product 55% 54% Service 14% 9% Maintenance 31% 37%
Revenue from international sources was approximately $74.9 million and $63.1 million or 46% and 54% of total revenue for the three months ended March 30, 1996 and April 1, 1995, respectively. The increase in domestic revenue as a percentage of total revenue was attributable to increased sales volume in the product and service areas. During the quarter ended March 30, 1996, there was a negative impact of $2.5 million on revenue as the result of the weakening of certain foreign currencies, primarily the Japanese yen, in relation to the U.S. dollar as compared to the quarter ended April 1, 1995. Product revenue for the first quarter ended March 30, 1996 increased 45% compared with the same period of the prior year. The increase in product revenue was primarily the result of increased demand for the Company's products which enable customers to meet complex design challenges, including deep sub-micron IC design. This was exemplified by increased sales volume of its custom layout, automatic place and route and verification products. Service revenue increased significantly in the first quarter of 1996 when compared to the first quarter of 1995. The increase in service revenue was the result of increased demand for the Company's Spectrum Services offerings. Additionally, revenue for the quarter ended March 30, 1996 included a full quarter of revenue related to the March 1995 outsourcing agreement with Unisys Corporation ("Unisys") to assume substantial portions of Unisys' internal silicon design operation. The increase in maintenance revenue for the quarter ended March 30, 1996 as compared to the quarter ended April 1, 1995, was attributable to an increase in the Company's installed base of products as well as the Company's continued effort toward obtaining customer renewals of maintenance. 9 10 COST OF REVENUE
March 30, 1996 April 1, 1995 % Change -------------- ------------- -------- (In millions) Product $10.9 $11.9 (8)% Service $17.6 $ 9.2 91% Maintenance $ 5.2 $ 3.9 32% Cost of Revenue as a Percent of Related Revenue Product 12% 19% Service 76% 88% Maintenance 10% 9%
Cost of product revenue includes costs of production personnel, packaging and documentation, amortization of capitalized software development costs and costs of the Company's automated test equipment ("ATE") hardware business. The decrease in cost of product in absolute dollars and as a percentage of product revenue for the quarter ended March 30, 1996 as compared to the quarter ended April 1, 1995 was primarily due to consolidation of the software release and production process, partly offset by increased cost of revenue associated with its ATE products resulting from higher product demand. Cost of service revenue includes personnel and related costs associated with providing services to customers and the infrastructure to manage a services organization, as well as costs to recruit, develop and retain services professionals. Cost of service increased in total dollars due to the development of this line of business. Additionally, the costs for the quarter ended March 30, 1996 included a full quarter of expenses related to the March 1995 outsourcing agreement with Unisys Corporation to assume substantial portions of Unisys' internal silicon design operation. As part of this agreement, the Company retained approximately 180 hardware and software designers and acquired fixed assets and certain intangibles. While primarily focused on serving the needs of Unisys, the design and service resources acquired by Cadence are also intended to be used to support other customers' design needs. In the first quarter of 1996, as the Company utilized more of its design and service resources to generate revenue, cost of service as a percentage of service revenue decreased as compared to the prior year. However, until these design and service resources are utilized through additional revenue contracts or until further operating efficiencies are obtained, service gross margins could continue to be adversely affected. Additionally, the cost of integrating new services professionals performing a growing number of service offerings will also put pressure on service gross margins until operating efficiencies are obtained. Cost of maintenance revenue includes the cost of customer services such as hot-line and on-site support and the production cost of the maintenance renewal process. Cost of maintenance increased in total dollars due to additional costs necessary to support a larger installed base. 10 11 OPERATING EXPENSES
March 30, 1996 April 1, 1995 % Change -------------- ------------- -------- (In millions) Marketing and sales $52.2 $42.2 24% Research and development $26.0 $20.9 25% General and administrative $13.0 $ 9.5 37% Expenses as a Percent of Total Revenue Marketing and sales 32% 36% Research and development 16% 18% General and administrative 8% 8%
The increase in marketing and sales expenses was primarily the result of a $9.6 million increase in employee related expenses attributable to increased headcount and increased commissions and sales incentives due to higher bookings. Marketing and sales expenses were favorably impacted by $.7 million in the quarter ended March 30, 1996 as compared to the quarter ended April 1, 1995 as the result of the weakening of certain foreign currencies in relation to the U.S dollar. The Company's investment in research and development, prior to the reduction for capitalization of software development costs, was $29.2 and $23.8 million for the quarters ended March 30, 1996 and April 1, 1995, respectively, representing 18% and 21% of total revenue. The increase of $5.4 million was driven by an increase of $3.0 million of salary related costs due to increased headcount and an increase of $1.3 million in consulting and other outside services costs. Capitalization of software development costs for the quarters ended March 30, 1996 and April 1, 1995 was $3.2 million and $2.9 million, respectively, which represented 11% and 12% of total research and development expenditures made in each of those periods. In any given period, the amount of capitalized software development costs may vary depending on the exact nature of the development performed. General and administrative expenses increased in the quarter ended March 30, 1996 as compared to the same period of the prior year primarily as a result of higher legal costs of $1.9 million. In addition, the Company incurred higher outside service and consulting costs of $.5 million and increased headcount related expenses. As compared to the quarter ended April 1, 1995, net other expense was relatively constant at $.4 million for the first quarter ended March 30, 1996. The Company's estimated annual effective tax rate for fiscal 1996 is 33% as compared to an annual effective tax rate of 28% for fiscal 1995. This estimated increase in the tax rate is based on the limited availability of net operating losses and tax credits and the potential effect of earnings generated in countries which have a tax rate greater than the U.S. tax rate. LIQUIDITY AND CAPITAL RESOURCES At March 30, 1996, the Company's principal sources of liquidity consisted of $83.2 million of cash and short-term investments as compared to $111.2 million at April 1, 1995. In addition, subsequent to March 30, 1996, the Company entered into a three year, $120 million secured revolving line of credit agreement. As of May 10, 1996, the Company had no borrowings under the revolving line of credit. Cash generated from operating activities increased $1.7 million for the quarter ended March 30, 1996, as compared to the quarter ended April 1, 1995. The increase was due to higher net income and an increase in accrued liabilities and payables; offset by an increase in accounts receivable. At March 30, 1996, the Company had a working capital deficit of $13.1 million compared with a working capital surplus of $6.5 million at December 30, 1995. The primary reasons for the deficit were increases in deferred revenue of $22.1 million and a decrease in cash and short-term investments of $13.5 million, partly offset by a decrease in accrued liabilities and income taxes payable of $10.9 million. The increase in deferred revenue was attributable to increased maintenance renewals and an increase in deferred product revenue in accordance with the 11 12 American Institute of Certified Public Accountants Statement of Position 91-1 entitled "Software Revenue Recognition." The decrease in cash was primarily due to the Company's stock repurchase activity in the quarter ended March 30, 1996. The decrease in accrued liabilities and income taxes payable was due to commissions and incentive bonus payments during the quarter and payment of income taxes. In addition to its short-term investments, the Company's primary investing activities were purchases of property and equipment, purchases of software and intangibles and the capitalization of software development costs, which combined, represented $23.6 million and $15.4 million of cash used for investing activities in the quarters ended March 30, 1996, and April 1, 1995, respectively. The Company has an authorized stock repurchase program. In total, as of March 30, 1996, the Company had authorized the repurchase of 55.6 million shares, of which approximately 43.0 million shares had been repurchased. The Company repurchases common stock in part to satisfy estimated requirements for shares to be issued under the Company's employee stock option and stock purchase plans as well as in connection with acquisitions. Past repurchase activity should not be considered an indicator of future repurchases. Since 1994, as part of its authorized stock repurchase program, the Company has sold 15.1 million put warrants and purchased 11.4 million call options through private placements. The Company had a maximum potential obligation related to the put warrants at March 30, 1996 to buy back .7 million shares of its common stock at an aggregate price of approximately $16.3 million. The put warrants expired out of the money in April 1996. Anticipated cash requirements for fiscal 1996 include the purchase of treasury stock through the exercise of the Company's call options and in the open market. The Company repurchased .6 million shares through the exercise of call options during April 1996 at a cost of approximately $12.4 million. Other cash requirements for the remainder of fiscal 1996 include contemplated additions of property, plant and equipment of approximately $45 million. As part of its overall investment strategy, the Company has committed to participating in a venture capital partnership as a limited partner. The Company's total committed investment of at least $25 million will be made over the next three to four years. As of March 30, 1996, the Company had contributed approximately $2.0 million, which is reflected in other assets in the accompanying balance sheet. The Company anticipates that current cash and short-term investment balances, cash flows from operations, and the $120 million revolving line of credit will be sufficient to meet its working capital and capital expenditure requirements on a short and long-term basis. FACTORS THAT MAY AFFECT FUTURE RESULTS The Company competes in the highly competitive EDA market which continues to be characterized by aggressive pricing practices, rapid technological change and new market entrants. The Company's success is dependent upon its ability to develop innovative, cost-competitive EDA software products and services, and to bring them to market in a timely manner. The Company's future operating results are dependent on the Company's ability to successfully implement its strategy to help its customers meet their business objectives by developing custom solutions that leverage and improve the people, process and technology they use for product development. The Company accomplishes this through a combination of technology and services. Inherent in implementing this strategy are a number of risks that the Company must manage and that could affect its future operating results. These risks include the ability to successfully recruit, train and retain its skilled services professionals and the ability to profitably deliver solutions to increasingly complex customer design challenges. Growth of the services business is constrained by the Company's ability to hire and train services professionals to keep pace with demand. The Company's profitability could be adversely affected if it is unable to develop its services business as expected. It is anticipated that international revenue will continue to constitute a significant portion of total revenue. International revenues are subject to certain additional risks normally associated with international operations, including, among others, adoption and expansion of government trade restrictions, volatile foreign exchange 12 13 rates, currency conversion risks, limitations on repatriation of earnings and reduced protection of intellectual property rights. The Company enters into foreign currency forward contracts to hedge the impact of foreign currency fluctuations. Though the Company attempts to reduce the impact of foreign currency fluctuations, significant exchange rate movements may have a material adverse impact on the Company's results of operations. The Company's operating expenses are partially based on its expectations of future revenue. The Company's results of operations may be adversely affected if revenue does not materialize in a quarter as expected. Since expense levels are usually committed in advance of revenues and because only a small portion of expenses vary with revenue, the Company's operating results may be impacted significantly by lower revenue. Based on the Company's operating history and factors that may cause fluctuations in the quarterly results, quarter to quarter comparisons should not be relied upon as indicators of future performance. Due to the foregoing, as well as other factors, past financial performance should not be considered an indicator of future performance. In addition, the Company's participation in a highly dynamic industry often results in significant volatility of the Company's common stock price. Any change in revenues or operating results below levels expected by securities analysts for the Company or its competitors, and the timing of the announcement of such shortfalls, could have an immediate and significant adverse effect on the trading price of the Company's common stock in any given period. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved in various disputes and litigation matters which have arisen in the ordinary course of business. These include disputes and lawsuits related to intellectual property, contract law and employee relations matters. The Company filed a complaint in the United States District Court for the Northern District of California on December 6, 1995 against Avant! Corporation (formerly known as ArcSys, Inc., "Avant!") and certain of its employees for misappropriation of trade secrets, copyright infringement, conspiracy and other illegalities. On January 16, 1996, Avant! filed various counterclaims against the Company and the Company's President and CEO, alleging, inter alia, that the Company and its President and CEO had cooperated with the Santa Clara County District Attorney and initiated and pursued its complaint against Avant! for anticompetitive reasons, engaged in wrongful activity in an attempt to manipulate Avant!'s stock price and utilized certain pricing policies and other acts to unfairly compete against Avant! in the marketplace. The counterclaim also alleges that certain unspecified Company insiders engaged in illegal insider trading with respect to Avant!'s stock. On April 12, 1996, Avant! filed a First Amended Counterclaim against the Company and its President and CEO. The Company and its President and CEO continue to believe that each has meritorious defenses to Avant!'s amended counterclaims, and each intends to defend such action vigorously. On April 19, 1996, the Company filed a motion seeking a preliminary injunction to prevent Avant! from continuing to market ArcCell and ArcCell XO, two software lines which the Company alleges were misappropriated. A hearing on the motion is anticipated to take place in the third quarter of 1996. Management believes that the ultimate resolution of the disputes and litigation matters discussed above will not have a material adverse impact on the Company's financial position or results of operations. ITEM 5. OTHER INFORMATION On May 3, 1996, the Company's Board of Directors effected a three-for-two stock split, payable May 31, 1996, in the form of a dividend of one additional share of the Company's common stock for every two shares owned by stockholders as of the record date, May 16, 1996. Par value remained at $0.01 per share. The stock split will result in the issuance of approximately 26.0 million additional shares of common stock from authorized but 13 14 unissued shares. Accordingly, all share and per share data have been adjusted to retroactively reflect the stock split. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith:
EXHIBIT NUMBER EXHIBIT TITLE LOCATION - ------- ------------- -------- 10.29 The Registrant's amended and restated 401(k) Plan. 16 10.30 Amendment dated May 3, 1996, to Registrant's 1993 Non Statutory Stock Option Plan (incorporated by reference to the Registrant's Form 10-Q for the third quarter ended September 30, 1994). 72 10.31 Revolving line of credit dated April 1996, by and between Credit Lyonnais and the Registrant. 77 27.1 Financial data schedule for the period ended March 30, 1996. (b) Reports on Form 8-K On February 16, 1996, Registrant filed a Current Report on Form 8-K, reporting that its Board of Directors had approved a Stockholder Rights Plan and canceled its previous Stockholder Rights Plan established in 1989.
14 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CADENCE DESIGN SYSTEMS, INC. (REGISTRANT) DATE: May 10, 1996 By: /s/ Joseph B. Costello ----------------------- ---------------------- JOSEPH B. COSTELLO President and Chief Executive Officer DATE: May 10, 1996 By: /s/ H. Raymond Bingham ----------------------- ---------------------- H. RAYMOND BINGHAM Executive Vice President and Chief Financial Officer 15 EX-10.29 2 AMENDED & RESTATED 401(K) PLAN 1 Exhibit 10.29 CADENCE DESIGN SYSTEMS, INC. 401(k) PLAN Amended and Restated Effective July 1, 1995 16 2 CADENCE DESIGN SYSTEMS, INC. 401(k) PLAN TABLE OF CONTENTS
Page ---- ARTICLE 1 DEFINITIONS AND CONSTRUCTION............................................................ 3 ARTICLE 2 ELIGIBILITY AND PARTICIPATION........................................................... 13 ARTICLE 3 401(k) CONTRIBUTIONS.................................................................... 14 ARTICLE 4 ROLLOVER CONTRIBUTIONS AND VOLUNTARY CONTRIBUTIONS........................................................................... 21 ARTICLE 5 COMPANY AND PROFIT SHARING CONTRIBUTIONS................................................ 21 ARTICLE 6 MATCHING CONTRIBUTIONS.................................................................. 22 ARTICLE 7 INVESTMENT OPTIONS...................................................................... 28 ARTICLE 8 PARTICIPANTS' ACCOUNTS AND ALLOCATION OF TRUST INCOME OR LOSS................................................................. 28 ARTICLE 9 ALLOCATION OF CONTRIBUTIONS............................................................. 30 ARTICLE 10 VESTING................................................................................. 31 ARTICLE 11 SERVICE................................................................................. 33 ARTICLE 12 DISTRIBUTION OF BENEFITS UPON TERMINATION............................................... 36 ARTICLE 13 LOANS................................................................................... 44 ARTICLE 14 IN-SERVICE WITHDRAWALS BY PARTICIPANTS.................................................. 46 ARTICLE 15 BENEFICIARIES........................................................................... 48 ARTICLE 16 DESIGNATION OF NAMED FIDUCIARY.......................................................... 49 ARTICLE 17 TRUST FUND AND TRUSTEE.................................................................. 52 ARTICLE 18 AMENDMENT AND TERMINATION............................................................... 52 ARTICLE 19 ASSIGNMENTS............................................................................. 54 ARTICLE 20 CLAIMS PROCEDURE........................................................................ 54 ARTICLE 21 TOP HEAVY PROVISIONS.................................................................... 56 ARTICLE 22 MISCELLANEOUS........................................................................... 59
17 3 CADENCE DESIGN SYSTEMS, INC. 401(k) PLAN The ECAD, Inc. Cash or Deferred Profit Sharing Plan was originally established effective January 1, 1984 and was revised effective January 1, 1985. Effective June 1, 1988, as a result of the merger of ECAD, Inc. and SDA Systems, Inc. and the subsequent renaming of the corporation, the name of the ECAD, Inc. Cash or Deferred Profit Sharing Plan was changed to the Cadence Design Systems, Inc. Cash or Deferred Profit Sharing Plan (the "Prior Plan"). Effective as of January 1, 1989, Cadence Design Systems, Inc., a Delaware corporation (the "Employer"), renamed, amended and restated the Prior Plan as the Cadence Design Systems, Inc. 401(k) Plan (the "Plan"). Since this last amendment and restatement, the Plan has been further amended several times. Effective as of July 1, 1995, unless specifically provided otherwise, the Employer hereby again amends and restates the Plan in its entirety. The Plan is established for the purpose of (a) providing the employees with an opportunity to accumulate funds for their retirement, or (b) for the payment of death benefits for their dependents and beneficiaries. The Plan is a profit sharing plan which is intended to qualify under section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and has a tax-deferred retirement savings feature which is intended to satisfy the requirements of section 401(k) of the Code. 18 4 ARTICLE I DEFINITIONS AND CONSTRUCTION 1.1 Definitions. The following words and phrases as used in this Plan shall have the following meanings unless a different meaning is clearly required by the context: (a) "Account(s)" shall mean a Participant's 401(k) Account, Rollover Account, Profit Sharing Account and Company Contribution Account, Matching Account, and Voluntary Account or any one of such Accounts as the context may require. (b) "Adjustment Factor" shall mean the cost of living adjustment prescribed by the Secretary of the Treasury under section 415(d) of the Code, as applied to such items and in such manner as the Secretary shall provide. (c) "Beneficiary" shall mean the person or persons entitled under the provisions of this Plan to receive benefits after the death of a Participant. (d) "Board" shall mean the Board of Directors of the Company. (e) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (f) "Company" shall mean Cadence Design Systems, Inc., a Delaware corporation. (g) "Committee" shall mean the Plan's administrative committee referred to in Article 16. (h) "Company Contribution Account" shall mean that Account of a Participant to which Company Contributions and Top Heavy Contributions made on behalf of such Participant shall be allocated. (i) "Company Contributions" shall mean the contributions made by the Company pursuant to Article 5 hereof. (j) "Compensation" shall mean for any Plan Year: (1) (A) For purposes of making 401(k) contributions and matching contributions made by a Participant under the Plan, Compensation shall have the meaning set forth in paragraph 3.1 (c). (B) For purposes of making all other contributions permitted or required under the Plan, Compensation shall have the meaning set forth in subparagraph (A), (B), (C), (D) or (E) of paragraph 1.1(j)(2), as the Committee shall elect. The Committee may elect to include a Participant's 401(k) Contributions and/or salary reduction contributions made to any plan maintained by the Company or a Related Company which is a cafeteria plan as defined by section 125 of the Code in any definition of Compensation which may be used each Plan Year. (2) For all other purposes under the Plan, and except as otherwise expressly provided in the Plan, Compensation shall have the meaning set forth in paragraphs (A), (B), (C), (D) or (E) as the Committee shall elect each year. 19 5 (A) (1) Compensation as defined in section 415(c)(3) of the Code, which shall include all of the following: (a) The Employee's wages, salaries, fees for professional service and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the Employer maintaining the Plan to the extent that the amounts are includable in gross income (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, reimbursements or other expense allowances under a non-accountable plan as described in Regulation 1.162-2(c)). (b) In the case of an Employee who is an employee within the meaning of section 401(c)(1) of the Code and the regulations thereunder, the Participant's earned income (as described in section 401(c)(2) of the Code and the regulations thereunder). (c) Amounts described in section 104(a)(3), 105(a) and 105(h) of the Code, but only to the extent that these amounts are includable in the gross income of the Employee. (d) Amounts paid or reimbursed by the Employer for moving expenses incurred by an Employee, but only to the extent that at the time of payment it is reasonable to believe that these amounts are not deductible by the Employee under section 217 of the Code. (e) The value of a non-qualified stock option granted to an Employee by the Employer, but only to the extent that the value of the option is includable in the gross income of the Employee for the taxable year in which granted; and (f) The amount includable in the gross income of an Employee upon making the election described in section 83(b) of the Code. Items (a) and (b) above shall include foreign earned income (as defined in section 911(b) of the Code), whether or not excludable from gross income under section 911(b) of the Code. Compensation in items (a) and (b) above shall be determined without regard to the exclusions from income under sections 931 and 933 of the Code. (2) For the purposes of subparagraph (a)(i) above, "Compensation" shall exclude the following: (a) Contributions made by the Employer to a plan of deferred compensation to the extent that, before the application of the Code's section 415 limitations to that plan, the contributions are not includable in the gross income of the Employee for the taxable year in which contributed. In addition, Employer contributions made on behalf of an Employee to a simplified employee pension plan described in section 408(k) of the Code are not considered as Compensation for the taxable year in which contributed. Additionally, any distributions from a plan of deferred compensation are not considered as Compensation for 20 6 purposes of section 415 of the Code, regardless of whether such amounts are includable in the gross income of the Employee when distributed. However, any amounts received by an Employee pursuant to an unfunded non-qualified plan may be considered as Compensation for, purposes of section 415 of the Code in the Plan Year such amounts are includable in the gross income of the Employee. (b) Amounts realized from the exercise of a nonqualified stock option, or when restricted stock (or property) held by an Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture (see section 83 of the Code and the Regulations thereunder). (c) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option. (d) Other amounts which receive special tax benefits, such as premiums for group term life insurance (but only to the extent that the premiums are not includable in the gross income of the Employee), or contributions made by an Employer (whether or not under a salary reduction agreement) towards the purchase of an annuity contract described in section 403(b) of the Code (whether or not the contributions are excludable from the gross income of the employee). (3) Compensation (as defined in subparagraph (A)(1) above) shall be Compensation actually paid or made available to an Employee within the Plan Year. (B) Compensation as defined in section 415(c)(3) of the Code and Treasury Regulation section 1.415-2(d)(10), which shall include Compensation as defined in paragraph (A) above except that the items of Compensation listed in items (b) through (f) of subparagraph (A)(1) shall be excluded. (C) Compensation for reporting purposes under sections 6041, 6051 and 6052 of the Code, which shall include all wages within the meaning of section 3401(a) of the Code and all other payments of compensation to an Employee by his Employer (in the course of the Employer's trade or business) for which the Employer is required to furnish the Employee a written statement under sections 6041(d), 6051(a)(3) and 6052 of the Code. At the discretion of the Committee, this definition of Compensation may be modified to exclude amounts paid or reimbursed by the Employer for moving expenses incurred by an Employee, but only to the extent that at the time of the payment it is reasonable to believe that these amounts are deductible by the Employee under section 217 of the Code. Compensation under this subparagraph must be determined without regard to any rules under section 3401(a) of the Code that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in section 3401(a)(2) of the Code). (D) Compensation for tax withholding under section 3401(a) of the Code, which shall include wages as defined in section 3401(a) of the Code for purposes of income tax withholding at the source but determined without regard to any rules that limit the remuneration included in wages based on the 21 7 nature or location of the employment or the services performed (such as the exception for agricultural labor in section 3401(a)(2) of the Code). (E) Safe harbor alternative definition of Compensation under section 414(s). Compensation shall mean Compensation as defined in subparagraphs (A), (B), (C) or (D) above, reduced by all of the following items (even if includable in gross income): reimbursements or other expense allowances, fringe benefits (cash and noncash), moving expenses, deferred compensation and welfare benefits. (3) For purposes of this paragraph 1.1(j), the following special rules shall apply: (A) For all purposes under the Plan: (1) "Compensation" shall include Compensation paid to any Employee prior to the time the Employee becomes a Participant in the Plan. (2) For Plan Years beginning on or after January 1, 1989, and before January 1, 1994, the annual Compensation of each Participant taken into account for determining all benefits provided under the Plan for any Plan Year shall not exceed $200,000. This limitation shall be adjusted by the Secretary of the Treasury at the same time and in the same manner as under Code section 415(d), except that the dollar increase in effect on January 1 of any calendar year is effective for Plan Years beginning in such calendar year and the first adjustment to the $200,000 limitation is effective on January 1, 1990. For Plan Years beginning on or after January 1, 1994, the annual Compensation of each Participant taken into account for any Plan Year shall not exceed $150,000 or, if greater, the maximum dollar amount specified in Code section 401(a)(17), as adjusted for increases in the cost-of-living in accordance with Code section 401(a)(17)(B). The cost-of-living adjustment in effect for a calendar year applies to any determination period beginning in such calendar year. If a determination period consists of fewer than 12 months, the annual Compensation limit is an amount equal to the otherwise applicable annual Compensation limit multiplied by a fraction, the numerator of which is the number of months in the short determination period, and the denominator of which is 12. In determining the Compensation of a Participant for purposes of this limitation, the rules of Code section 414(q)(6) shall apply, except in applying such rules, the term "family" shall include only the spouse of the Participant and any lineal descendants of the Participant who have not attained age 19 before the close of the Plan Year. If, as a result of the application of such rules the adjusted annual Compensation limitation is exceeded, then the limitation shall be prorated among the affected individuals in proportion to each such individual's Compensation as determined prior to the application of this limitation. (B) At the discretion of the Committee, "Compensation" of all Employees under section 1.1(j)(2) may be modified to include all of the following types of contributions and all of the following types of deferred compensation: 22 8 Employer on behalf of its Employees that are not includable in gross income under section 125, section 402(e)(3), section 402(h) and section 403(b) of the Code; (2) Compensation deferred under an eligible deferred compensation plan within the meaning of section 457(b) (deferred compensation plans of state and local governments and tax-exempt organizations); and (3) Employee contributions (under governmental plans) described in section 414(h)(2) that are picked up by the employing unit and thus are treated as Employer contributions. (C) At the discretion of the Committee, Compensation under section 1.1 (h)(2) for all Highly Compensated Employees may be modified to exclude any portion of the Compensation of some or all of such Highly Compensated Employees. (D) "Compensation" shall include all amounts paid by a Related Company which has adopted the Plan. (k) "Effective Date" of the Plan, as amended and restated herein, shall mean January 1, 1989. (l) "Eligible Employee" shall mean every Employee except any Employee (1) who is not a non-resident alien, and who receives no earned income (within the meaning of the Code) from the Employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3) of the Code), (2) who is a member of a collective bargaining unit and who is covered by a collective bargaining agreement, which agreement does not specifically provide for coverage of such Employee under the Plan, (3) who is a leased employee as defined in section 414(n)(2) of the Code, or, (4) who performs services for any division of the Company that maintains its own plan. (m) "Employee" shall mean a person currently employed by the Employer, any portion of whose income is subject to withholding of income tax and/or for whom Social Security contributions are made by the Employer, as well as any other person qualifying as a common law employee of the Employer. Notwithstanding any other provision of the Plan, for purposes of the requirements listed in section 414(n)(3) of the Code, the term "Employee" shall include leased employees within the meaning of section 414(n)(2) of the Code; provided, however, that if such leased employees constitute less than 20% of the Employer's Non-Highly compensated workforce within the meaning of section 414(n)(5)(C)(ii) of the Code, the term "Employee" shall not include those leased employees covered by a plan described in section 414(n)(5) of the Code. (n) "Employer" shall mean the Company and any Related Company which adopts the Plan with the consent of the Company. 23 9 (o) "Entry Dates" shall mean January 1, April 1, July 1, and October 1 of each Plan Year and effective January 1, 1995, the first day of the first full calendar month on or after the Eligible Employee's commencement of service as an Employee. (p) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. (q) "Family Members" shall mean a Participant's spouse, lineal ascendants or descendants, and the spouses of such lineal ascendants or descendants. (r) "401(k) Account" shall mean that Account of a Participant to which 401(k) Contributions made on behalf of such Participant shall be credited. (s) "401(k) Contributions" shall mean the contribution made by the Employer on behalf of a Participant pursuant to Article 3 hereof. (t) "Highly Compensated Employee" shall mean: (1) Any Employee who, during the current Plan Year or the 12-month period immediately preceding the current Plan Year: (A) Was at any time a 5% owner, as defined in section 416(i)(1)(A)(iii) of the Code; (B) Received compensation in excess of $75,000 (adjusted for the Adjustment Factor); (C) Received compensation in excess of $50,000 (adjusted for the Adjustment Factor) and was in the top twenty percent (20%) of Employees, ranked on the basis of compensation for such Plan Year; or (D) Was at any time an officer, within the meaning of section 416(i) of the Code, and received compensation greater than fifty percent (50%) of the dollar limitation in effect under section 415(b)(1)(A) of the Code for such Plan Year. (2) Notwithstanding any other provision in the Plan, subparagraphs (1)(B), (1)(C) or (1)(D) above shall not apply to an Employee for the current Plan Year unless: (A) Such Employee was a Highly Compensated Employee for the preceding 12-month period by application of subparagraphs (1)(B), (1)(C) or (1)(D) above; or (B) Such Employee is a member of the group of the 100 Employees paid the greatest compensation for the current Plan Year. (3) For purposes of subparagraph (1)(D) above, no more than 50 Employees (or, if lesser, the greater of three Employees or ten percent (10%) of Employees) shall be treated as officers. If, for any Plan Year, no officer is described in subparagraph (1)(D), the highest paid officer of the Employer for such Plan Year shall be treated as described in subparagraph (1)(D). 24 10 (4) For purposes of this paragraph 1.1(t), a former Employee shall be treated as a Highly Compensated Employee if: (A) Such Employee was a Highly Compensated Employee when such Employee separated from service; or (B) Such Employee was a Highly Compensated Employee at any time after attaining age 55. (5) For purposes of determining Highly Compensated Employees under subparagraphs (1)(C) and (1)(D), the Employees described in section 414(q)(8) of the Code shall be excluded. (6) For purposes of this paragraph 1.1(t), compensation shall be defined as in paragraph 1.1(j), except that compensation shall include any amount which is contributed by the Employer pursuant to a salary reduction agreement and which is not includable in the Employee's gross income under section 125, 402(a)(8), 402(h)(1)(B) or 403(b) of the Code. (7) If the Employer is eligible under section 414(q)(12)(B) of the Code to elect to determine Highly Compensated Employees pursuant to the method described in section 414(q)(12)(A) of the Code, then for purposes of determining the Highly Compensated Employees of such Employer, subparagraph (1)(B) above shall be applied by substituting "$50,000" for "75,000," and subparagraph (1)(C) above shall not apply. (8) For purposes of this paragraph 1.1(t), the Employer and any Related Company shall be treated as a single Employer of an Employee. (9) Notwithstanding any other provision in the Plan, the Employer may elect to determine Highly Compensated Employees on the basis of the "calendar year calculation election" set forth in the regulations promulgated under the Internal Revenue Code. (10) Notwithstanding any other provision in the Plan, the determination of Highly Compensated Employees shall be made in accordance with section 414(q) of the Code and the regulations promulgated thereunder. (u) "Investment Manager" means (1) any fiduciary (other than a Trustee or named fiduciary as specified in Article 16) who has the power to manage, acquire, or dispose of any assets of the Plan; (2) who is (i) registered as an investment adviser under the Investment Advisers Act of 1940; (ii) is a bank, as defined in that Act; or (iii) is an insurance company qualified to perform services described in subparagraph (1) of this paragraph 1.1(u) under the laws of more than one State; and (3) who has acknowledged in writing that he is a fiduciary with respect to the Plan. (v) "Matching Account" shall mean that Account of the Participant to which Matching Contributions made on behalf of such Participant shall be credited. 25 11 (w) "Matching Contributions" shall mean the contributions made by the Employer on behalf of a Participant pursuant to Article 6 hereof. (x) "Non-Highly Compensated Employee" shall mean an Employee who is neither a Highly Compensated Employee nor a Family Member. (y) "Normal Retirement Date" shall mean the date the Participant attains his sixty-fifth (65th) birthday. (z) "Participant" shall mean any Eligible Employee who has become a participant in this Plan in accordance with the provisions of Article 2 and whose participation has not terminated. (aa) "Plan" shall mean the Cadence Design Systems, Inc. 401(k) Plan as set forth herein and any amendments hereto. (bb) "Plan Year" shall mean a twelve-month period beginning on January 1 and ending on December 31. A "limitation year," as that term is used in section 415 of the Code and the Treasury regulations issued thereunder, shall have the same meaning as "Plan Year." (cc) "Profit Sharing Account" shall mean that Account of a Participant to which Profit Sharing Contributions allocated to such Participant shall be credited. (dd) "Profit Sharing Contributions" shall mean the contributions made by the Employer pursuant to Article 5 hereof. (ee) "Related Company" shall mean any organization which is either (i) a member of a controlled group of corporations (as determined for purposes of section 414(b) of the Code) of which the Employer is a member, (ii) a member of a group of trades or businesses (whether or not incorporated) which are under common control with the Employer (as determined for purposes of section 414(c) of the Code), or (iii) is a member of an affiliated service group within the meaning of section 414(m) of the Code, of which the Employer is also a member. (ff) "Rollover Account" shall mean that Account of the Participant to which Rollover Contributions made by such Participant shall be credited. (gg) "Rollover Contributions" shall mean contributions made by a Participant pursuant to Article 4 hereof. (hh) "Service" shall have the meaning set forth in Article 11 hereof. (ii) "Top-Heavy Contributions" shall mean the contributions made by the Employer pursuant to Article 21.4 hereof. (jj) "Top-Heavy Plan" shall have the meaning set forth in Article 21.1 hereof. (kk) "Total Disability" shall mean a physical or mental condition resulting from a bodily injury or disease or mental disorder which renders the Participant incapable of continuing in the employment of the Employer and which has continued for at least six (6) months. The total and permanent disability of any 26 12 Participant shall be determined by the Employer in accordance with uniform principles consistently applied and upon the basis of such evidence as the Employer deems necessary and desirable but which shall always include medical evidence from at least one licensed physician. (ll) "Trust" shall mean the legal entity created by the Trust Agreement as part of the Plan. (mm) "Trust Agreement" shall mean that trust agreement entered into between the Employer and Trustee effective as of January 1, 1989 (Amended effective 1/1/90, First Amendment), as such may be amended from time to time. (nn) "Trust Fund" shall mean all property and income held by the Trustee under the Trust Agreement. (oo) "Trustee" shall mean the original Trustees named in the Trust Agreement, and any duly appointed successor. (pp) "Valuation Date" shall mean March 31, June 30, September 30, and December 31 of each Plan Year and such other date as may be designated as provided in Article 8.7 for the revaluation of Participants' Accounts. (qq) "Voluntary Account" shall mean that account of a Participant to which nondeductible employee contributions made by a Participant prior to January 1, 1990, under the terms of the Gateway Design Automation Corporation 401(k) Profit Sharing Plan shall be credited. 1.2 Construction. All matters respecting the validity, effect, interpretation and administration of the Plan shall be determined in accordance with ERISA, and to the extent allowed by ERISA, in accordance with the laws of the State of California; provided, however, that if any provision is susceptible of more than one interpretation, such interpretation shall be given thereto as is consistent with the Plan being a qualified employees' profit sharing plan which incorporates a qualified cash or deferred arrangement within the meaning of the Code (including section 401(k) of the Code) and ERISA, or corresponding provisions of subsequent federal revenue laws. 1.3 Gender and Number. As used in the Plan, the masculine, feminine or neuter gender and the singular or plural number shall each be allowed to include the others whenever the context so indicates. 1.4 Headings. All headings used in the Plan are inserted for convenience of reference only and do not constitute part of the Plan. ARTICLE 2 ELIGIBILITY AND PARTICIPATION 2.1 Commencement of Participation. 27 13 (a) Each participant of the Prior Plan shall become a Participant of this Plan. (b) Effective as of April 1, 1989, each Employee shall become a Participant on the first Entry Date occurring on or after the date he first begins employment or on the date occurring on or after the date on which the Employee becomes an Eligible Employee, whichever is later. (c) Notwithstanding anything in this paragraph 2.1 to the contrary, an Employee shall not become an Eligible Employee with respect to Company Contributions and Profit Sharing Contributions if such Employee is not receiving base compensation or wages from a domestic Employer. 2.2 Termination of Participation. Participation in the Plan continues until a Participant terminates his employment by reason of retirement, death, Total Disability, or for any other reason. 2.3 Participation Upon Re-employment. Any Employee who was previously a Participant in the Plan and whose participation has terminated for any reason and who is subsequently rehired shall become a Participant on the first day on which the Employee resumes employment or on which the Employee becomes an Eligible Employee, whichever occurs later. Upon becoming a Participant, the rehired Employee shall be entitled to designate that 401(k) Contributions be made to the Plan beginning as of the next following Entry Date. 28 14 ARTICLE 3 401(k) CONTRIBUTIONS 3.1 Deferral Authorization. (a) Each Participant may designate a whole percentage of his compensation which is not less than one percent (1%) nor more than twenty percent (20%) for each Plan Year, which amount shall not be paid to the Participant but shall, for each pay period during which the authorization is in effect, be withheld from the Participant's compensation and contributed to his 401(k) Account as provided herein. (b) A Participant may initially authorize 401(k) Contributions by filing such enrollment form or otherwise providing such authorization as the Committee may specify at least fifteen (15) days prior to the Entry Date on which such authorization is to be effective. A Participant's 401(k) Contributions designation shall remain in effect until suspended or modified as provided in Articles 3.5 and 3.6. (c) A participant's compensation shall include salary, bonuses, overtime, commissions, 401(k) Contributions, and car allowances, but shall not include salary reduction contributions to any plan maintained by the Company or a Related Company which is a cafeteria plan as defined by Section 125 of the Code, or any other payments not specifically included above. 3.2 Annual Limitation on Deferrals. Notwithstanding any other provision of the Plan, no Participant shall be permitted to have 401(k) Contributions made to the Plan on his behalf during any calendar year in excess of $7,000, multiplied by the Adjustment Factor, or such other amount as may be permitted by law. 3.3 Distribution of Excess Deferrals. (a) Notwithstanding any other provision of the Plan, Excess Deferrals and income allocable thereto shall be distributed no later than each April 15 to Participants who claim such Excess Deferrals for the preceding calendar year. For purposes of this Article 3.3, "Excess Deferrals" shall mean the amount of 401(k) Contributions for a calendar year that the Participant allocates to the Plan pursuant to the claim procedure set forth in subsection (b) below. (b) A Participant's claim for Excess Deferrals shall be in writing; shall specify the amount of the Participant's Excess Deferrals for the applicable calendar year; shall be submitted to the Committee no later than March 1 immediately following the close of the applicable calendar year; and shall be accompanied by the Participant's written statement that if such amounts are not distributed, such Excess Deferrals, when added to amounts deferred under other plans or arrangements described in sections 401(k), 408(k) or 403(b) of the Code, shall exceed the limit imposed on the Participant by section 402(g) of the Code for the applicable calendar year. (c) A Participant's Excess Deferrals shall be adjusted for income or loss, which shall be determined by multiplying the total amount of income or loss allocable to the Participant's 401(k) Account for the 29 15 applicable calendar year by a fraction, the numerator of which shall be the Participant's Excess Deferrals and the denominator of which shall be the balance in the Participant's 401(k) Account on the last day of the applicable calendar year. (d) The Excess Deferrals which would otherwise be distributed to a Participant pursuant to this Article 3.3 shall be reduced by the amount of Excess Contributions previously distributed to such Participant for the Plan Year, in accordance with regulations promulgated by the Secretary of the Treasury. 3.4 All Contributions Deemed Employer Contributions. Except as applicable law may otherwise require, contributions made pursuant to the Participant's designation under Article 3.1 shall be deemed to be Employer contributions to the Plan. 3.5 Cessation and Resumption of 401(k) Contributions. (a) A Participant may cease 401(k) Contributions at any time by filing with the Committee an Enrollment Form or by communicating with the Committee in such other manner as the Committee may authorize, which shall be effective as soon thereafter as may be administratively feasible. A Participant who has ceased making 401(k) Contributions may resume making 401(k) Contributions as of any Entry Date thereafter upon filing a new Enrollment Form which complies with the provisions of Article 3.1(b), provided the Participant is otherwise eligible to participate in the Plan on that date. (b) If the Participant ceases to be an Eligible Employee, all 401(k) Contributions made on his behalf shall be suspended immediately, but he shall be eligible to have 401(k) Contributions made on his behalf resumed on the first Entry Date occurring on or after the date on which he again becomes an Eligible Employee. 3.6 Change in 401(k) Contributions. A Participant may change the percentage of 401(k) Contributions effective as of any Entry Date by filing an Enrollment Form with the Committee or by communicating with the Committee in such other manner as the Committee may authorize, prior to the date such change is to be effective, which form shall specify the increase or decrease in 401(k) Contributions desired. 3.7 Actual Deferral Percentage Limitation. (a) In order that the Plan comply with the requirements of section 401(k) of the Code, the 401(k) Contributions made for each Plan Year must satisfy one of the following tests: (1) The Actual Deferral Percentage for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the Actual Deferral Percentage for Participants who are Non-Highly Compensated Employees for the Plan Year multiplied by 1.25; or (2) The Actual Deferral Percentage for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the Actual Deferral Percentage for Participants who are Non-Highly 30 16 Compensated Employees for the Plan Year multiplied by 2, provided that the Actual Deferral Percentage for Participants who are Highly Compensated Employees does not exceed the Actual Deferral Percentage for Participants who are Non-Highly Compensated Employees by more than 2 percentage points, or such lesser amount as the Secretary of the Treasury shall prescribe to prevent the multiple use of this alternative test with respect to any Highly Compensated Employee. (b) For purposes of this Article 3.7, the following definitions shall apply: (1) "Actual Deferral Percentage" shall mean the average (expressed as a percentage) of the Deferral Percentages of the Participants in a group. (2) "Deferral Percentage" shall mean the ratio (expressed as a percentage) that a Participant's 401(k) Contributions made during a Plan Year bears to the Participant's compensation for such Plan Year. (c) For purposes of this Article 3.7, the following special rules shall apply: (1) The Deferral Percentage for any Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have elective deferral contributions allocated to his account under two or more plans or arrangements described in section 401(k) of the Code that are maintained by the Company shall be determined as if all such elective deferrals were made under a single arrangement. (2) The Deferral Percentages of any Participant under two or more arrangements described in section 401(k) of the Code that are maintained by the Company or a Related Company shall be determined as if all elective deferrals made by any Participant were made under a single arrangement, if the arrangements are treated as a single plan for purposes of meeting the requirements of sections 401(a)(4) and 410(b) (other than section 410(b)(2)(A)(ii)) of the Code. (3) For purposes of determining the Deferral Percentage of a Participant who is a Highly Compensated Employee and is either a 5% owner as defined in Article 21.5(3)(a) or one of the ten most Highly Compensated Employees of the Employer, the 401(k) Contributions and compensation of such Participant shall include the 401(k) Contributions and compensation of Family Members, and such Family Members shall be disregarded in determining the Deferral Percentages for Participants who are Non-Highly Compensated Employees. (4) As provided in and in accordance with the regulations promulgated by the Secretary of the Treasury, the Committee may, in its sole discretion, elect to take into account Matching Contributions and qualified non-elective contributions, as described in section 401(m) of the Code, made on behalf of a Participant under the Plan or any other plan of the Company, for purposes of determining such Participant's Deferral Percentage only if such contributions are nonforfeitable when made and distributable only under the following circumstances: 31 17 (A) The Employee's retirement, death, Total Disability or separation from service: (B) The termination of the Plan without the establishment of a successor plan; (C) The Employee's attainment of age 59-1/2 or, for Plan Years beginning before 1989, the Employee's hardship: (D) The sale or other disposition by the Company or a Related Company to an unrelated corporation, which does not maintain the Plan, of substantially all of the assets used in a trade or business, but only with respect to employees who continue employment with the acquiring corporation; (E) The sale or other disposition by the Company or a Related Company of its interest in a subsidiary to an unrelated entity which does not maintain the Plan, but only with respect to employees who continue employment with the subsidiary. Non-elective contributions which may be treated as 401(k) Contributions must satisfy these requirements without regard to whether they are actually taken into account as 401(k) Contributions; and (F) Any distribution pursuant to subparagraph 4(b), (d) or (e) of this section 32.7(c) must be a lump sum distribution (as defined in section 401(k)(10)(B)) of the Participant's vested interest within one taxable year. (5) The Committee shall maintain such records as are necessary to demonstrate compliance with the requirements of section 3.7(a), including the extent to which Matching Contributions and qualified non-elective contributions are taken into account for purposes of determining a Participant's Deferral Percentage. (6) The determination and treatment of the 401(k) Contributions and Deferral Percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. (7) 401(k) Contributions shall relate to a Participant's Compensation that either would have been received by the Participant during the Plan Year but for the Participant's election to make 401(k) Contributions or is attributable to services performed by the Participant during the Plan Year and, but for the Participant's election to make 401(k) Contributions, would have been received by the Participant within two and one-half months after the close of the Plan Year. 3.8 Avoidance and Distribution of Excess Contributions. (a) In order that the Plan shall comply with the requirements of section 401(k) of the Code and the regulations thereunder, at any time in a Plan Year the Committee (in its sole discretion) may reduce for the remainder of that Plan Year the rate of 401(k) Contributions authorized by any Participant who is a Highly Compensated Employee, or the Committee may require that any Highly Compensated Employee 32 18 Participant discontinue all 401(k) Contributions for the remainder of that Plan Year. Such a reduction or discontinuance may be applied selectively to individual Highly Compensated Employee Participants or to a particular class of Highly Compensated Employee Participants, as the Committee may determine. Upon the close of the Plan Year, or on such earlier date as the Committee may determine, this Article 3.8 shall automatically cease to apply until the Committee again determines that a reduction or discontinuance of 401(k) Contributions is required for any Highly Compensated Employee Participant. (b) Notwithstanding any other provision of the Plan, Excess Contributions and income allocable thereto shall be distributed to Participants no later than the end of the Plan Year following the Plan Year in which such Excess Contributions were made. To the extent the Committee shall elect to do so, such Excess Contributions and income allowable thereto may be distributed within the first 2-1/2 months of a Plan Year to Participants on whose behalf such Excess Contributions were made during the preceding Plan Year. (i) For purposes of this Article 3.8(b), and Article 3.8(c), "Excess Contributions" shall mean the excess of: (A) The aggregate amount of 401(k) Contributions contributed on behalf of Highly Compensated Employees who were Participants during a Plan Year, over (B) The maximum amount of 401(k) Contributions permitted under Article 3.7 for such Plan Year, which shall be determined by reducing the amount of 401(k) Contributions contributed on behalf of Participants who were Highly Compensated Employees during such Plan Year in order of their Deferral Percentages, beginning with the highest of such Deferral Percentages. (ii) The income allocable to Excess Contributions shall be equal to the sum of the allocable gain or loss for the Plan Year for which the Excess Contributions were made, and the allocable gain or loss for the period between the end of such Plan Year and the date of distribution, as determined as follows: (A) The income allocable to a Participant's Excess Contributions for a Plan Year shall be determined by multiplying the total income for the Plan Year allocable to the Participant's 401(k) Contributions (including amounts treated as 401(k) Contributions) by a fraction, the numerator of which shall be the Participant's Excess Contributions, and the denominator of which shall be the total balance of the Participant's 401(k) Account (including amounts treated as 401(k) Contributions) as of the end of the Plan Year, reduced by the gain allocable to such Account for the Plan Year, and increased by the loss allocable to such Account for the Plan Year. (B) The allocable income shall include income for the period between the end of the Plan Year for which the Excess Contributions were made, and the date on which the corrective distribution is made to the Participant. For purposes of calculating the allocable income for this period, the Committee, in its sole 33 19 discretion, shall select one of the two following methods, provided that the method selected shall be applied on a uniform and nondiscriminatory basis for all Participants with Excess Contributions: (1) The "fractional method," under which the income for the period between the end of the Plan Year and the last day of the month preceding the distribution date shall be multiplied by a fraction determined under the method described in Article 3.8(b)(ii)(A) above, or (2) The " 10% method," under which 10% of the allocable income determined pursuant to Article 3.8(b)(ii)(A) above shall be multiplied by the number of calendar months that have elapsed between the end of the Plan Year and the distribution date. For purposes of determining the number of calendar months under the 10% method, a distribution made on or before the fifteenth day of a month shall be treated as having been made on the last day of the preceding month and a distribution occurring after the fifteenth day of a month shall be treated as having been made on the first day of the following month. (iii) For purposes of this Article 3.8(b), if the Highly Compensated Employee's Deferral Percentage is determined by combining the 401(k) Contributions and compensation of all Family Members pursuant to Article 3.7(c)(2), then the maximum amount of 401(k) Contributions permitted is determined in accordance with the leveling method set forth above in Article 3.8(b)(i)(B), and the Excess Contributions for the Family Members are allocated among the Family Members in proportion to their 401(k) Contributions. (iv) The Excess Contributions which would otherwise be distributed to a Participant pursuant to this Article 3.8 shall be reduced by the amount of Excess Deferrals distributed to such Participant, in accordance with regulations promulgated by the Secretary of the Treasury. (Redesignated effective 1/1/89, Third Amendment) (v) If Excess Contributions and allocable income for a Plan Year are not corrected by distribution before the close of the first 2-1/2 months of the following Plan Year, the Employer shall be subject to a 10% excise tax on the amount of such Excess Contributions, pursuant to section 4979 of the Code. Such excise tax shall be due at the same time as the Employer's income tax for its taxable year with or within which the Plan Year ends. 3.9 Contributions Held in Trust. The amount of 401(k) Contributions contributed by the Employer on the Participant's behalf shall be transferred to the Trustee, or such other depository as the Committee may designate, as soon as it is reasonable to do so and in no event later than thirty (30) days following the close of the month in which such 401(k) Contributions were deducted from a Participant's Compensation. ARTICLE 4 ROLLOVER CONTRIBUTIONS AND VOLUNTARY CONTRIBUTIONS 34 20 4.1 Rollovers. Notwithstanding any other provision hereof, subject to the consent of the Committee, the Trustee shall be authorized to accept assets from a person who is an Eligible Employee provided the transfer of such assets to this Plan was initiated by such Eligible Employee and qualifies as a rollover contribution within the meaning of sections 402(c) and 408(d)(3) of the Code. Any assets so transferred on behalf of an Eligible Employee shall be deposited in the Trust and allocated to the Eligible Employee's Rollover Account. 4.2 Voluntary Contributions. Effective January 1, 1990, Voluntary Contributions made by a Participant prior to January 1, 1990 under the terms of the Gateway Design Automation Corporation 401(k) Profit Sharing Plan shall be held in the Participant's Voluntary Account separate from any other contributions under the Plan and any allocable forfeitures. No additional Voluntary Contributions shall be made to such Account or the Plan. ARTICLE 5 COMPANY AND PROFIT SHARING CONTRIBUTIONS 5.1 Authorization of Company Contributions and Profit Sharing Contributions. For each Plan Year, the Employer may contribute to the Plan as a Company Contribution or a Profit Sharing Contribution on behalf of each Participant described in Article 2.1 (a) and (b) such amount as shall be determined by the Board in its sole discretion; provided, however, that in no event shall the Employer contribute for any Plan Year an amount which, when added to the total amount of 401 (k) Contributions and Matching Contributions, if any, made for such Plan Year, is in excess of the amount which the Employer will be permitted to deduct on its federal income tax return for such Plan Year as a contribution to the Plan, in accordance with the provisions of section 404 of the Code. If the Board determines to make a Company Contribution or a Profit Sharing Contribution for only a portion of a Plan Year. then only the Participant's Compensation for such portion of such Plan Year shall be taken into account. 5.2 Payment of Contributions. (a) A Company Contribution, if any, for any Plan Year shall be paid in cash by the Employer to the Trustee or such other depository as the Committee may designate, on a quarterly basis. In such case. only the Compensation received by the Participant during the preceding calendar quarter shall be taken into account. (b) A Profit Sharing Contribution, if any, for any Plan Year may be paid in cash by the Employer to the Trustee or such other depository as the Committee may designate in one or more installments as the Board, it its sole discretion, shall determine. 35 21 ARTICLE 6 MATCHING CONTRIBUTIONS 6.1 Authorization of Matching Contributions. If authorized by the Board, for each matching period specified by the Board, the Employer shall contribute an amount specified by the Board on behalf of each Participant who has made 401(k) Contributions during such matching period and who is employed on the last day of the matching period to each Participant's Matching Account. The Matching Contributions required to be made by the Employer under this Article 6 for any Plan Year shall be reduced by the amount of forfeitures which occurred during such Plan Year or prior Plan Years and which are not otherwise required to be restored pursuant to Article 10. 6.2 Actual Contribution Percentage Limitation. (a) In order that the Plan comply with the requirements of section 401(m) of the Code, the Matching Contributions made for each Plan Year must satisfy one of the following tests: (1) The Actual Contribution Percentage for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the Actual Contribution Percentage for Participants who are Non-Highly Compensated Employees for the Fiscal Year multiplied by 1.25; or (2) The Actual Contribution Percentage for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the Actual Contribution Percentage for Participants who are Non-Highly Compensated Employees multiplied by 2, provided that the Actual Contribution Percentage for Participants who are Highly Compensated Employees does not exceed the Actual Contribution Percentage for Participants who are Non-Highly Compensated Employees by more than 2 percentage points, or such lesser amount as the Secretary of the Treasury shall prescribe to prevent the multiple use of this alternate test with respect to any Highly Compensated Employee. (b) For purposes of this Article 6.2, the following definitions shall apply: (1) "Actual Contribution Percentage" shall mean the average (expressed as a percentage) of the Contribution Percentages of the Participants in a group. (2) "Contribution Percentage" shall mean the ratio (expressed as a percentage) that the Matching Contributions made on behalf of a Participant during the Plan Year bears to the Participant's Compensation for such Plan Year. (c) For purposes of this Article 6.2, the following special rules shall apply: (1) The Contribution Percentage for any Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have matching contributions or elective deferral contributions 36 22 allocated to his account under two or more plans described in section 401(a) of the Code or arrangements described in Section 401(k) of the Code that are maintained by the Company or a Related Company shall be determined as if all such contributions were made under a single plan or arrangement. (2) For purposes of determining the Contribution Percentage of a Participant who is a Highly Compensated Employee and is either a 5% owner as defined in 1.1(t) or one of the ten most Highly Compensated Employees of the Company, the Matching Contributions and the Compensation of such Participant shall include the Matching Contributions and Compensation of Family Members, and such Family Members shall be disregarded in determining the Contribution Percentages for Participants who are Non-Highly Compensated Employees. (3) A Participant's compensation shall be as defined in 1.1(j) except that compensation shall include 401(k) Contributions to the Plan and salary reduction contributions to any plan maintained by the Company or a Related Company which is a cafeteria plan as defined by section 125 of the Code. (4) The Contribution Percentages of any Participant under two or more arrangements described in section 401(m) of the Code that are maintained by the Company or a Related Company shall be determined as if all Matching Contributions were made under a single arrangement, if the arrangements are treated as a single plan for purposes of meeting the requirements of sections 401(a)(4) and 410(b) (other than section 410(b)(2)(A)(ii)) of the Code. (5) As provided in, and in accordance with, the regulations promulgated by the Secretary of the Treasury, the Committee may, in its sole discretion, elect to take into account elective deferrals and qualified non-elective contributions made on behalf of a Participant under the Plan or any other plan of the Company for purposes of determining such Participant's Contribution Percentage only if such contributions are nonforfeitable when made and distributable only under the following circumstances: (a) The Employee's retirement, death, Total Disability or separation from service; (b) The termination of the Plan without establishment of a successor plan: (c) The Employee's attainment of age 59-1/2 or, for Plan Years beginning before 1989, the Employee's hardship: (d) The sale or other disposition by the Company or a Related Company to an unrelated corporation, which does not maintain the Plan, of substantially all of the assets used in a trade or business, but only with respect to employees who continue employment with the acquiring corporation; and 37 23 (e) The sale or other disposition by the Company or a Related Company of its interest in a subsidiary to an unrelated entity which does not maintain the Plan, but only with respect to Employees who continue employment with the subsidiary. Non-elective contributions which may be treated as Matching Contributions must satisfy these requirements without regard to whether they are actually taken into account as Matching Contributions. (f) Any distribution pursuant to subparagraphs (5)(b), (d) or (e) of this Section 6.2(c)(5) must be a lump sum distribution (within the meaning of section 401(k)(10)(B)) of the Participant's vested interest within one taxable year. (6) The Committee shall maintain such records as are necessary to demonstrate compliance with the requirements of Section 6.2(a) including the extent to which elective contributions and qualified non-elective contributions are taken into account for purposes of determining a Participant's Contribution Percentage (7) The determination and treatment of the Matching Contributions and Contribution Percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. 6.3 Distribution or Forfeiture of Excess Matching Contributions (a) Notwithstanding any other provision of the Plan, in the event neither of the special tests described in Section 6.2 can be satisfied, then the Excess Aggregate Contributions of certain Highly Compensated Employees for a Plan Year shall be corrected by distribution of such Excess Aggregate Contributions and allocable income to any Participant with Excess Aggregate Contributions for such Plan Year. Distribution must be made, if administratively feasible, within the first 2-1/2 months of the Plan Year following the Plan Year for which the Excess Aggregate Contributions were made; provided, however, that in no event shall distribution occur later than the end of the Plan Year following the Plan Year for which the Excess Aggregate Contributions were made. Notwithstanding any other provision in the Plan, the consent of a Participant or his or her spouse shall not be required for a distribution of Excess Aggregate Contributions and allocable income. Such distributions shall be in compliance with Section 401(a)(4) of the Code. (b) In order to correct the Excess Aggregate Contributions of Participants who are Highly Compensated Employees, the methods of correction described in Section 6.3(a) must be accomplished on an Employee-by-Employee basis. The Excess Aggregate Contributions for certain Participants who are Highly Compensated Employees shall be reduced as follows: the first such reduction shall be made by reducing the Contribution Percentage of the Highly Compensated Employee with the highest Contribution Percentage to the Contribution Percentage of the Highly Compensated Employee with the second highest Contribution Percentage. If the requirements of Section 6.2 are not satisfied by this first reduction. then the Contribution Percentages of the two Highly Compensated Employees with the highest Contribution Percentages 38 24 shall be reduced to the Contribution Percentage of the Highly Compensated Employee with the third highest Contribution Percentage. The reduction in Contribution Percentage shall be repeated in the same manner until the requirements of Section 6.2 are satisfied for such Plan Year. (c) For purposes of this Article 6.3 and Article 22.3 hereof, "Excess Matching Contributions" shall mean the excess of: (1) The aggregate amount of the Matching Contributions made on behalf of Participants who are Highly Compensated Employees during a Plan Year, over (2) The maximum amount of the Matching Contributions permitted for such Plan Year under Article 6.2 hereof, which maximum amount shall be determined by reducing the Matching Contributions made on behalf of Participants who are Highly Compensated Employees during such Plan Year in order of their Contribution Percentages, beginning with the highest of such Contribution Percentages. (d) The income allocable to Excess Matching Contributions shall be equal to the sum of the allocable gain or loss for the Plan Year for which the Excess Matching Contributions were made, and the allocable gain or loss for the period between the end of such Plan Year and the date of distribution or forfeiture, determined in accordance with the method set forth in Article 3.8(b)(ii), except that "Excess Matching Contributions," "Matching Contributions," and "Matching Contributions Account" shall be substituted for "Excess Contributions," "401(k) Contributions," and "401(k) Account," respectively. (e) Notwithstanding any other provision of the Plan, no forfeitures arising under this Article 6.3 shall be reallocated to the Account of any Highly Compensated Employee. (f) For purposes of this Article 6.3, if the Highly Compensated Employee's Contribution Percentage is determined by combining the Matching Contributions and compensation of all Family Members pursuant to Article 6.2(c)(2), then the maximum amount of Matching Contributions permitted is determined in accordance with the leveling method set forth above in Article 6.3(b)(2), and the Excess Matching Contributions for the Family Members are allocated among the Family Members in proportion to their Matching Contributions. 6.4 Payment of Contributions. Matching Contributions shall be paid in cash by the Employer to the Trustee. Matching Contributions shall be made within a reasonable amount of time after the end of the matching period to which they relate. 6.5 Multiple Use of Alternative Limitation. (a) In order for the Plan to comply with the requirements of sections 401(k) and 401(m) of the Code, the Plan must satisfy the tests set forth in Articles 3.7(a) and 6.2(a). However, the Employer must avoid the multiple use of the alternative limitation as set forth in Articles 3.7(a)(2) and 6.2(a)(2) with respect to Highly Compensated Employees. 39 25 (b) For purposes of this Article 6.5, a multiple use of the alternative limitation is present when all of the following conditions occur: (1) One or more Highly Compensated Employees of the Employer are eligible to participate in a cash or deferred arrangement subject to section 401(k) of the Code, and in the plan maintained by the Employer subject to section 401(m) of the Code; (2) The sum of the Actual Deferral Percentage of the entire group of eligible Highly Compensated Employees under such arrangement subject to section 401(k) of the Code and Actual Contribution Percentage of the entire group of eligible Highly Compensated Employees under such plan subject to section 401(m) of the Code exceeds the Aggregate Limit; (3) The Actual Deferral Percentage of the entire group of eligible Highly Compensated Employees under the arrangement subject to section 401(k) of the Code exceeds 125 percent of the Actual Deferral Percentage of the entire group of eligible Non-Highly Compensated Employees; and (4) The Actual Contribution Percentage of the entire group of eligible Highly Compensated Employees under such plan subject to section 401 (m) of the Code exceeds 125 percent of the Actual Contribution Percentage of the entire group of eligible Non-Highly Compensated Employees. (c) For purposes of the this Article 6.5, the Aggregate Limit is defined as the greater of: (1) The sum of: (A) 125 percent of the greater of the Relevant Actual Deferral Percentage or the Relevant Actual Contribution Percentage, and (B) Two (2) percentage points plus the lesser of the Relevant Actual Deferral Percentage or the Relevant Actual Contribution Percentage. In no event, however, shall this amount exceed twice the lesser of the Relevant Actual Deferral Percentage or the Relevant Actual Contribution Percentage; or (2) The sum of: (A) 125 percent of the lesser of the Relevant Actual Deferral Percentage or the Relevant Actual Contribution Percentage, and (B) Two (2) percentage points plus the greater of the Relevant Actual Deferral Percentage or the Relevant Actual Contribution Percentage. In no event, however, shall this amount exceed twice the greater of the Relevant Actual Deferral Percentage or the Relevant Actual Contribution Percentage. (d) For purposes of this Article 6.5, the term "Relevant" Actual Deferral Percentage and term "Relevant" Actual Contribution Percentage mean the Actual Deferral Percentage or the Actual Contribution Percentage of the eligible group of Non-Highly Compensated Employees. 40 26 (e) In the event a multiple use of the alternative limitation as described in Article 6.5(b) is present, such multiple use shall be corrected by reducing the Actual Contribution Percentage of the Highly Compensated Employees so that the combined Actual Deferral Percentage and the Actual Contribution Percentage does not exceed the Aggregate Limit. The required reduction shall be treated as an Excess Matching Contribution as described in Article 6.3(b). The method of correct to be used to reduce the Actual Contribution Percentage shall be the method as set forth in Article 6.3(b)(2). ARTICLE 7 INVESTMENT OPTIONS 7.1 Investment Election. Each Participant may elect in writing to have amounts credited to such Participant's Accounts invested in such investment funds as the Committee shall from time to time determine. The Committee shall establish such rules and procedures for making and changing investment elections as it shall deem appropriate; provided, however, that such rules and procedures shall be communicated to Participants and shall be applied in a uniform and nondiscriminatory manner. Unless an effective investment direction is made by the Participant, all such contributions shall be invested in a fixed interest-type account as determined by the Committee or such other account as determined by the Committee. ARTICLE 8 PARTICIPANTS' ACCOUNTS AND ALLOCATION OF TRUST INCOME OR LOSS 8.1 401(k) Accounts. A separate 401(k) Account shall be established and maintained for each Participant who has authorized 401(k) Contributions. Such 401(k) Account shall be credited with the Participant's 401(k) Contributions and Trust income allocable thereto, and shall be charged with distributions therefrom and any Trust losses allocable thereto. 8.2 Rollover Account. A separate Rollover Account shall be established and maintained for each Eligible Employee making a Rollover Contribution to the Plan pursuant to Article 4 which shall be credited with such Rollover Contribution and the Trust Income allocable thereto and shall be charged with distributions therefrom and Trust losses allocable thereto. 8.3 Company Contribution Account. A separate Company Contribution Account shall be established and maintained for each Participant who is entitled to an allocation of Company Contributions pursuant to Article 9.2 hereof. Such Company Contribution Account shall be credited with Company Contributions, and any Trust income allocable thereto, and shall be charged with distributions therefrom and any Trust losses allocable thereto. 41 27 8.4 Profit Sharing Account. A separate Profit Sharing Account shall be established and maintained for each Participant who is entitled to an allocation of Profit Sharing Contributions pursuant to Article 9.2 hereof. Such Profit Sharing Account shall be credited with Profit Sharing Contributions, and any Trust income allocable thereto, and shall be charged with distributions therefrom and any Trust losses allocable thereto. 8.5 Matching Account. A separate Matching Account shall be established and maintained for each Participant on whose behalf the Employer has made Matching Contributions. Such Matching Account shall be credited with Matching Contributions and any Trust income allocable thereto, and shall be charged with distributions therefrom and any Trust losses allocable thereto. 8.6 Voluntary Account. A separate Voluntary Account shall be established and maintained for each Participant who has made Voluntary Contributions, pursuant to Article 4.2 which shall be credited with such Voluntary Contributions and the Trust income allocable thereto and shall be charged with distributions therefrom and Trust losses allocable thereto. 8.7 Valuation Dates. Within sixty (60) days after the end of each calendar quarter and within sixty (60) days after the removal or resignation of the Trustee, the Trustee shall value the assets of the Trust on the basis of fair market value as of the close of such calendar quarter of the Plan Year (or the close of the shorter period ending with such resignation or removal) and such date shall be a Valuation Date. The Committee may also direct the Trustee to value the assets of the Trust or any portion thereof on the basis of fair market value as of any other date and such day shall also be deemed a Valuation Date with respect to the assets so revalued. 8.8 Allocation of Trust Income or Loss. As of any Valuation Date, the net Trust income or loss (including appreciation or depreciation of the Trust Fund, whether realized or unrealized), shall be allocated to the Accounts of Participants in proportion to the balances of such Accounts as of the most recent Valuation Date, after making such adjustments as may be appropriate to reflect contributions or distributions which were made subsequent to the preceding Valuation Date. In making such allocation, the income and loss of the portion of the Trust Fund invested in any separate fund designated authorized by the Committee under Article 7, shall be valued separately on each Valuation Date and the net Trust income or loss attributable to each fund shall be allocated among Participants' Accounts on a segregated basis. Income on any Participant loan made pursuant to Article 13 shall be credited to the Account(s) of the Participant who has obtained such a loan. ARTICLE 9 ALLOCATION OF CONTRIBUTIONS 42 28 9.1 Allocation of 401(k) Contributions. Any 401(k) Contributions made by the Employer on behalf of a Participant shall be allocated to that Participant's 401(k) Account as of a date no later than the last day of the Plan Year for which such 401(k) Contributions were made. 9.2 Allocation of Company Contributions and Profit Sharing Contributions. Any Company Contributions made by the Employer shall be allocated to the Company Contribution Accounts of Participants who are Eligible Employees on the date such Company Contributions were made. Any Profit Sharing Contributions made by the Employer shall be allocated to the Profit Sharing Accounts of Participants who are Eligible Employees on the date such Profit Sharing Contributions were made. Notwithstanding the foregoing, (i) any Company Contributions for any quarter in the Plan Year shall only be made with respect to an Eligible Employee on the first day of such quarter and (ii) Company Contributions with respect to the last quarter in any Plan Year and Profit Sharing Contribution shall be allocated to the Company Contribution Accounts and Profit Sharing Contribution Accounts of Participants who are Eligible Employees on the last day of such Plan Year. Such allocations shall be made in the proportion that each such Participants Compensation bears to the Compensation of all such Participants for the quarter or the Plan Year as the case may be. 9.3 Allocation of Matching Contributions. Any Matching Contributions made by the Employer on behalf of a Participant shall be allocated to that Participant's Matching Account as of the last day of the period for which such Matching Contributions are made; provided, however, that the Participant is an Eligible Employee on the last day of such matching period. 43 29 ARTICLE 10 VESTING 10.1 401(k) Accounts, Rollover Accounts, Voluntary Accounts and Company Contribution Accounts. The full amount credited to a Participant's 401(k) Account, Rollover Account, Voluntary Account and Company Contribution Account, if any, shall be one hundred percent (100%) vested and nonforfeitable at all times. 10.2 Profit Sharing Accounts and Matching Accounts. (a) The full amount credited to a Participant's Profit Sharing Account and MATCHING Account shall be deemed fully vested and nonforfeitable when the Participant attains his Normal Retirement Date, or when the Participant terminates employment by reason of death or Total Disability. Any amounts attributable to a Participant's Matching Contributions and Profit Sharing under Article 5.2(b) for the Plan Year in which the Participant terminates employment after his Normal Retirement Date or by reason of death or Total Disability shall be fully vested at the time of such contribution. (b) Amounts credited to a Participant's Profit Sharing Account and Matching Account shall vest and be nonforfeitable in accordance with the following schedule:
Years of Service Percentage Vested ---------------- ----------------- less than 1 0% 1 25% 2 50% 3 75% 4 100%
(c) For the purposes of determining a Participant's Years of Service, all of the Participant's Service with the Employer shall be taken into account, except that in the case of a Participant who has five consecutive One Year Breaks in Service, Years of Service thereafter shall not be taken into account for purposes of determining the vested portion of a Participant's Profit Sharing Account or Matching Account which accrued before such five consecutive One Year Breaks in Service. 10.3 Forfeitures. (a) In the event a Participant terminates employment when such Participant is less than 100% vested in his Matching Account or Profit Sharing Account, the portion of the Participant's Accounts that is not vested shall be allocated to a suspense account as of the date on which the Participant terminates employment. If a former Participant is not rehired before he or she has 5 consecutive One Year Breaks in Service. the balance in the suspense account shall be applied as follows: (1) First, to reduce the Employer's Matching Contributions, if any, for the matching periods during the Plan Year; (2) Next, if amounts remain in such suspense account after the application of paragraph (1) above, to reduce the Employer's Profit Sharing Contributions, if any, for the Plan Year; and 44 30 (3) Next, if amounts remain in such suspense account after the application of paragraphs (1) and (2) above, to reduce the Employer's Profit Sharing Contributions, if any, for the Plan Year. If any amounts remain in such suspense account as of the end of the Plan Year after the application of paragraphs (1), (2), and (3) above, such amounts shall be carried forward and applied in the next succeeding Plan Year in accordance with this subsection (a). Any such amounts remaining upon Plan termination shall be allocated among Participants as a Profit Sharing Contribution. (b) If a former Participant is reemployed before he has 5 consecutive One Year Breaks in Service, an amount equal to the balance in the suspense account (unadjusted for income or loss) shall be restored to the Participant's Accounts, in accordance with the following rules: (1) In the event a former Participant did not receive a distribution of the vested portion of his Accounts, the balance in the suspense account shall be credited to the Participant's Accounts as of his reemployment date. (2) In the event a former Participant received a distribution of the vested portion of his Account(s), the balance in the suspense account shall be maintained as a separate subaccount of the Participant's Account(s). The vested amount of such separate subaccount shall be determined by applying the following formula: Vested amount = P(AB + (RxD)) - (RxD) For purposes of applying the formula, P is the vested percentage in accordance with this Article 10 at the date of determination; AB is the Account balance at the date of determination; D is the amount of the distribution previously made; and R is the ratio of the Account balance at the date of determination to the Account balance immediately following the prior distribution. The date of determination is any date on which the Participant's vested amount in such separate subaccount is determined. (c) If a former Participant is not rehired before he has 5 consecutive One Year Breaks in Service, the balance in the suspense account shall be forfeited permanently and applied as discussed in paragraph (a). (d) Such amounts as may be required under this Article 10.3 to restore any Participant's Accounts shall be restored first from the suspense account established pursuant to subsection (a) above, and next, to the extent necessary, from additional contributions of the Employer for such Plan Year. (e) If the Plan is terminated, all rights to forfeiture restoration shall lapse as to any former Participant who has not resumed employment before such Plan termination unless (1) the Participant has elected pursuant to Article 12 to retain his vested interest in the Plan, and (2) the Participant has not incurred 5 consecutive One Year Breaks in Service prior to termination. 45 31 ARTICLE 11 SERVICE 11.1 Year of Service. A Participant shall be credited for each Year of Service determined in accordance with the provisions of Articles 11.2 and 11.3. 11.2 Service Definitions. The following words and phrases as used in Articles 10 and 11 shall have the following meanings, unless a different meaning is clearly required by the context: (a) "Hours of Service" shall mean: (1) Each hour for which an Employee is directly or indirectly paid or entitled to payment by the Company or a Related Company for the performance of duties during the applicable computation period. These hours shall be credited to the Employee for the Plan Year or computation period in which the duties are performed. (2) Each hour for which an Employee is directly or indirectly paid or entitled to payment by the Company or a Related Company on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, sickness, incapacity (including disability), leaves of absence, layoff, jury duty, or military service. Payments made or due under a plan maintained by the Company or a Related Company solely for the purpose of complying with applicable worker's compensation, unemployment compensation or disability insurance laws, or to reimburse the Employee for medical or medically related expenses shall not be considered as payments by the Company or Related Company for purposes of this Article 11.2. Notwithstanding the foregoing, however, no more than 501 Hours of Service shall be credited to an Employee on account of any single continuous period in which the Employee performs no duties. The number of Hours of Service for which no duties are performed and the computation period to which they relate shall be determined in accordance with the Department of Labor Regulations section 2530.200b-2(b) and (c) or similar superseding regulations. (3) Each hour for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to by the Company or a Related Company. The number of hours for which back pay is attributable shall be determined in accordance with Department of Labor Regulations section 2530.200b-2(b). These hours shall be credited to the Employee for the Plan Year or computation period in which the award, agreement, or payment pertains, rather than the Plan Year or computation period in which the award, agreement, or payment is made. No hours shall be credited under this subparagraph (3) if the same hours have been credited under subparagraphs (I) or (2) above. 46 32 (4) Except as otherwise provided in this Article 11.2, for all purposes of determining Hours of Service under the Plan, each Employee shall be credited with actual Hours of Service. (b) "One Year Break in Service" shall mean a Plan Year during which a Participant is credited with 500 Hours of Service or less. For all purposes hereunder, a One Year Break in Service shall be deemed to have occurred as of the last day of the Plan Year in which such One Year Break in Service occurred. If an Employee is absent from work for any period by reason of (A) pregnancy of the Employee, (B) the birth of a child of the Employee, (C) the placement of a child with the Employee, in connection with the adoption of such child by such Employee, or (D) care provided for such child by the Employee for a period beginning immediately following such birth or placement, the Employee shall not be treated as having incurred a One Year Break in Service in the Plan Year in which such absence begins. However, if the Employee would not otherwise have suffered a One Year Break in Service during the Plan Year in which the absence begins, the Employee shall not be treated as having incurred a One Year Break in Service in the immediately following Plan Year. The Administrative Committee may require, as a condition of receiving such maternity or paternity leave credit, that such Employee furnish timely information to establish that the absence from work is for reasons referred to above and to establish the number of days for which there was such an absence. (c) "Year of Service" shall mean a Plan Year during which an Employee is credited with not less than 1,000 Hours of Service. 11.3 Notwithstanding any other provision in this Article 11, any Employee who was employed by Tangent Systems Corporation ("Tangent") prior to the merger of Tangent and the Company shall be credited with all service with Tangent prior to the merger in accordance with Article 11.2. 11.4 Effective January 1, 1990, notwithstanding any other provisions in this Article 11, any Employee who was employed by Gateway Design Automation Corporation ("Gateway") prior to the merger of Gateway and the Company shall be credited with all service with Gateway prior to the merger in accordance with Article 11.2. 11.5 Effective July 1, 1992, notwithstanding any other provisions in this Article 11, any Employee who was employed by Valid Logic Systems ("Valid") prior to the merger of Valid and the Company shall be credited with all service with Valid prior to the merger in accordance with Article 11.2. 11.6 Effective July 1, 1992, notwithstanding any other provisions in this Article 11, any Plan participant who was employed by Valid prior to the merger of Valid and the Company, which merger was effective December 31, 1991, shall hold a vested account balance in the Plan no less than the balance held in the Valid Logic Systems Savings and Retirement Plan at the time of the merger of the two Plans. 11.7 Effective October 1, 1994, notwithstanding any other provisions in this Article 11, any Employee who was employed by Redwood Design Automation, Inc. ("Redwood") prior to the acquisition of Redwood as a 47 33 wholly-owned subsidiary of the Employer will be credited with all service with Redwood prior to the acquisition in accordance with Article 11.2. 11.8 Effective March 1, 1995, notwithstanding any other provisions in this Article 11. any Employee who was employed by the Rancho Bernardo division of Unisys ("Unisys") prior to the purchase of assets of Unisys will be credited with all service with Unisys prior to the purchase in accordance with Article 11.2. 11.9 Effective September 1, 1994, notwithstanding any other provisions in this Article 11, any Employee who was employed by Comdisco Systems, Inc. ("Comdisco") prior to the purchase of assets of Comdisco will be credited with all service with Comdisco prior to the purchase in accordance with Article 11.2. ARTICLE 12 DISTRIBUTION OF BENEFITS UPON TERMINATION 12.1 Methods of Payment of Distributions. (a) When a Participant terminates employment, the balance in the Participant's Accounts shall be distributed in one of the following methods, as selected by the Participant: (1) In cash in a single distribution of the entire balance then standing in the Participant's Accounts; or (2) Payments in installments as nearly equal as possible over a period of 5, 10 or 15 years, but in no event over a period exceeding the Participant's life expectancy or the joint life expectancy of the Participant and his or her designated Beneficiary. In no event shall the present value of any installment payments to be paid to the Participant be less than fifty percent (50%) of the present value of the payments to be made to the Participant and his Beneficiaries. (3) Effective January 1, 1990, with respect only to Participants who were participants in the Gateway Design Automation Corporation 401(k) Plan which was merged into this Plan, in an annuity form of benefit. If a Participant elects such annuity form of benefit pursuant to this subparagraph, his distribution shall be made pursuant to Article 12.6. The annuity form of benefit shall not be available if the value of the Participant's vested Accounts is not in excess of $3,500 (and at the time of any prior distribution had not exceeded $3,500). If the Participant does not select a method of payment pursuant to this Article 12.1, payment shall be made in one lump sum. If a Participant has elected to receive benefit payments in installments, such Participant may thereafter elect to receive the remaining balance of his Accounts in a single distribution. 48 34 (b) If distribution of a Participant's benefit commences and the Participant dies before his entire benefit has been distributed to him, the remaining portion of his benefit shall be distributed in accordance with the distribution method being utilized on the date of his death. If a Participant dies before benefit payments commence, then the Employer shall distribute such Participant's Accounts to the Participant's Beneficiary in cash in a single lump sum as soon as is administratively feasible, provided such distribution shall be made within five (5) years after the date of death of such Participant. Notwithstanding the foregoing, however, if the Participant has in effect a distribution election providing for payment of benefits to a Beneficiary in installments not exceeding the life expectancy of the Beneficiary, and further providing that distributions are to commence not later than one (1) year after the date of the Participant's death, the benefits shall be distributed as provided in such election. 12.2 Amounts Available for Distribution. The value of the Participant's Accounts shall be determined based on the Valuation Date coincident with or next following the Participant's termination of employment. 12.3 Timing of Payment of Distributions. (a) Distribution of the balance then standing in the Participant's Accounts shall be made or commenced as soon as administratively feasible after the value of such Participant's Accounts is determined pursuant to Article 12.2, except that if the value of the Participant's Account exceeds $3,500 (or at the time of any prior distribution exceeded $3,500) no distribution shall be made prior to the Participant's Normal Retirement Date without the prior written consent of the Participant and, when applicable, the Participant's spouse. (b) Notwithstanding any other provision of the Plan, distribution of the vested amount credited to a Participant's Account shall be made or commenced no later than the 60th day after the close of the Plan Year in which the latest of the following events occur: (1) The Participant's Normal Retirement Date; (2) The 10th anniversary of Participant's commencement of participation in the plan; or (3) The Participant's termination of employment with the Company. (c) Notwithstanding any other provision herein to the contrary, benefit payments shall begin by the April 1 immediately following the end of the calendar year in which the Participant attains age 70-1/2 years, whether or not he or she is an Employee. Any distribution made or commenced under this Section 12.3(c) shall, beginning with the year in which the Participant attains age 70-1/2, be not less than the quotient obtained by dividing (1) the Participant's vested Account balance as of the last Valuation Date of the preceding year by (2) the applicable divisor as determined under the incidental benefit requirement of Code section 401(a)(9). (d) The Participant's payment election must be consistent with the requirement of Code section 401(a)(9) that all payments are to be completed within a period not to exceed the lives or the joint and last survivor life expectancy of the Participant and his or her Beneficiary. The life expectancies of a Participant and his or her 49 35 Beneficiary may not be recomputed manually. (e) Payment to a Beneficiary must either: (1) be completed by the end of the calendar year that contains the fifth anniversary of the Participant's death or (2) begin by the end of the calendar year that contains the first anniversary of the Participant's death and be completed within the period of the Beneficiary's life or life expectancy, except that: (i) If the Participant dies after the April 1 immediately following the end of the calendar year in which he or she attains age 70-1/2, payment to his or her beneficiary must be made at least as rapidly as provided in the Participant's distribution election: (ii) If the surviving spouse is the Beneficiary, payments need not begin until the end of the calendar year in which the Participant would have attained age 70-1/2 and must be completed within the spouse's life or life expectancy; and (iii) If the Participant and the surviving spouse who is the Beneficiary die (A) before the April 1 immediately following the end of the calendar year in which the Participant would have attained age 70-1/2 and (B) before payments have begun to the spouse, the spouse shall be treated as the Participant in applying these rules. (f) If the amount of a required distribution cannot be ascertained by the date the distribution is to be made, or it is not possible to make such distribution because the Committee has been unable to locate the Participant after making reasonable efforts to do so, a distribution retroactive to the required commencement date may be made no later than 60 days after the earliest date on which the amount of such distribution can be ascertained under the Plan or the date on which the Participant is located, whichever is applicable. 12.4 Deferred Distributions. When the distribution to a terminated Participant is deferred because such terminated Participant does not consent to an early distribution as required by Article 12.3, then such terminated Participant's Accounts shall be invested in accordance with the Participant's investment option under the Plan. Except as provided in Article 13.1, no terminated Participant shall be eligible for a loan pursuant to Article 13 or a financial hardship withdrawal in accordance with Article 14.1. 12.5 No Liability. Any payment to a Participant, or to his legal representative or Beneficiary, in accordance with the provisions of the Plan, shall be in full satisfaction of all claims hereunder against the Trustee, the Committee and the Employer, any of whom may require such Participant, legal representative or Beneficiary as a condition precedent to such payment to execute a receipt therefor in such form as shall be determined by the Trustee, the Committee or the Employer, as the case may be. The Employer does not guarantee the Trust, the Participants, or their legal representatives or Beneficiaries against loss of or depreciation in value of any right or benefit that any of them may 50 36 acquire under the terms of this Plan. All of the benefits payable hereunder shall be paid or provided for solely from the Trust, and the Employer assumes no liability or responsibility therefor. 12.6 Payment of Benefit in the Form of Annuities. Effective January 1, 1990, if a Participant elects an annuity form of benefit pursuant to Article 12.1 (a)(3), the benefits provided by the Plan shall be distributed as follows: (a) (1) Married Participants. The benefits under the Plan for a Participant who is married on the date the benefit payments commence, shall be in the form of a qualified joint and survivor annuity, payable in equal monthly installments, commencing on the Participant's Normal Retirement Date, or such earlier date as the Participant may elect which is after such Participants' termination of employment, for the life of the Participant with a survivor annuity for the life of the spouse which is fifty percent (50%) of the amount of the annuity payable during the joint lives of the Participant and the Participant's spouse. This qualified joint and survivor annuity shall be the Actuarial Equivalent of the value of the Participant's vested Accounts determined as of the Valuation Date coinciding with or next following the Participant's termination of employment. For purposes of this Section 12.6, any marriage requirement for the Participant and his or her spouse is limited to the one-year period ending on the date the benefit payments commence. The Plan will treat a Participant and his or her spouse who are married on the date benefit payments commence as having been married during the one-year period ending on that date provided they remain married for one year. Notwithstanding, if the Participant and his or her spouse do not remain married for one year, the spouse loses any survivor benefit rights and any amount paid to the Participant will not be retroactively corrected. For purposes of this Section 12.6, "Actuarial Equivalent" shall mean a payment or series of payments mathematically equivalent to another amount based on consistently applied reasonable actuarial assumptions selected by the Employer, if such assumptions do not result in discrimination in favor of Employees who are Highly Compensated Employees. (2) Unmarried Participants. If a Participant has not been married for at least one year on the date benefit payments commence, and does not have a former spouse or spouses who is/are entitled to survivor annuity benefits under a qualified domestic relations order as provided in Article 22.4 the benefits under the Plan for such Participant shall be in the form of a life annuity, payable in equal monthly installments, commencing on the Participants' Normal Retirement Date, or such earlier date after termination of employment as the Participant may elect, for the life of the Participant. This life annuity shall be the Actuarial Equivalent of the value of the Participants' vested Accounts determined as of the Valuation Date coinciding with or next following the Participants' termination of employment. Any Participant who has elected an annuity form of benefit, may at any time prior to the annuity starting date, revoke such election and elect to have benefits paid in one of the options set forth in Article 12.1(a), subject, however, to the provisions of Article 12.6(c). 51 37 (b) Death Benefits. Upon the death of a Participant who has elected an annuity form of benefit pursuant to Article 12.1(a)(1), his or her Beneficiary shall be entitled to receive a death benefit determined as follows: (1) The death benefits, if any, payable upon the death of any Participant who is receiving (or has received) retirement benefits under the Plan will depend upon whether the particular form of annuity which such Participant is receiving (e.g., life annuity or joint and survivor annuity) provides for any survivor or other death benefits and shall be paid in accordance with the form of benefit which such Participant had been receiving. (2) If a Participant who has not begun to receive payments under the Plan either dies while in active service of the Employer, or separates from service with vested benefits and thereafter dies before the annuity starting date, the surviving spouse, if any, and the Beneficiary of the Participant shall be entitled to a death benefit determined as follows: (A) If the Participant has been married for at least one (1) year at the time of his death, the Participant's surviving spouse shall be entitled to a qualified preretirement survivor annuity for the life of such surviving spouse which annuity shall be the Actuarial Equivalent of the amount equal to the value of fifty percent (50%) of the deceased Participant's vested Accounts as of the date of such Participant's death. Notwithstanding the foregoing however, the surviving spouse of a deceased Participant may elect, in lieu of receiving the qualified preretirement survivor annuity, to have fifty percent (50%) of the Participant's vested Accounts paid in one of the options as set forth in Article 12.1 (a). Any such election shall comply with the requirements of Article 12.6(c). (B) A death benefit will be paid to the Participant's Beneficiary in an amount equal to the Participant's vested benefits at the time of the Participant's death reduced by any amount payable to a surviving spouse pursuant to Article 12.6(b)(2)(A), above. The Beneficiary may elect, with respect to any death benefit paid pursuant to this provision, that the benefit be paid in one of the options as set forth in Article 12.1 (a). (c) Revocation of Election. A Participant who has elected an annuity form of benefit and the spouse or former spouse of a deceased Participant who is entitled to a qualified preretirement survivor annuity, may elect to have benefits paid in one of the options set forth in Article 12.1(a), subject to the provisions of this Article 12.6(c). (1) The election to waive the qualified joint and survivor annuity must be made within the 90-day period ending on the annuity starting date. (2) The election by the Participant to waive the qualified preretirement survivor annuity may be made or revoked at any time after the first day of the Plan Year in which 52 38 the Participant attains age 35 years, but it shall become irrevocable on the Participant's death. (3) The election by the Participant's spouse to waive the qualified preretirement survivor annuity may be made any time prior to the annuity starting date. (4) Any waiver of a qualified joint and survivor annuity or a qualified preretirement survivor annuity shall not be effective unless: (i) the Participant's spouse consents in writing to the waiver; (ii) the election designates a specific beneficiary, including any class of beneficiaries or any contingent beneficiaries, which may not be changed without spousal consent (or the spouse expressly permits designations by the Participant without any further spousal consent); (iii) the spouse's consent acknowledges the effect of the election; and (iv) the spouse's consent is witnessed by a representative of the Plan or a notary public. Additionally, a Participant's waiver of a qualified joint and survivor annuity shall not be effective unless the election designates a form of benefit which may not be changed without spousal consent (or the spouse expressly permits designations by the Participant without any further spousal consent). The spousal consent requirement may be waived by the Committee if there is no spouse or the spouse cannot be located, or for such other reasons authorized in applicable Treasury Regulations. (5) Any consent by a spouse obtained under Article 12.6(c)(4) (or establishment that the consent of a spouse may not be obtained) shall be effective only with respect to such spouse. A consent that permits designations by the Participant without any requirement of further consent by such spouse must acknowledge that the spouse has the right to limit consent to a specific beneficiary, and a specific form of benefit where applicable, and that the spouse voluntarily elects to relinquish either or both of such rights. (6) The Committee shall furnish each Participant with an explanation of the Plan's qualified joint and survivor annuity provisions, the Participant's rights to waive such qualified joint and survivor annuity, the effect of such waiver, a general description of the eligibility conditions and other material features of the optional forms of benefit and sufficient additional information to explain the relative values of the optional forms of benefit available under the Plan, the right of a Participant's spouse to consent to such waiver, and the right to make, and the effect of a revocation of waiver. This explanation shall be furnished no less than 30 days and no more than 90 days prior to the annuity starting date and in the manner required under applicable Treasury Regulations. (7) The Committee shall furnish each Participant with an explanation of the qualified preretirement survivor annuity, the Participant's right to waive such qualified preretirement survivor annuity, the requirement that the Participant's spouse consent to any such waiver, and the right to make, and the effect of, a revocation of such waiver. This explanation shall be furnished to the Participant within the applicable period with respect to a Participant, whichever of the following periods ends last: (i) the period beginning on the first day of the Plan Year in which the Participant attains age 32 years and ending on the last day of the Plan Year preceding the Plan Year in which the Participant attains age 35 years, (ii) a reasonable period after 53 39 the individual becomes a Participant, (iii) a reasonable period ending after the qualified preretirement survivor annuity is no longer fully subsidized, (iv) a reasonable period ending after section 401(a)(11) of the Code first applies to the Participant, and (v) a reasonable period after separation from service in case of a Participant who separates before attaining age 35. For purposes of applying (ii), (iii) and (iv), a reasonable period is the one-year period ending after the date the applicable event occurs and the applicable period of such events begins one year prior to the occurrence of the enumerated events. For purposes of applying (v), the applicable period means the period beginning one year before the separation from service and ending one year after such separation. (d) Provision of Annuity Benefits Through Commercial Annuity. The Plan may provide the annuity and qualified preretirement survivor annuity benefits provided under this Article 12.6 through the purchase of an annuity contract which provides such benefits and which is owned by the Plan or distributed to the Participant, provided that such contract shall provide for the notice, election and consent provisions applicable to such benefits which are set forth in this Article 12.6 and Sections 401(a)(11) and 417 of the Code. 12.7 Direct Rollover of Eligible Rollover Distributions. A. This section 12.7 applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this section 12.7, a Distributee may elect, at the time and in the manner prescribed by the Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. B. Definitions. (1) Eligible Rollover Distribution. An Eligible Rollover Distribution is any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under section 401(a)(9) of the Code; and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (2) Eligible Retirement Plan. An Eligible Retirement Plan is an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified trust described in section 401(a) of the Code, that accepts the Distributors Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or retirement annuity. 54 40 (3) Distributed A Distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, are Distributees with regard to the interest of the spouse or former spouse. (4) Direct Rollover. A Direct Rollover is a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 12.8 Waiver of 30-day Notice Requirement. This section 12.8 applies to distributions made on and after January 1, 1994. Except for section 12.3 of the Plan, notwithstanding any other provision of the Plan to the contrary that would otherwise limit a Distributee's election under this section 12.8 A Distributee may elect to waive the 30 day notice period with respect to any distribution from the Plan to which sections 401(a)(11) and 417 of the Code do not apply and such distribution may commence less than 30 days after the notice required under Regulation 1.411(a)-11(c) is given, provided that: A. The Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether to elect a distribution (and, if applicable, a particular distribution option), and B. The Participant, after receiving the notice, affirmatively elects a distribution. ARTICLE 13 LOANS 13.1 Requirements. Effective as of October 19, 1989, and upon written application, the Committee may direct the Trustee to make a loan or loans to a Participant or a former Participant or beneficiary who is a "party in interest" within the meaning of Section 3(14) of ERISA and who has not received the entire amount of his or her vested benefit, in accordance with the following rules: (a) The principal amount of a loan shall not exceed the lesser of either paragraph (1) or (2) below: (1) $50,000, reduced by the Participant's highest outstanding loan balance during the one (1) year period ending on the day before the day on which the current loan is made. For purposes of determining the Participant's highest outstanding loan balance, all loans made to the Participant from the Plan and any other qualified plan maintained by the Company or a Related Company shall be aggregated. (2) 50% of the Participant's vested interest in his Accounts, reduced in either case by the current outstanding balance of all other loans to the Participant from the Plan and any other qualified plan maintained by the Company or a Related Company. 55 41 (b) Loans shall be made available to all Participants on a reasonably equivalent basis. (c) Loans must be secured by the Participant's vested interest in his Accounts. (d) Loans must be evidenced by the borrowing Participant's promissory note for a fixed term not to exceed five (5) years unless the proceeds of the loan are used to acquire any dwelling unit which within a reasonable time is to be used (determined at the time the loan is made) as a principal residence of the Participant, in which case such loan must be required to be repaid within ten (10) years (thirty (30) years for principal residence loans made prior to June 1, 1990). Loans for the acquisition of the Participant's principal residence are referred to herein as Residence Loans and all other loans are to be referred to as General Loans. (e) A loan shall bear a reasonable rate of interest and require regular, periodic repayment through substantially level amortization and payments not less frequently than quarterly over the life of the loan. (f) A loan shall not be made if such loan would constitute a prohibited transaction under the applicable sections of ERISA and the Code, and the regulations promulgated thereunder. (g) Effective September 1, 1991, a Participant may not have more than two loans outstanding from the Plan at any time. (h) Loans shall be for the minimum amount of Five Hundred Dollars ($500.00). (i) Loans may be prepaid in full without penalty. No partial payment is permitted. (j) Repayment of all loans shall be through payroll deduction, unless the Participant is on an unpaid leave of absence or on disability leave or has terminated employment with the Employer, in which case repayment of the loan may be made by personal check. A Participant may not terminate his payroll deduction authorization. All loans made on or after June 15, 1995 shall be due and payable in full upon termination of employment. Loans prior to June 15, 1995 may continue to be repaid in accordance with the terms of such loans. (k) Loans may be immediately due and payable, in the sole discretion of the Committee, if the Participant fails to make any installment payment when due. (l) In the event of default by a Participant, such Participant's Accounts may be offset by the outstanding loan balance at the time the Participant becomes entitled to a distribution from the Plan. (m) Loans shall not be made available to Highly Compensated Employees in an amount greater than the amount made available to other Employees. (n) Loans must be made in accordance with such other guidelines and policies as shall be adopted from time to time by the Committee which, upon adoption, shall constitute part of the Plan and which shall include such provisions as may be required by final regulations promulgated by the Department of Labor. 13.2 Source of Funds. Application of Payments. The principal borrowed by the Participant shall be funded first from the Participant's Voluntary Account, then from the Participant's Rollover Account, then from the Participant's Company Contribution Account, then from the Participant's Profit Sharing Account, then from the 56 42 Participant's Matching Account, and then from the Participant's 401 (k) Account. No loans may be funded from a Participant's Profit Sharing Account or Matching Account, unless the total amounts credited to such Accounts are one hundred percent (100%) vested. Such loan shall be withdrawn pro rata from the investment funds in which the Participant has invested his Accounts, and all interest and principal payments on such loans shall be deposited in the investment funds in which the Participant is investing his or her 401(k) in effect at the time of such deposit, or in such other investment fund as the Committee may specify from time to time. All outstanding loans shall be considered a directed investment of the Participant and any interest shall be credited only to the Participant's Account. ARTICLE 14 IN-SERVICE WITHDRAWALS BY PARTICIPANTS 14.1 Withdrawals for Financial Hardship. (a) Upon written consent of the Committee, a Participant may withdraw an amount up to one hundred percent (100%) of the vested account balance credited to his Accounts (as of the last Valuation Date for which valuation is available at the time of such financial hardship withdrawal, less subsequent distributions and outstanding loans) as may be required to meet urgent and heavy financial needs of the Participant, provided that the entire amount requested by the Participant is not reasonably available from other resources of the Participant. Notwithstanding the foregoing: (i) No earnings credited to the Participant's 401(k) Account after December 31, 1988, may be withdrawn; and (ii) No terminated Participant shall be eligible for a financial hardship withdrawal. (b) A financial hardship distribution will be made only for one of the following reasons: (i) Expenses for medical care described in section 213(d) of the Code previously incurred by the Participant, the Participant's spouse, or dependents of the Participant (as defined in section 152 of the Code) or necessary for such persons to obtain medical care described in section 213(d) of the Code; (ii) Costs directly related to the purchase (excluding mortgage payments) of a principal residence for the Participant; (iii) Payment of tuition and related educational fees for the next twelve (12) months of post-secondary education of the Participant, his spouse, children or dependents (as defined in section 152 of the Code); 57 43 (iv) Payments necessary to prevent the Participant's eviction from his principal residence or foreclosure on mortgage of the Participant's principal residence; or (v) Such other reason as the Secretary of the Treasury may prescribe. (c) The amount of the withdrawal must not exceed the amount required to relieve the financial need created by the hardship (including any amounts necessary to pay any income taxes or penalties reasonably anticipated to result from the withdrawal) after taking into account other resources that are reasonably available to the Participant for this purpose. (d) Amounts attributable to Matching Contributions and qualified non-elective contributions that are used pursuant to Section 3.7(c)(4) of the Plan to determine the Participant's Deferral Percentage for any Plan Year may not be withdrawn on account of financial hardship. (e) No earnings credited to a Participant's 401(k) Account after December 31, 1988, may be withdrawn. (f) If the Plan permits an annuity form of benefit subject to section 12.1(a)(3), the Participant must waive the option of receiving the portion of his vested benefits being distributed as an in-service withdrawal in the form of an annuity and his or her spouse (if applicable) must consent to the waiver and the election to receive the in-service withdrawal in the form of a lump sum payment. (g) The Participant must certify that the financial need cannot be relieved: (i) Through reimbursement or compensation by insurance or otherwise; (ii) By reasonable liquidation of the Participant's assets, to the extent such liquidation would not itself cause an immediate and heavy financial need; (iii) By discontinuing the Participant's 401(k) Contributions to the Plan; or (iv) By other distributions or non-taxable (at the time of the loan) loans from plans maintained by the Employer or any other Employer, or by borrowing from commercial sources on reasonable commercial terms. (h) Financial hardship withdrawals shall first be made from a Participant's Voluntary Account, then from the Participant's Rollover Account, then from the Participant's Company Contribution Account, then from the Participant's Profit Sharing Account, then from the Participant's Matching Account, and then from the Participant's 401(k) Account. No financial hardship withdrawals may be made from a Participant's Profit Sharing Account or Matching Account, unless the total amounts credited to such Accounts are one hundred percent (100%) vested. The amount of the financial hardship withdrawal shall be withdrawn pro rata from the investment funds in which the Participant has invested his Accounts as directed by the Participant. 58 44 14.2 Withdrawal After Age 59-1/2. After attaining age 59-1/2 years, a Participant may withdraw such amount, up to the vested account balance credited to his Accounts, as the Participant may request. No Participant shall be permitted to make more than one withdrawal in any Plan Year pursuant to this Article 14.2. ARTICLE 15 BENEFICIARIES 15.1 Beneficiary Designation. Subject to the provisions of Articles 15.1 and 15.3, each Participant shall have the right to designate on forms provided by the Employer a Beneficiary or Beneficiaries to receive the benefits herein provided in the event of his death, and shall have the right at any time to revoke such designation or to substitute another such Beneficiary or Beneficiaries. If a Participant has been married at the date of his death and has designated a Beneficiary or Beneficiaries other than the Participant's spouse to receive any portion of the benefits herein provided in the event of his death, such designation shall be invalid unless and until (a) the Participant's spouse consents in writing to such designation, (b) such consent acknowledges the effect of such designation, and (c) such consent is witnessed by a Notary Public or a Plan representative. Once such consent is given, it may not be revoked and the Participant may not change his beneficiary designation (except to name his spouse as the sole Beneficiary) without a new consent by the Participant's spouse, which new consent must also meet the above requirements. 15.2 Absence of Valid Designation. If, upon the death of a Participant, former Participant or Beneficiary, there is no valid designation of Beneficiary on file with the Employer, the Committee shall designate as the Beneficiary, in order of priority: (a) The surviving spouse; (b) Surviving children, including adopted children; (c) Surviving parents; or (d) The Participant's estate; provided, however, that at all times the Committee shall have the right to designate as Beneficiary the Participant's estate irrespective of said order of priority. The determination of the Committee as to which persons, if any, qualify within the aforementioned categories shall be final and conclusive upon all persons. 15.3 Surviving Spouse Beneficiary. Notwithstanding any other provision in the Plan, if a Participant or former Participant dies leaving a surviving spouse, and if such spouse had been married to the Participant throughout the three-month period ending on the date of the Participant's death, such surviving spouse shall be the Beneficiary for all purposes under the Plan unless the Participant previously designated another or an additional Beneficiary, and such surviving spouse consented to such designation in accordance with the provisions of Article 15.1, above. ARTICLE 16 DESIGNATION OF NAMED FIDUCIARY 59 45 16.1 Plan Administrator. An administrative committee (the "Committee") which is appointed by, and hold office at the pleasure of the Board, is the named fiduciary and administrator of the Plan as provided for by ERISA and shall have the authority to manage and control the operation and administration of the Plan and to control and manage the Plan assets. The Committee shall have the authority to interpret the provisions of the Plan in its sole discretion and the Committee's interpretations shall be binding upon all persons having an interest in the Plan. The Committee shall consist of not fewer than four (4) persons, with the specific number to be as specified by the Board from time to time. 16.2 Powers of Plan Administrator. The Committee shall have complete control of the administration of the Plan herein set forth with all powers necessary to enable it properly to carry out its duties in that respect. Not in limitation, but in amplification of the foregoing, the Committee shall have the power to construe the Plan and to determine all questions that shall arise hereunder, including determination of eligibility of Employees, amounts of credits, allocation of assets, method of payment, whether distributions from the Trust shall be made in cash or in kind and the assets to be distributed, and participation and benefits under the terms of this Plan. The Committee shall also establish reasonable rules and procedures which shall be applied in a uniform and nondiscriminatory manner for enrollment in the Plan and to changes by Participants on their rules of contribution and investment options. The Committee shall establish the rules and procedures by which the Committee will operate. Decisions of the Committee made in good faith upon any matter within the scope of its authority shall be final, conclusive and binding upon all persons, including Participants and their legal representatives or Beneficiaries; but the Committee shall at all times, in giving effect to its decisions, act without discrimination in favor of or against any Participant, legal representative or Beneficiary. 16.3 Investment Managers. The Committee may appoint one or more Investment Managers to direct the investment and management of all or part of the assets of the Trust. Each Investment Manager shall have the power to manage, acquire. and dispose of the part of the assets of the Trust designated by the Committee. The Committee may revoke the appointment of any Investment Manager by giving written notice to such Investment Manager. 16.4 Other Agents. The Committee may employ such persons or organizations to render service or perform services with respect to the responsibilities of the Committee under the Plan as the Committee determines to be necessary and appropriate. Such persons or organizations may include, without limitation, actuaries, attorneys, accountants and benefit, financial and administrative consultants. 16.5 Fiduciaries. Any person or group of persons may serve in more than one fiduciary capacity with respect to the Plan. 16.6 Indemnification. The Company shall indemnify and hold harmless the members of the Board, the Committee and any other Employees to whom any fiduciary responsibility with respect to the Plan is allocated or 60 46 delegated, from and against any and all liabilities, costs and expenses, including attorneys' fees, incurred by such persons as a result of any act, or omission to act, in connection with the performance of their duties, responsibilities and obligations under the Plan and under ERISA, other than such liabilities, costs and expenses as may result from the bad faith or criminal acts of such persons or to the extent such indemnification is specifically prohibited by ERISA. The Company shall have the obligation to conduct the defense of such persons in any proceeding to which this Article 16.6 applies. If any member of the Board, the Committee or any Employee covered by this indemnification clause of this Article 16.6 determines that the defense of the Company is inadequate, that member shall be entitled to retain separate legal counsel for his or her defense and the Company shall be obligated to pay for all reasonable legal fees and other court costs incurred in the course of such defense unless a court of competent jurisdiction finds such person has acted in bad faith or engaged in criminal acts. The Company may satisfy its obligation under this Article 16.6 in whole or in part, through the purchase of a policy or policies of insurance, but no insurer shall have any rights against the Company arising out of this Article 16.6. 16.7 Costs. Effective April 1, 1994, all quarterly fees associated with the administration of the Plan and the Trust may be borne by the Plan itself, except the following: (a) Any new loan set-up fee, loan prepayment fee or special loan processing fee that is charged to the Plan in association with processing a loan. These fees will be charged to the individual Participant for which this service is being performed; and (b) A maintenance fee of $100 shall be charged to any former Participants having an Account under the Plan on the July 1 following the anniversary of the Participant's termination. 61 47 ARTICLE 17 TRUST FUND AND TRUSTEE Contributions made by the Employer and all other assets of the Plan shall be held in Trust in accordance with the provisions of the Trust Agreement. All benefits payable under the Plan shall be paid as provided for solely from the Trust, and the Employer assumes no liability or responsibility therefor. ARTICLE 18 AMENDMENT AND TERMINATION 18.1 Amendment. The Employer reserves the right at any time or times to amend the Plan by action of the Board to any extent and in any manner that the Employer may deem advisable. Upon adoption of the resolution of the Board, the Plan and Trust Agreement shall be deemed to have been amended in the manner set forth therein, and the Employer, the Trustee, and all Participants, their Beneficiaries and all other persons having any interest hereunder shall be bound thereby. By action of the Board, the Employer may delegate to the Committee the right to amend the Plan in such respects as the Employer shall deem advisable. The Employer or Committee shall notify the Trustee of any such amendment to the Plan. Such power includes the right, without limitation, to make retroactive amendments referred to in section 401(b) of the Code (as amended by section 1023 of ERISA). However, except as provided in Article 18.3, no amendment: (a) Shall cause or permit any part of the principal or income of the Trust to revert to the Employer or to be used for, or to be diverted to, any purpose other than the exclusive benefit of Participants and their Beneficiaries, except that (i) A 401(k) Contribution, made by the Employer by a mistake of fact, shall be returned to the Employer within one year after the payment of such contribution to the extent permitted by section 403(c) of ERISA. A 401(k) Contribution, or a portion thereof, returned to the Employer pursuant to this Article 18.1 (a)(i) shall be returned to the Employee from whose Compensation the amount was withheld, as soon as administratively feasible, but in no event later than thirty (30) days after the return of such contribution to the Employer. (ii) If an Employer contribution is conditioned upon the deductibility of the contribution under Section 404 of the Code or any successor provision thereto, then to the extent such contribution is disallowed, this paragraph shall not prohibit the return to the Employer of such contribution (to the extent disallowed) within one (1) year after such disallowance of the deduction. A 401(k) Contribution, or a portion thereof, returned to the Employer pursuant to this Article 18.1(a)(ii) shall be returned to the Employee from whose 62 48 Compensation the amount was withheld, as soon as administratively feasible, but in no event later than thirty (30) days after the return of such contribution to the Employer. (b) Shall change the duties or liabilities of the Trustee, or an Investment Manager appointed pursuant to Article 16.3 of the Plan, without its written assent to such amendment. (c) Shall retroactively reduce the benefits of any Participant or his Beneficiary accrued under the Plan by reason of contributions made by the Employer prior to the amendment except to the extent that such reduction is permitted by ERISA. 18.2 Termination. The Employer has established the Plan with the bona fide intention and expectation that the Plan will continue indefinitely and that it will be able to make its contributions indefinitely, but the Employer shall be under no obligation to continue its contributions or to maintain the Plan for any given length of time and may, in its sole and absolute discretion, discontinue its contributions or terminate the Plan in whole or in part at any time without any liability whatsoever. Notwithstanding any other provisions of the Plan, in the event of the complete or partial termination of the Plan or complete discontinuance of further contributions hereunder, the full value of the Accounts of all Participants shall become fully vested and nonforfeitable. 18.3 Employer Contributions Contingent. Notwithstanding any other provision of the Plan or Trust to the contrary, it is specifically understood that the Employer's obligation to make contributions hereunder are conditioned upon the Employer receiving an initial notification from the United States Treasury Department, Internal Revenue Service that this Plan is considered as being a qualified plan under section 401(a) of the Code and that this Trust is considered exempt from taxation under section 501(a) of the Code. If such initial notification is not received, the Employer shall, at the Employer's request, be entitled to recover from the Trustee the full amount of the then value of such respective contributions. Prior to receipt of such notification, no Participant hereunder or his legal representative or Beneficiary shall have any vested interest in or be entitled to any benefit payments based on Employer contributions made hereunder; provided, however, that upon receipt of such notification, such vested interests or entitlements shall be retroactive to the date of their occurrence in accordance with the other provisions of this Plan, and this Article 18.3 shall be of no further force or effect. ARTICLE 19 ASSIGNMENTS The interest herein, whether vested or not, of any Participant, or Beneficiary, shall not be subject to alienation, assignment, encumbrance, attachment, garnishment, execution, sequestration or other legal or equitable process, or transferability by operation of law in event of bankruptcy, insolvency or otherwise, except security interests taken in a Participant's Account(s) for loans made to Participants pursuant to Article 13 of the Plan and qualified domestic relations orders as determined pursuant to Article 22.4 hereof. 63 49 ARTICLE 20 CLAIMS PROCEDURE 20.1 General Procedure. The Plan shall pay benefits to a Participant or the Participant's Beneficiary in accordance with the Participant's election, as provided in Article 12.1. If the Participant or Beneficiary believes that his benefits have been incorrectly determined, he may make a written application for benefits requesting a review of the determination previously made by the Committee. All such applications for review shall be submitted to the Committee at the offices of the Employer currently located at 555 River Oaks Parkway, San Jose, CA 95134 in writing on the forms prescribed by the Committee and must be signed by the Participant, or in the case of a death benefit, by the Beneficiary or legal representative of the deceased Participant. Each application shall be acted upon and approved or disapproved within ninety (90) days following its receipt by the Committee. In the event any application for benefits is denied, in whole or in part, the Committee shall notify the applicant in writing of such denial and of his right to a review by the Employer. Said denial shall set forth in a manner calculated to be understood by the applicant specific reasons for such denial, specific references to pertinent Plan provisions on which the denial is based, a description of any additional material or information necessary for the applicant to perfect his application, an explanation of why such material or information is necessary and an explanation of the Plan's review procedure. 20.2 Appeal. Any person, or his duly authorized representative, whose application for benefits is denied in whole or in part, or who believes that his benefits have been incorrectly determined, may appeal from such denial to the Employer for a review of the decision by submitting to the Employer within sixty (60) days after receiving written notice from the Committee of the denial of his claims a written statement: (a) Requesting a review of his application for benefits by the Employer; (b) Setting forth all of the grounds upon which his request for review is based and any facts in support thereof; and (c) Setting forth any issues or comments which the applicant deems pertinent to this application. 20.3 Appointment of Review Committee. Upon receipt of an application for review submitted in accordance with Article 20.2, the Employer shall appoint an independent review committee composed of not fewer than 3 individuals who did not participate in the Committee's original determination. The review committee shall act upon such application within 60 days after the receipt by the Employer of the applicant's request for review. 20.4 Procedure of Review Committee to Review Appeals. 64 50 (a) The review committee shall make a full and fair review of each such application and any written materials submitted by the applicant in connection therewith and may require the Committee or the applicant to submit such additional facts, documents or other evidence as the review committee, in its sole discretion, deems necessary or advisable in making such a review. On the basis of its review, the review committee shall make a determination of the applicant's eligibility for benefits under the Plan. The decision of the review committee on any application for benefits shall be final and conclusive upon all persons if supported by substantial evidence in the record. (b) In the event the review committee denies an application in whole or in part, the review committee shall give written notice of its decision to the applicant setting forth in a manner calculated to be understood by the applicant the specific reasons for such denial and the specific references to the pertinent Plan provisions on which the review committee decision was based. ARTICLE 21 TOP HEAVY PROVISIONS 21.1 Top Heavy Determination. The Plan will be considered a Top Heavy Plan for the Plan Year if as of the last day of the preceding Plan Year, (or in the case of the first Plan Year of the Plan, the last day of such Plan Year) (1) the value of the sum of the Accounts of Key Employees (as defined in Article 21.5) exceeds 60% of the value of the sum of the Accounts of all Participants and certain former participants in the Plan (the "60% Test") or (2) the Plan is part of a Required Aggregation Group (within the meaning of section 416(g) of the Internal Revenue Code) and the Required Aggregation Group is a Top Heavy Group. In determining the value of Accounts of the Participants for purposes of the 60% Test, any distributions made with respect to an Employee under the Plan during the five year period ending on the determination date or any distributions under a terminated plan which if it had not been terminated would have been part of a Required Aggregation Group, shall be taken into account. In determining the value of Accounts of Participants for purposes of the 60% Test, any contributions to the Plan made pursuant to Article 4 initiated by an Employee and not made from a plan maintained by the Employer shall not, except to the extent provided by Treasury Regulations promulgated under section 416(g)(4)(A) of the Code, be taken into account. (Amended effective 1/1/89, Third Amendment) A Participant's Accounts for purposes of applying the 60% Test shall be measured as of the most recent Valuation Date occurring within a 12-month period ending on the determination date, and an adjustment in the amount of any contributions actually made after the Valuation Date but on or before the determination date. In the first Plan Year, such adjustment shall also include the amount of any contributions made after the determination date that are allocated as of a date in the first Plan Year. An individual's Accounts shall not be taken into consideration for the purposes of 65 51 applying the 60% Test if either (i) that individual was a Non-Key Employee with respect to the Plan for any Plan Year, but such individual was a Key Employee with respect to the Plan prior to a Plan Year in which the individual was a Non-Key Employee, or (ii) that individual has not performed any services for the Employer at any time during the 5-year period ending on the determination date. Notwithstanding the results of the 60% Test, the Plan shall not be considered a Top Heavy Plan for any Plan Year in which the Plan is a part of a Required Aggregation Group or permissive aggregation group (within the meaning of section 416(g) of the Internal Revenue Code) which is not a Top Heavy Group. 21.2 Required Aggregation Group. "Required Aggregation Group" shall mean each plan of the Employer which has a Key Employee as a Participant and any other Employer plan (including a terminated plan of the Employer to the extent required by validly issued Treasury regulations) which enables a plan of the Employer in which a Key Employee is a participant to meet the requirements of section 401(a)(4) or 410 of the Code. In applying the 60% Test to two or more plans, the 60% Test is applied to each plan and then the plans are aggregated by adding together the results as of each plan's determination date which falls within the same calendar year. 21.3 Top Heavy Group. "Top Heavy Group" shall mean any aggregation group whether or not a Required Aggregation Group, which meets the 60% Test. In applying the 60% Test to two or more plans, the 60% Test is applied to each plan and then the plans are aggregated by adding together the results as of each plan's determination date which falls within the same calendar year. 21.4 Minimum Contribution for Top Heavy Plan. For any Plan Year in which the Plan is a Top Heavy Plan, an amount shall be credited to the 401(k) Account of each Employee who is not a Key Employee and who is eligible to share in this special minimum contribution for a Top Heavy Plan pursuant to paragraph (c) below which is equal to: (a) the lesser of: (i) the amount of the 401 (k) Contributions expressed as a percentage of Compensation which is credited to the Accounts with respect to such Plan Year of the Key Employee having the highest such percentage, or (ii) 3% of Compensation, (b) reduced by the amount of the 401 (k) Contributions, Company Contributions. Profit Sharing Contributions, and Matching Contributions, if any, otherwise credited to the Accounts of each Employee who is not a Key Employee for such Plan Year. (c) All Participants who are not Key Employees and who have not separated from service prior to the last day of the Plan Year are eligible to share in this special minimum contribution for a Top Heavy Plan described in this Article 21.4. 21.5 Key Employees. 66 52 (a) The term "Key Employee" shall mean an Employee who, at any time during the Plan Year or any of the four (4) preceding Plan Years, is: (1) an officer of the Company having an annual compensation greater than fifty percent (50%) of the maximum dollar amount as set forth in Code section 415(b)(1)(A) (or such greater amount as may be permitted pursuant to regulations issued under Code section 415(d)(1)) for any such Plan Year; (2) one of ten Employees having annual compensation from the Company of more than the maximum dollar amount set forth in Code section 415(b)(1)(A) and owning (or considered as owning within the meaning of Code section 318), the largest interests in the Company; (3) a five percent (5%) owner of the Company; or (4) a one percent (1%) owner of the Company, having an annual compensation from the Company of more than $150,000. (b) For purposes of (a)(1) above, no more than fifty (50) Employees (or, if fewer, the greater of three (3) Employees or ten percent (10%) of the Employees) shall be treated as officers. For purposes of paragraph a)(2) above, if two Employees have the same interest in the Company, the Employee having the greater Compensation from the Company shall be treated as having a larger interest. (c) For purposes of this definition: (1) "5% owner" shall mean, in the case of a corporation, any person who owns (or who is considered as owning within the meaning of Code section 318) more than 5% of the outstanding stock of the corporation or stock possessing more than 5% of the total combined voting power of all stock of the corporation and in case the Company is not a corporation, any person who owns more than 5% of the capital or profits interest in the Company; and (2) a "1% owner" is any person who would be described in subparagraph (c)(1), above, if "1%" were substituted for "5%" each place it appears therein. (d) For purposes of paragraphs (a)(2) and (c) above, the rules of Code section 318 shall be modified as set forth in Code section 416(i)(1)(B)(iii). (e) A Key Employee shall also include the Beneficiary of a Key Employee. (f) A Key Employee shall include an individual who is either currently or was formerly employed by the Company who meets the definition set forth in paragraph (a) above. 21.6 Non-Key Employee. "Non-Key Employee" shall mean any Employee who is not a Key Employee. 21.7 Top Heavy Vesting. (a) In any Plan Year in which the Plan is a Top Heavy Plan, the Accounts of a Participant shall vest in accordance with the following Top Heavy Vesting Schedule, except to the extent the regular vesting schedule set forth in Article 10 provides for a rate of vesting which is as rapid as or more rapid than the Top Heavy Vesting Schedule selected in this Article 21.7. 67 53
Year of Service for Percentage Vesting Purposes Vested ------------------- ---------- less than 2 0% 2 20% 3 40% 4 60% 5 80% 6 100%
(b) For the purposes of determining a Participant's Years of Service applicable to the Top Heavy Vesting Schedule set forth in Article 21.7(a), all of the Participant's service with the Employer shall be taken into account. (c) If the Plan becomes a Top Heavy Plan and subsequently ceases to be such, the Top Heavy Vesting Schedule set forth in Article 21.7(a) shall continue to apply in determining the vested percentage of the Matching Account for any Participant who had at least three Years of Service as of the last Plan Year in which the Plan was a Top Heavy Plan. ARTICLE 22 MISCELLANEOUS 22.1 No Employment Relationship Established by Plan. The adoption and maintenance of the Plan and Trust shall not be deemed to be a contract between the Employer and any Employee. Nothing herein contained shall be deemed to give any Employee the right to be retained in the employ of the Employer or to interfere with the right of the Employer to discharge any Employee in its employ at any time, nor shall it be deemed to give the Employer the right to require any Employee to remain in its employ, nor shall it interfere with the Employee's right to terminate his employment at any time. 22.2 Trustee to Trustee Transfer. Plan Merger or Consolidation. (a) Effective October 1, 1994, the Committee may direct the Trustee to effect a trustee-to-trustee transfer of the assets and liabilities attributable to a Participant's Account, including any promissory note evidencing an outstanding loan made to the participant pursuant to the terms of the Plan, to another plan provided such transfer is requested by the Participant. No such transfer shall be made unless immediately after such transfer, the Participant's benefits, if such other plan were then to terminate, are at least equal to or greater than the benefits which the participant would have been entitled to had this Plan been terminated immediately before such transfer. The Committee may also request appropriate indemnification from the employer or employers maintaining the transferee plan before making such a transfer. (b) In no event shall this Plan be merged or consolidated with any other plan, nor shall there be any transfer of assets or liabilities from this Plan to any other plan, unless immediately after such merger, consolidation or transfer, each Participant's benefits, if such other plan were then to terminate, are at least equal to 68 54 or greater than the benefits which the participant would have been entitled to had this Plan been terminated immediately before such merger, consolidation, or transfer. (c) If the Employer merges or consolidates with or into a corporation, or if substantially all of the assets of the Employer shall be transferred to a corporation, the Plan hereby created shall terminate on the effective date of such merger, consolidation or transfer. However, if the surviving corporation resulting from such merger or consolidation, or the corporation to which the assets have been transferred, adopts this Plan, the Plan shall continue and said corporation shall succeed to all rights, powers and duties of the Employer hereunder. The employment of any Employee who is continued in the employ of such successor corporation shall not be deemed to have been terminated for any purpose hereunder. 22.3 Section 415 Limits on Allocations. (a) Notwithstanding anything in this Plan to the contrary, in accordance with the requirements of section 415 of the Code, no contribution to the Plan shall knowingly be made and no amount allocated to the Participant's 401 (k) Account, Matching Account or Company Contribution Account and Profit Sharing Account if such contribution or allocation would cause the Annual Addition to the Participant's Accounts for a Plan Year to exceed the lesser of: (1) 25% of the Participant's Compensation from the Employer for such Plan Year, or (2) the Defined Contribution Dollar Limitation. (b) For purposes of this Article 22.3, the following definitions and rules shall apply: (1) "Annual Addition" shall mean for any Plan Year the sum of: (A) Employer contributions (including 401(k) Contributions) allocated to a Participant's Accounts, (B) forfeitures allocated to a Participant's Account, and (C) Employee contributions (not including Rollover Contributions), and (D) amounts described in section 415(1)(1) and 419A(d)(2) of the Code. (2) "Defined Contribution Dollar Limitation" shall mean $30,000 or, if greater, one-fourth of the defined benefit limitation set forth in section 415(b)(i) of the Code in effect for such Plan Year. (3) If the Employer is contributing to another defined contribution plan, as defined in section 414(i) of the Code, for Employees of the Employer, some or all of whom may be Participants of this Plan, then any such Participant's Annual Addition in such other plan shall be aggregated with such Participant's Annual Addition derived from this Plan for purposes of the limitation in this Article 22.3(a). (c) If a Participant in this Plan is also a participant in a defined benefit plan, as defined in section 414(j) of the Code, to which contributions are made by the Employer, then in addition to the limitation contained in Article 22.3(a), for any Plan Year the sum of his defined benefit plan fraction (as defined by section 415(e)(2) of the Code) for all such plans and his defined contribution plan fraction (as defined by section 415(e)(3) of the Code) for all such plans 69 55 for such Plan Year shall not exceed 1.0. (d) In order to implement the limitations set forth in Articles 22.3(a) and 22.3(b), the aggregate of the Annual Additions to this Plan and the Annual Addition to any other defined contribution plan shall be limited or reduced until the applicable limitation is satisfied, by limiting or reducing the aggregate amount as follows: (1) Refund of any voluntary contributions made by the Participant to any other defined contribution plan which would be aggregated with the Annual Additions to the Plan; (2) To the extent permitted by regulations promulgated by the Secretary of the Treasury, refund of the Participant's 401(k) Contributions and earnings thereon. (3) Reduction in the Participant's 401(k) Contributions and earnings thereon for the Plan Year in which the excess arises. Such reduction shall be held in a separate suspense account, which shall be unadjusted for income or loss, and shall serve to reduce 401(k) Contributions to the Participant's 401(k) Account in the next Plan Year and in succeeding Plan Years until the suspense account is exhausted. (4) Reduction in the Participant's allocation of Company Contributions and Profit Sharing Contributions, if any, for the Plan Year in which the excess arises. Such reduction shall be credited to a separate suspense account, which shall be unadjusted for income or loss, and shall serve to reduce Company Contributions and Profit Sharing Contributions to the Plan in the next Plan Year and in succeeding Plan Years, as necessary, until the suspense account is exhausted. The Employer shall make no further Company Contributions and Profit Sharing Contributions under the Plan until such suspense account is exhausted. Upon the termination of the Plan, the balance credited to such suspense account shall be repaid to the Employer. (5) Reduction in the Participant's allocation of Matching Contributions for the Plan Year in which the excess arises. Such reduction shall be held in a separate suspense account, which shall be unadjusted for income or loss, and shall serve to reduce Matching Contributions to the Plan in the next Plan Year and succeeding Plan Years until the suspense account is exhausted. The Employer shall make no further Matching Contributions under the Plan until such suspense account is exhausted. Upon the termination of the Plan, the balance credited to such suspense account shall be repaid to the Employer. 22.4 Qualified Domestic Relations Orders. (a) In accordance with section 414(p) of the Code, section 206(d)(3) of ERISA, and any regulations promulgated thereunder, the Committee shall establish reasonable written procedures to determine the qualified status of domestic relations orders received with respect to Participants and to administer distributions to alternate payees under such qualified domestic relations orders. (b) Notwithstanding any provision in the Plan to the contrary, and in accordance with reasonable procedures applied in a uniform and nondiscriminatory manner, the Committee shall direct the Trustee 70 56 to make a payment as soon as administratively feasible to an alternate payee pursuant to the terms of a qualified domestic relations order received with respect to a Participant, regardless of whether such Participant has terminated employment with the Company; provided, however, that if the amount of such payment exceeds $3,500 (and at the time of any prior distribution had not exceeded $3.500), the payment shall not be made without the written consent of the alternate payee. (c) Any payment to an alternate payee, or to his legal representative or beneficiary, pursuant to the terms of a qualified domestic relations order shall be in full satisfaction of all claims under such order against the Employer, the Committee, or the Trustee, as the case may be, any of whom may require such alternate payee, or his legal representative or beneficiary, to execute a receipt therefor in such form as shall be determined by the Employer, the Committee, or the Trustee, as the case may be. 22.5 Notices. All notices, statements and other communications from the Trustee, the Employer or the Committee to an Employee, Participant, legal representative or designated Beneficiary required or permitted hereunder shall be deemed to have been duly given, furnished, delivered or transmitted, as the case may be, when delivered to (or when mailed by first-class mail, postage prepaid and addressed to) the Employee, Participant or Beneficiary at his address last appearing on the books of the Employer. 22.6 Severability. If any provision of this Plan shall be held by a court of competent Jurisdiction to be invalid or unenforceable, the remaining provisions of the Plan shall continue to be fully effective. IN WITNESS WHEREOF, Cadence Design Systems, Inc. adopts this Plan effective as of the date set forth above. CADENCE DESIGN SYSTEMS, INC. Dated: ________________________________ By: ______________________________ 71 EX-10.30 3 AMENDED 1993 NON STATUTORY STOCK OPTION PLAN 1 Exhibit 10.30 CADENCE DESIGN SYSTEMS, INC. 1993 NON-STATUTORY STOCK OPTION PLAN AS ADOPTED SEPTEMBER 17, 1993 AS AMENDED MAY 3, 1996 1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to the Company's Employees and Consultants (as such terms are defined below) and to promote the success of the Company's business. Only "non-statutory stock options" may be granted hereunder. 2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "BOARD" shall mean the Committee, if one has been appointed, or the Board of Directors of the Company, if no Committee is appointed. (b) "COMMON STOCK" shall mean the Common Stock of the Company. (c) "COMPANY" shall mean CADENCE DESIGN SYSTEMS, INC., a Delaware corporation. (d) "COMMITTEE" shall mean the Committee appointed by the Board of Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is appointed. (e) "CONSULTANT" shall mean any consultants, independent contractors or advisers to the Company (provided that such persons render bona fide services not in connection with the offering and sale of securities in capital raising transactions) excluding officers and directors of the Company and shareholders beneficially owning 10% or more of the Company's Common Stock. (f) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean the absence of any interruption or termination of service as an Employee or Consultant. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of sick leave, military leave, or any other leave of absence. (g) "EMPLOYEE" shall mean any person employed by the Company or by any parent or subsidiary of the Company, excluding officers and directors of the Company and shareholders beneficially owning 10% or more of the Company's Common Stock. (h) "OPTION" shall mean a non-statutory stock option granted pursuant to the Plan. (i) "OPTIONED STOCK" shall mean the Common Stock subject to an Option. (j) "OPTIONEE" shall mean an Employee or Consultant who receives an Option. (k) "PARENT" shall mean a "parent corporation", whether now or hereafter existing, as defined in Section 424(e) of the Internal Revenue Code of 1986, as amended. (l) "PLAN" shall mean this 1993 Non-Statutory Stock Option Plan. 72 2 (m) "SHARE" shall mean a share of Common Stock, as adjusted in accordance with Section 11 of the Plan. (n) "SUBSIDIARY" shall mean (i) any corporation (other than the employer corporation) in an unbroken chain of corporations beginning with the employer corporation if, at the time of the granting of the option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain; or (ii) any other subsidiary corporation as the Board may designate from time to time, in its sole and absolute discretion. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of shares which may be optioned and sold under the Plan is 2,500,000 shares of Common Stock. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. 4. ADMINISTRATION OF THE PLAN. (a) Procedure. The Plan shall be administered by the Board of Directors of the Company. The Board of Directors may appoint a Committee consisting of not less than two members of the Board of Directors to administer the Plan on behalf of the Board of Directors, subject to such terms and conditions as the Board of Directors may prescribe. Once appointed, the Committee shall continue to serve until otherwise directed by the Board of Directors. From time to time the Board of Directors may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause), and appoint new members in substitution therefor, fill vacancies however caused and remove all members of the Committee, and thereafter directly administer the Plan. (b) Powers of the Board. Subject to the provisions of the Plan, the Board shall have the authority, in its discretion: (i) to grant options under the Plan, provided, however, that only non-statutory options may be granted under the Plan, (ii) to determine, upon review of relevant information and in accordance with Section 8(b) of the Plan, the fair market value of the Common Stock; (iii) to determine the exercise price per share of Options to be granted, which exercise price shall be determined in accordance with Section 8(a) of the Plan; (iv) to determine the Employees or Consultants to whom, and the time or times at which, Options shall be granted and the number of shares to be represented by each Option provided that no Options may be granted to persons who are neither employees or consultants; (v) to interpret the Plan; (vi) to prescribe, amend and rescind rules and regulations relating to the Plan; (vii) to determine the terms and provisions of each Option granted (which need not be identical) and, with the consent of the holder thereof, modify or amend each option; (viii) to accelerate or defer (with the consent of the Optionee) the exercise date of any Option; (ix) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted by the Board; and (x) to make all other determinations deemed necessary or advisable for the administration of the Plan. (c) Effect of Board's Decision. All decisions, determinations and interpretations of the Board shall be final and binding on all Optionees and any other holders of any Options granted under the Plan. 73 3 5. ELIGIBILITY. Options may be granted only to Employees or Consultants as defined in Section 2 hereof. An Employee or Consultant who has been granted an Option may, if he is otherwise eligible, be granted an additional Option or Options. The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consultancy by the Company, nor shall it interfere in any way with his right or the Company's right to terminate his employment or consultancy at any time. 6. TERM OF THE PLAN. The Plan shall become effective upon its adoption by the Board of Directors. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan. 7. TERM OF OPTION. The term of each Option shall be ten (10) years from the date of grant thereof or such shorter term may be provided in the Stock Option Agreement. 8. EXERCISE PRICE AND CONSIDERATION. (a) The per Share exercise price for the Shares to be issued pursuant to exercise of an Option shall be no less than 100% of the fair market value per Share on the date of grant. (b) The fair market value shall be determined by the Board in its discretion; provided however, that where there is a public market for the Common Stock, the fair market value per Share shall be the average of the high and low prices of the Common Stock on the date of grant, as reported on the New York Stock Exchange. (c) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Board and may consist entirely of cash, check, promissory note, other Shares of Common Stock having a fair market value on the date of surrender equal to the aggregate exercise price of the Shares as to which said option shall be exercised, or any combination of such methods of payment, or such other consideration and method of payment for the issuance of Shares to the extent permitted under applicable law. In making its determination as to the type of consideration to accept, the Board shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. EXERCISE OF OPTION. (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder, shall be exercisable at such times and under such conditions as determined by the Board, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Board, consist of any consideration and method of payment allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. 74 4 Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Status as an Employee or Consultant. If an employee ceases to serve as an Employee or Consultant, he may, but only within thirty (30) days (or such other period of time not exceeding three (3) months as is determined by the Board) after the date he ceases to be an Employee or Consultant of the Company, exercise his Option to the extent that he was entitled to exercise it at the date of such termination. To the extent that he was not entitled to exercise the Option at the date of such termination, or if he does not exercise such Option (which he was entitled to exercise) within the time specified herein, the Option shall terminate. (c) Death of Optionee. In the event of the death of an Optionee: (i) during the term of the Option who is at the time of his death an Employee or Consultant of the Company and who shall have been in Continuous Status as an Employee or Consultant since the date of grant of the Option, the Option may be exercised at any time within three (3) months following the date of death, by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that would have accrued had the Optionee continued living three (3) months after the date of death; or (ii) within one (1) month after the termination of Continuous Status as an Employee or Consultant, the Option may be exercised, at any time within three (3) months following the date of death, by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of termination. 10. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. The number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split or the payment of a stock dividend with respect to the Common Stock or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration". Such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. In the event of the proposed dissolution or liquidation of the Company, or in the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, the Option will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. The Board may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Board and give each Optionee the right to exercise 75 5 his Option as to all or any part of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. 12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for all purposes, be the date on which the Board makes the determination granting such Option. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. 13. AMENDMENT AND TERMINATION OF THE PLAN. (a) Amendment and Termination. The Board may amend or terminate the Plan from time to time in such respects as the Board may deem advisable. The Board amended the Plan in May 1996 to expand the definition of Subsidiary. (b) Effect of Amendment or Termination. Any such amendment or termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. 14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of the law, including without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 15. RESERVATION OF SHARES. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 16. OPTION AGREEMENT. Options shall be evidenced by written option agreements in such form as the Board shall approve. 76 EX-10.31 4 REVOLVING LINE OF CREDIT 1 Exhibit 10.31 $120,000,0003 REVOLVING CREDIT AGREEMENT Dated as of April 11, 1996 Among CADENCE DESIGN SYSTEMS, INC., a Delaware corporation, AS BORROWER, The Lenders from time to time party hereto, and CREDIT LYONNAIS, NEW YORK BRANCH, AS AGENT and ABN-AMRO BANK N.V. and THE FIRST NATIONAL BANK OF BOSTON, AS CO-AGENTS 77 2
TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS.................................................................... 1 SECTION 1.1. Certain Defined Terms.............................................................. 1 SECTION 1.2. Accounting Terms................................................................... 16 SECTION 1.3. Other Definitional Provisions...................................................... 17 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES.................................................................. 17 SECTION 2.1. Revolving Credit Facility.......................................................... 17 (a) Advances.................................................................................. 17 (b) Borrowings................................................................................ 18 (c) Notice of Borrowing....................................................................... 18 (d) Telephonic Notice......................................................................... 18 (e) Funding of Advances....................................................................... 18 (f) Notice of Borrowing Irrevocable........................................................... 18 (g) Assumption of Funding..................................................................... 18 (h) Failure of Lender to Fund................................................................. 19 (i) Facility Reserve; Mandatory Facility Reduction............................................ 19 SECTION 2.2. Extension of Maturity Date......................................................... 20 (a) Request for Extension..................................................................... 20 (b) No Duty................................................................................... 21 (c) Procedure................................................................................. 21 (d) Termination and Repayment as to Other Lenders............................................. 21 SECTION 2.3. Evidence of Debt................................................................... 21 (a) Promise to Repay.......................................................................... 21 (b) Loan Account.............................................................................. 21 SECTION 2.4. Fees............................................................................... 22 (a) Closing Fees.............................................................................. 22 (b) Commitment Fees........................................................................... 22 (c) Agent's Fees.............................................................................. 22 SECTION 2.5. Voluntary Facility Reductions...................................................... 22
78 3 SECTION 2.6. Facility Reductions; Repayment..................................................... 22 (a) Scheduled Facility Reductions Prior to the Maturity Date.................................. 22 (b) Termination or Reduction on Maturity Date................................................. 22 (c) Termination on Extended Maturity Date..................................................... 23 (d) Nonscheduled Mandatory Facility Reductions................................................ 23 (e) Application of Nonscheduled Facility Reductions........................................... 23 (f) Excess Revolving Credit Exposure.......................................................... 24 (g) Change of Control......................................................................... 24 SECTION 2.7. Interest........................................................................... 24 (a) Base Rate Advances........................................................................ 24 (b) Eurodollar Rate Advances.................................................................. 24 (c) Default Interest.......................................................................... 24 SECTION 2.8. Additional Interest on Eurodollar Rate Advances.................................... 25 SECTION 2.9. Interest Rate Determination and Protection......................................... 25 (a) Determination of Eurodollar Rate.......................................................... 25 (b) Notice of Eurodollar Rate................................................................. 25 (c) Failure to Provide Information............................................................ 25 (d) Suspension of Eurodollar Rate Advances.................................................... 25 (e) Failure to Specify Duration............................................................... 26 (f) Minimum Amounts........................................................................... 26 (g) Agent's Determination Conclusive.......................................................... 26 SECTION 2.10. Voluntary Conversion of Advances................................................... 26 (a) Notice of Conversion/Continuation......................................................... 26 (b) Telephonic Notice......................................................................... 26 (c) Requirements.............................................................................. 27 (d) Base Rate Advances........................................................................ 27 SECTION 2.11. Prepayments........................................................................ 27 SECTION 2.12. Funding Losses..................................................................... 27 SECTION 2.13. Increased Costs.................................................................... 28 (a) Increase in Cost.......................................................................... 28 (b) Increase in Capital Requirements.......................................................... 28 (c) Replacement Lenders and Participants...................................................... 29 SECTION 2.14. Illegality......................................................................... 30
79 4 SECTION 2.15. Payments and Computations.......................................................... 30 (a) Payments.................................................................................. 30 (b) Computations.............................................................................. 30 (c) Payment on Business Day................................................................... 30 (d) Presumption of Payment.................................................................... 30 SECTION 2.16. Taxes.............................................................................. 31 (a) Net Payments.............................................................................. 31 (b) Payment of Other Taxes.................................................................... 31 (c) Indemnification........................................................................... 31 (d) Evidence of Payments...................................................................... 32 (e) Withholding Tax Exemption................................................................. 32 (f) Withholding Taxes......................................................................... 32 (g) Indemnification........................................................................... 32 (h) Subsequent Lenders........................................................................ 33 SECTION 2.17. Sharing of Payments................................................................ 33 ARTICLE III CONDITIONS OF LENDING............................................................................. 34 SECTION 3.1. Conditions Precedent on the Closing Date........................................... 34 (a) Loan Documents............................................................................ 34 (b) Corporate Documents....................................................................... 35 (c) Governmental Consents..................................................................... 36 (d) No Injunction............................................................................. 36 (e) Other Deliveries.......................................................................... 36 (f) Legal Opinions............................................................................ 37 (g) Payment of Existing Debt.................................................................. 37 (h) Payment of Fees and Expenses.............................................................. 37 (i) No Material Adverse Change................................................................ 37 SECTION 3.2. Conditions Precedent to Each Extension of Credit................................... 37 (a) Notice.................................................................................... 37 (b) Certification............................................................................. 37 ARTICLE IV REPRESENTATIONS AND WARRANTIES..................................................................... 38 SECTION 4.1. Representations and Warranties of the Borrower..................................... 38 (a) Organization.............................................................................. 38 (b) Power and Authority....................................................................... 38 (c) Due Authorization......................................................................... 38 (d) Subsidiaries and Ownership of Capital Stock............................................... 38 (e) Governmental Approval..................................................................... 39
80 5 (f) Binding and Enforceable................................................................... 39 (g) Financial Information..................................................................... 39 (h) Material Adverse Change................................................................... 39 (i) Compliance................................................................................ 39 (j) Litigation................................................................................ 39 (k) No Conflict............................................................................... 40 (l) No Default................................................................................ 40 (m) Payment of Taxes.......................................................................... 40 (n) Margin Regulations........................................................................ 40 (o) Conduct of Business....................................................................... 40 (p) Environmental Matters..................................................................... 40 (q) ERISA Compliance.......................................................................... 41 (r) Title to Assets; No Infringement.......................................................... 42 (s) Perfection................................................................................ 42 (t) Undisclosed Liabilities................................................................... 42 (u) License Agreements........................................................................ 42 ARTICLE V COVENANTS OF THE BORROWER........................................................................... 42 SECTION 5.1. Financial Covenants................................................................ 43 (a) Minimum Adjusted EBITDA................................................................... 43 (b) Maximum Total Debt/Adjusted EBITDA Ratio.................................................. 43 (c) Minimum Fixed Charge Coverage Ratio....................................................... 44 (d) Minimum Liquidity......................................................................... 44 SECTION 5.2. Affirmative Covenants.............................................................. 44 (a) Compliance with Laws...................................................................... 44 (b) Inspection of Property and Books and Records.............................................. 44 (c) Reporting Requirements.................................................................... 44 (d) Preservation of Corporate Existence, Etc.................................................. 45 (e) New Subsidiaries.......................................................................... 46 (f) Maintenance of Property................................................................... 46 (g) Insurance................................................................................. 46 (h) Payment of Taxes and Lienable Items....................................................... 46 (i) Use of Proceeds........................................................................... 47 (j) Permitted Cash Investments................................................................ 47 (k) Further Assurances........................................................................ 47 (l) Licenses.................................................................................. 48 SECTION 5.3. Negative Covenants................................................................. 48 (a) Liens..................................................................................... 48 (b) Disposition of Assets..................................................................... 50 (c) Investments............................................................................... 51
81 6 (d) Limitation on Debt and Accommodation Obligations.......................................... 52 (e) Transactions with Affiliates.............................................................. 54 (f) Restricted Junior Payments................................................................ 54 (g) Mergers, Etc.............................................................................. 55 (h) Conduct of Business....................................................................... 55 (i) Compliance with ERISA..................................................................... 56 (j) Payment Restrictions Affecting Subsidiaries............................................... 56 (k) Transactions with IMS..................................................................... 56 (l) Licenses.................................................................................. 56 ARTICLE VI EVENTS OF DEFAULT.................................................................................. 57 SECTION 6.1. Events of Default.................................................................. 57 (a) Non-Payment of Principal.................................................................. 57 (b) Non-Payment of Interest................................................................... 57 (c) Non-Payment of Other Obligations.......................................................... 57 (d) Representations and Warranties............................................................ 57 (e) Financial and Negative Covenants.......................................................... 57 (f) Reporting and Collateral Covenants........................................................ 57 (g) Other Agreements.......................................................................... 57 (h) Default as to Other Debt.................................................................. 57 (i) Bankruptcy................................................................................ 58 (j) Judgments................................................................................. 58 (k) Material Adverse Change................................................................... 59 (l) Loan Documents............................................................................ 59 (m) Collateral Documents...................................................................... 59 (n) ERISA..................................................................................... 59 SECTION 6.2. Rights Not Exclusive............................................................... 60 ARTICLE VII THE AGENT......................................................................................... 60 SECTION 7.1. Authorization and Action........................................................... 60 SECTION 7.2. Agent not Liable................................................................... 60 SECTION 7.3. Rights as Lender................................................................... 61 SECTION 7.4. Lender Credit Decision............................................................. 61 SECTION 7.5. Indemnification.................................................................... 61 SECTION 7.6. Successor Agent.................................................................... 62
82 7 SECTION 7.7. Release of Collateral.............................................................. 62 SECTION 7.8. Release of Guarantor upon Sale of Stock............................................ 63 ARTICLE VIII MISCELLANEOUS.................................................................................... 63 SECTION 8.1. Amendments......................................................................... 63 SECTION 8.2. Notices............................................................................ 64 SECTION 8.3. No Waiver; Remedies................................................................ 65 SECTION 8.4. Costs and Expenses................................................................. 65 SECTION 8.5. Right of Set-off................................................................... 65 SECTION 8.6. General Indemnity.................................................................. 65 (a) Excluded Claims........................................................................... 66 (b) Notice.................................................................................... 66 (c) Selection of Counsel...................................................................... 66 (d) Separate Counsel.......................................................................... 66 (e) Settlement................................................................................ 67 SECTION 8.7. Assignments and Participations..................................................... 67 (a) Permitted Assignment...................................................................... 67 (b) Borrower Consent; Confidentiality......................................................... 68 (c) Effect of Assignment...................................................................... 68 (d) Maintenance of Agreements................................................................. 69 (e) Procedure................................................................................. 69 (f) Participations............................................................................ 69 (g) Additional Information.................................................................... 69 (h) Permitted Assignments..................................................................... 70 SECTION 8.8. Binding Effect..................................................................... 70 SECTION 8.9. Governing Law...................................................................... 70 SECTION 8.10. Waiver of Jury Trial............................................................... 70 SECTION 8.11. Limitation of Liability............................................................ 70 SECTION 8.12. Confidentiality.................................................................... 71
83 8 SECTION 8.13. Entire Agreement................................................................... 71 SECTION 8.14. Survival........................................................................... 71 SECTION 8.15. Execution in Counterparts.......................................................... 71 EXHIBITS Exhibit A [Reserved] FORM OF LOAN ADMINISTRATION DOCUMENTS: Exhibit B-1 Notice of Borrowing Exhibit B-2 Notice of Continuance/Conversion FORM OF CERTAIN LOAN DOCUMENTS: Exhibit C-1 Form of Subsidiary Guaranty Exhibit C-2 Form of Pledge and Security Agreement Exhibit C-3 Form of Intellectual Property Assignment Exhibit C-4 Form of Notice of Security Interest in Deposit Accounts Exhibit C-5 Form of Notice of Security Interest in Financial Intermediary Accounts Exhibit C-6 Form of Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing Exhibit C-7 Form of Unsecured Environmental Indemnity Agreement FORM OF OPINION OF COUNSEL: Exhibit D-1 Form of Opinion of Counsel for the Borrower and the Guarantors Exhibit D-2 Form of Opinion of Counsel Regarding Pledge of Foreign Stock OTHER FORMS: Exhibit E-1 Form of Compliance Certificate Exhibit E-2 Form of Assignment and Acceptance SCHEDULES AGENT SCHEDULES: Schedule I List of Lenders, Commitments and Pro Rata Shares BORROWER SCHEDULES: Schedule 4.1(d) List of Subsidiaries Schedule 4.1(e) List of Governmental Approvals Schedule 4.1(j) List of Litigation Schedule 4.1(o) List of Business Lines
84 9 Schedule 4.1(p) List of Environmental Matters Schedule 4.1(q) List of ERISA Matters Schedule 4.1(t) List of Undisclosed Liabilities Schedule 5.2(h) List of Taxes and Lienable Items Schedule 5.3(c) List of Investments Schedule 5.3(d) List of Liens and Debts REVOLVING CREDIT AGREEMENT This REVOLVING CREDIT AGREEMENT, dated as of April 11, 1996, is made by and among CADENCE DESIGN SYSTEMS, INC., a Delaware corporation, the financial institutions signatory hereto as Lenders, and CREDIT LYONNAIS, a bank organized under the laws of the Republic of France, acting through its New York Branch, as Agent for the Lenders. In consideration of the mutual agreements set forth herein, the parties hereto hereby agree as follows: I DEFINITIONS AND ACCOUNTING TERMS I.1. CERTAIN DEFINED TERMS. As used in this Agreement: ACCOMMODATION OBLIGATION means, as applied to any Person, any direct or indirect guaranty, endorsement or other liability of that Person with respect to any Debt, lease, dividend, letter of credit or other obligation (the "primary obligation") of another Person (the "primary obligor"), including any obligation of that Person, whether or not contingent, (i) to purchase, repurchase or otherwise acquire any such primary obligation or any property constituting direct or indirect security therefor, or (ii) to advance or provide funds (A) for the payment or discharge of any such primary obligation, or (B) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, or (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof. The amount of any Accommodation Obligation shall be deemed to be an amount equal to the maximum stated or determinable amount of the primary obligation in respect of which such Accommodation Obligation is made or, if not stated or if indeterminable, the maximum reasonably estimated potential liability in respect thereof. Endorsements of checks for collection or deposit in the ordinary course of business are not Accommodation Obligations. ADJUSTED EBITDA means, for any period, an amount determined as (i) consolidated net income of the Borrower and its Subsidiaries for such period, less (ii) any NonCash Revenues counted in determining such net income, plus (iii) to the extent counted in determining such net income and without duplication, all charges for Interest Expense, taxes, depreciation and amortization, less (iv) all research and development expenditures 85 10 and similar costs capitalized in such period and plus (v) any noncash, non-recurring charges or asset writedowns recorded in such period that have no effect on cash of the Borrower of any Subsidiary of the Borrower in such period or any future period. ADVANCE means a loan by a Lender to the Borrower pursuant to Article II. AFFILIATE of a specified Person means any other Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with the Person specified. For this purpose, "control," "controlled by" and "under common control with" with respect to any Person mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. AGENT means Credit Lyonnais, in its capacity as agent for the Lenders hereunder, and any successor appointed pursuant to Section 7.6. AGREEMENT means this Revolving Credit Agreement. APPLICABLE LENDING OFFICE means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance. ASSET SALE means the sale, license, transfer or other disposition of any asset, business or property of the Borrower or any of its Subsidiaries, or the issuance or sale of any capital stock of or other equity, ownership or profit interest in any Subsidiary of the Borrower (except a dividend on any such stock or interest declared and payable solely in additional shares of such stock or interest and except for the issuance of directors' qualifying shares and the issuance of shares pursuant to local ownership requirements of foreign countries), to any Person other than the Borrower or a wholly-owned Subsidiary of the Borrower. ASSIGNMENT AND ACCEPTANCE means an assignment and acceptance entered into by a Lender and an Eligible Assignee, in substantially the form of Exhibit E-2, and accepted by the Agent. AUTHORIZED OFFICER means the principal financial officer, the chief accounting officer, the controller or the treasurer of the Borrower. BANKRUPTCY, INSOLVENCY OR LIQUIDATION PROCEEDING means (i) any case commenced by or against the Borrower under any chapter of the United States Bankruptcy Code, any other proceeding for the reorganization, recapitalization or adjustment or marshalling of the assets or liabilities of the Borrower, any receivership or assignment for the benefit of creditors relating to the Borrower or any similar case or proceeding relative to the Borrower or its creditors, as such, in each case whether or not voluntary, (ii) any liquidation, dissolution, marshalling of assets or liabilities or other winding up of or relating to the Borrower, in each case whether or not voluntary and whether or not involving bankruptcy or insolvency, and (iii) any other proceeding of any type or nature in which claims against the Borrower generally are determined, proven or paid. 86 11 BASE RATE means, for any day, a fluctuating interest rate per annum equal to the higher of (i) the then effective rate of interest announced publicly by Credit Lyonnais in New York, New York, from time to time, as Credit Lyonnais' prime commercial lending rate (it being understood that such rate is merely a reference rate and is not Credit Lyonnais' best, lowest or most favorable rate), or (ii) the then effective Federal Funds Rate plus one-half percent (0.50%) per annum. BASE RATE ADVANCE means an Advance which bears interest by reference to the Base Rate as provided in Section 2.7(a). BORROWER means Cadence Design Systems, Inc., a Delaware corporation. BORROWING means a Base Rate Advance or Eurodollar Rate Advance made by the Lenders on a Borrowing Date. BORROWING DATE means the Closing Date or any subsequent Business Day occurring prior to the Maturity Date (or, in the case of each Lender that becomes bound by a written agreement to maintain its commitment to make Advances during the Extension Period as set forth in Section 2.2(c), the Extended Maturity Date) on which a Borrowing is requested. BREAKAGE COSTS is defined in Section 2.12. BUSINESS DAY means any day except a Saturday or Sunday or a day when commercial banks are authorized or required by law to be closed in New York, New York or San Francisco, California and, where used in reference to any Eurodollar Rate Advance, means such a day on which dealings are carried on in the London interbank market. CAPITAL EXPENDITURES means all expenditures for property, plant, equipment or other fixed assets, whether paid in cash or accrued as a liability, made by the Borrower or any of its Subsidiaries. CAPITAL LEASE means, with respect to any Person, any lease of any property by that Person as lessee which, in accordance with GAAP, is required to be accounted for as a capital lease on the balance sheet of that Person. CASH PROCEEDS OF SALE means all cash and cash equivalents received by the Borrower or any of its Subsidiaries as the cash consideration in any Asset Sale or from any payment or distribution on, or sale or liquidation of, any promissory note or other property received as noncash consideration in any Asset Sale. CHANGE OF CONTROL means (i) a transaction or series of transactions by which any Person or group (within the meaning of Section 13(d)(3) of the 1934 Act) acquires beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act), directly or indirectly, of securities of the Borrower (or other securities convertible into such securities) representing 25% or more of the combined voting power of all securities of the 87 12 Borrower entitled to vote in the election of directors or (ii) a majority of the Borrower's directors are persons who were not in office on January 25, 1996 and were not initially nominated by directors who were in office on January 25, 1996 or by successor directors elected or appointed upon the initial nomination of such directors or successor directors. CLAIMS is defined in Section 8.6. CLOSING DATE means the date on which all of the conditions precedent set forth in Section 3.1 are satisfied or waived in writing by the Lenders. CODE means the Internal Revenue Code of 1986. COLLATERAL means all property which at any time is subject or is to become subject to any Lien granted or created under any of the Collateral Documents. COLLATERAL DOCUMENTS means the Pledge and Security Agreement, the Intellectual Property Assignment, the Real Estate Collateral Documents and all other security agreements, collateral assignments, mortgages, deeds of trust and other instruments, documents and agreements at any time delivered to the Agent to create or evidence Liens to secure the Obligations. COMMITMENT FEE RATE means 0.375% per annum. COMMITMENT LETTER means the letter from Credit Lyonnais to the Borrower, relating to the financing contemplated hereby, dated February 8, 1996. CREDIT LYONNAIS means Credit Lyonnais, a bank organized under the laws of the Republic of France, acting through its New York Branch. DEBT means, as applied to any Person, (i) all indebtedness of such Person for borrowed money (whether by loan or the issuance of debt securities or otherwise); (ii) all obligations of such Person issued, undertaken or assumed as the deferred purchase price of property or services or interest thereon, except accounts and accrued expenses currently payable; (iii) all reimbursement obligations of such Person with respect to surety bonds, letters of credit, bankers' acceptances and similar instruments, whether or not contingent; (iv) all monetary obligations of such Person under any Capital Lease; (v) all obligations of such Person (contingent or otherwise) to purchase, retire or redeem any capital stock or other equity interest in such Person or any Affiliate of such Person, other than Permitted Stock Transactions; (vi) all monetary obligations of such Person measured by, or determined on the basis of, the value of any capital stock of such Person or any Affiliate of such Person, other than Permitted Stock Transactions; (vii) all Accommodation Obligations of such Person; and (viii) all liabilities and obligations secured by (or as to which the holder of the liability or obligation has an existing right, contingent or otherwise, to be secured by) any Lien, except a Non-Consensual Lien, upon any property of such Person or any property of any Subsidiary of such Person. 88 13 DISALLOWED POST-PETITION INTEREST/EXPENSE CLAIMS means any claim for interest on Advances accrued or computed for or as to any period of time at any time after the commencement of any Bankruptcy, Insolvency or Liquidation Proceeding at the rate (including any applicable post-default rate) set forth in this Agreement or other applicable Loan Document or for fees, expense reimbursements, indemnification or other similar Obligations accrued or determined for or as to any such period of time in accordance with the provisions of this Agreement or any such Loan Document, if such claim is not allowed, allowable or enforceable in such Bankruptcy, Insolvency or Liquidation Proceeding. DOLLARS AND $ mean United States dollars or such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts in the United States of America. DOMESTIC LENDING OFFICE means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance by which it became a Lender or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent. ELIGIBLE ASSIGNEE means (i) a commercial bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $5,000,000,000; (ii) a savings and loan association or savings bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $3,000,000,000; (iii) a commercial bank organized under the laws of any other country which is a member of the OECD, or a political subdivision of any such country, and having total assets in excess of $5,000,000,000, if such bank is acting through a branch or agency located in the United States; (iv) the central bank of any country which is a member of the OECD; (v) an Affiliate of any existing Lender; and (vi) any other Person approved by the Borrower. ENVIRONMENTAL CLAIMS means any and all administrative, regulatory or judicial claims, demands, directives, proceedings, orders, decrees and judgments relating in any way to any Environmental Law or any Environmental Permit. ENVIRONMENTAL LAWS means all federal, state and local laws, statutes, rules, regulations, ordinances and codes, and any binding judicial or administrative interpretation thereof or requirement thereunder, including any judicial or administrative order, by any Governmental Authority, relating to the regulation or protection of human health, safety, the environment and natural resources. ENVIRONMENTAL PERMIT means any license, permit, authorization, registration or approval issued or required under any Environmental Law. ERISA means the Employee Retirement Income Security Act of 1974. 89 14 ERISA AFFILIATE means any entity which is (or at any relevant time was) a member of a "controlled group of corporations," under "common control" or a member of an "affiliated service group" with the Borrower as defined in Section 414(b), (c) or (m) of the Code. ERISA EVENT means (i) any of the events set forth in Section 4043(b) of ERISA with respect to a Pension Plan; (ii) a withdrawal by the Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA); (iii) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan; (iv) the filing of a notice of intent to terminate, the treatment of a plan amendment as a termination under Section 4041 or 4041A of ERISA or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan subject to Title IV of ERISA; (v) a failure to make required contributions to a Pension Plan or Multiemployer Plan; (vi) the imposition of any liability under Title VI of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate; (vii) an application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code with respect to any Pension Plan; (viii) the Borrower or ERISA Affiliate engages in a nonexempt prohibited transaction or otherwise becomes liable with respect to a nonexempt prohibited transaction, the consequences of which, in the aggregate, constitute or could reasonably be expected to result in a Material Adverse Change; or (ix) a violation of the applicable requirements of Section 404 or 405 of ERISA or the exclusive benefit rule under Section 401(a) of the Code by the Borrower or any ERISA Affiliate with respect to any Pension Plan for which the Borrower or any of its Subsidiaries may be liable, the consequences of which, in the aggregate, constitute or could reasonably be expect to result in a Material Adverse Change. EUROCURRENCY LIABILITIES has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. EURODOLLAR LENDING OFFICE means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance by which it became a Lender (or, if no such office is specified, its Domestic Lending Office) or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent as its Eurodollar Lending Office. EURODOLLAR RATE means, for any Interest Period for each Eurodollar Rate Advance comprising part of the same Borrowing, an interest rate per annum equal to the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in U.S. dollars are offered by the principal office of each of the Reference Banks in London to prime banks in the interbank market for U.S. dollar deposits at 11:00 a.m. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to such Reference Bank's Eurodollar Rate Advance comprising part of such Borrowing (or, if such Reference Bank is not a Lender, 10% of such Borrowing) and for a period equal to such Interest Period. EURODOLLAR RATE ADVANCE means an Advance which bears interest by reference to the Eurodollar Rate as provided in Section 2.7(b). 90 15 EURODOLLAR RATE MARGIN means 1.50% per annum. EURODOLLAR RATE RESERVE PERCENTAGE means, as to any day in any Interest Period for any Eurodollar Rate Advance, the reserve percentage applicable for such day under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency Liabilities having a term equal to such Interest Period. EVENT OF DEFAULT is defined in Section 6.1. EXCESS CASH FLOW means, for any fiscal year, an amount computed as (i) Adjusted EBITDA for such year, less (ii) Capital Expenditures in such year, but only to the extent paid in cash in such year, less (iii) taxes paid in cash in such year by the Borrower or any of its Subsidiaries, less (iv) reductions in the Facility Amount (whether or not voluntary) that became effective in such year, less (v) mandatory (but not voluntary) principal payments made in cash in such year on other Debt of the Borrower or any of its Subsidiaries, less (vi) the difference between (x) Investments in the Venture Fund made and funded in cash by the Borrower or any of its Subsidiaries in such year and (y) distributions from the Venture Fund (whether constituting income, recovery of investment or otherwise) received in cash by the Borrower or any of its Subsidiaries in such year, and less any increase (and plus any decrease) (vii) in NonCash Working Capital in such year. Proceeds from any permitted new financings shall not be included in the computation of Excess Cash Flow. EXCLUDED PROCEEDS means (i) proceeds from any Asset Sale made in the ordinary course of business, (ii) proceeds from the sale by the Borrower of shares of IMS' capital stock held by the Borrower on February 8, 1996, (iii) proceeds from any Asset Sale that are, within six months after such Asset Sale, reinvested in any fixed assets used in the business of the Borrower or any of its Subsidiaries, and (iv) up to $10,000,000 in Cash Proceeds of Sale received in any one calendar year from other Asset Sales. EXTENDED MATURITY DATE means March 31, 2000, if any Lender agrees in writing to maintain its commitment to make Advances during the Extension Period pursuant to Section 2.2(c). EXTENSION PERIOD means April 1, 1999 through the Business Day immediately preceding March 31, 2000. FACILITY AMOUNT means, on any date of determination, $120,000,000 less all Facility Reductions which have become and then remain effective. FACILITY REDUCTION means each permanent reduction of the credit available to the Borrower under this Agreement, whether voluntarily made pursuant to Section 2.5 or required to be made pursuant to Section 2.6, Section 6.1 or any other provision of this Agreement or otherwise becoming effective in accordance with this Agreement. 91 16 FACILITY RESERVE means the amount established pursuant to Section 2.1(i)(A). FEDERAL FUNDS RATE means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Credit Lyonnais from three federal funds brokers of recognized standing selected by it. FEE LETTER means the letter from Credit Lyonnais to the Borrower, relating to fees, dated February 8, 1996. FISCAL QUARTER means a fiscal quarter of the Borrower. FISCAL QUARTER END DATE means the last day of a Fiscal Quarter. FIXED CHARGE COVERAGE RATIO means an amount computed, as of any Fiscal Quarter End Date, by dividing (i) Adjusted EBITDA for the four Fiscal Quarters then ended (taken as a single period) less Capital Expenditures made in such Fiscal Quarters, whether or not financed, less taxes paid in cash by the Borrower or any of its Subsidiaries in such Fiscal Quarters, and less any increase (and plus any decrease) in NonCash Working Capital in such Fiscal Quarters (provided that any noncash non-recurring charges added back in computing Adjusted EBITDA during such Fiscal Quarters shall not be counted for purposes hereof), by (ii) Interest Expense for such Fiscal Quarters plus scheduled mandatory reductions in the commitments under the Facility Amount that are to become effective in the next four Fiscal Quarters plus mandatory principal payments that are to become due and payable in cash in such next four Fiscal Quarters on such other Debt of the Borrower or any of its Subsidiaries which must, according to GAAP, be reported on the balance sheet plus Lease Expense for the four Fiscal Quarters then ended. FOREIGN SUBSIDIARIES means initially the Persons listed on Schedule 4.1(d) below the heading "Foreign" and hereafter shall mean such Persons who are or may become Subsidiaries of the Borrower whose assets and business are then located primarily outside of the United States. GAAP means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the accounting profession), or in such other statements by such entity as may be in general use by significant segments of the U.S. accounting profession, which are applicable to the facts and circumstances on the date of determination. 92 17 GOVERNMENTAL AUTHORITY means any nation, state, sovereign or government, any political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. GUARANTOR means each Subsidiary of the Borrower that executes, or joins in, the Guaranty. GUARANTY means the guaranty by the Borrower's Subsidiaries, except Inactive Subsidiaries and Foreign Subsidiaries, delivered pursuant to Section 3.1(a) and each joinder therein by any other Subsidiary of the Borrower and all guaranties, instruments and agreements at any time delivered by any Subsidiary of the Borrower in respect of or in exchange or substitution for or in replacement of such guaranty or to evidence its guaranty of payment of any of the Obligations. HAZARDOUS MATERIALS means (i) flammable explosives, radioactive materials, friable asbestos, urea formaldehyde foam insulation, transformers or other equipment that contain dielectric fluid containing regulated levels of polychlorinated biphenyls and petroleum products, and (ii) chemicals, materials, substances or wastes which are now or hereafter become defined as or included in the definition, listing or identification of "hazardous substances," "hazardous wastes," hazardous materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants," "medical waste," "infectious waste," "biomedical waste," "biohazardous waste," or words of similar import, under any applicable Environmental Law. IMS means Integrated Measurement Systems, Inc., an Oregon corporation. INACTIVE SUBSIDIARY means a Subsidiary of the Borrower that carries on no business operations or other activities and owns assets with a fair market value of $100,000 or less. INDEMNIFIED PERSON is defined in Section 8.6. INTELLECTUAL PROPERTY ASSIGNMENT means the assignments of patents, copyrights and trademarks, and applications therefor, executed by the Borrower and each Guarantor and delivered pursuant to Section 3.1(a) and each other security agreement at any time delivered by the Borrower or any Subsidiary of the Borrower to create a Lien securing any of the Obligations upon any property of the type described in such assignments. INTEREST EXPENSE means, for any period, all charges for interest expense for such period in accordance with GAAP, except that (i) facility fees, syndication fees, closing fees, underwriting fees and discounts, legal and documentation costs and other closing expenses incurred in respect of any Debt shall in any event be excluded, whether or not amortized, and (ii) interest charges not currently payable in cash shall in any event be excluded. INTEREST PERIOD means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Advance or the date of the conversion of any Advance into such an Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period 93 18 and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three or six months, as the Borrower may select by notice received by the Agent not later than 11:00 a.m. (New York City time) three Business Days prior to the first day of such Interest Period; PROVIDED, HOWEVER, that: (a) the Borrower may not select any Interest Period which ends after the Maturity Date; (b) the Borrower may not select any Interest Period which ends after any date on which any payment on any Advances is due unless, after giving effect to such selection, the aggregate unpaid principal amount of Base Rate Advances and Eurodollar Rate Advances having Interest Periods which end on or prior to such date is at least equal to the principal amount of Advances due and payable on and prior to such date; (c) Interest Periods commencing on the same date for Advances comprising part of the same Borrowing shall be of the same duration; (d) whenever the last day of any Interest Period would otherwise occur on a day that is not a Business Day, the last day of such Interest Period shall be extended to the next succeeding Business Day, except that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall be the next preceding Business Day; and (e) the Borrower may not have more than ten Interest Periods in effect at any one time. INVESTMENT means (i) the acquisition of any interest in any property, assets or business from any Person, whether by sale, lease or otherwise, (ii) the funding of any loan, extension of credit, accommodation or capital contribution to or for the benefit of any Person, and (iii) the acquisition of any debt or equity securities of or claim against or interest in any Person, whether upon original issuance, by purchase or otherwise. LEASE EXPENSE means, for any period on a consolidated basis, all payments accrued, whether for rent, common area or maintenance charges or other expenses, under any lease, other than a capital lease, under which the Borrower or any of its Subsidiaries is the lessee. LENDER means each financial institution signatory hereto and any other Eligible Assignee that pursuant to Section 8.7 becomes a party to this Agreement. LIEN means any mortgage, deed of trust, lien, pledge, charge, security interest, hypothecation, assignment, deposit arrangement or encumbrance of any kind in respect of any asset, whether or not filed, recorded or otherwise perfected or effective under applicable law, as well as the interest of a vendor or lessor under any conditional sale agreement, capital or finance lease or other title retention agreement relating to such asset. 94 19 LOAN AVAILABILITY means the difference, as of any date of determination, between (i) the then Facility Amount, less any Facility Reserve then in effect, and (ii) the Advances then outstanding. LOAN DOCUMENTS means this Agreement, the Guaranty, the Collateral Documents and all other guaranties and other agreements, instruments and written indicia of the Obligations delivered to the Agent or any Lender by or on behalf of the Borrower or any other Loan Party pursuant to or in connection with the transactions contemplated hereby. LOAN PARTIES means the Borrower and each Subsidiary of the Borrower that is a party to any Loan Document. MATERIAL ADVERSE CHANGE means any materially adverse change in the financial condition, assets, nature of the assets, liabilities, operations or prospects of the Borrower and its Subsidiaries, taken as a whole. MATERIAL ENVIRONMENTAL CLAIM means any Environmental Claim, regardless of merit, which does or can reasonably be expected to (i) result in the Borrower or any of its Subsidiaries expending in the aggregate an amount in excess of $10,000,000 to defend against, settle or satisfy, or (ii) prevent or enjoin the Borrower or any of its Subsidiaries from carrying on business on any property on which it conducts operations if the inability to carry on business on any such property does or can reasonably be expected to cause a Material Adverse Change. MATERIAL FOREIGN SUBSIDIARY means (i) Cadence Design Systems K.K., Cadence Design Systems Ltd., Valid Europe S.A., Cadence Design Systems GmbH, Cadence Design Systems S.A., Cadence Korea, Ltd., Cadence Design Systems (Canada), Cadence Design Systems A.B., Cadence Taiwan, Inc., Cadence Design Systems S.r.l. and Cadence Design Systems Hong Kong Asia and (ii) any other present or future Foreign Subsidiaries to whom Section 956(d) of the Code then applies whose consolidated revenues shall equal or exceed 1% of the consolidated revenues of the Borrower and its Subsidiaries, as measured during the most recent Fiscal Quarter. MATERIAL SUBSIDIARY means each Subsidiary of the Borrower which has (i) as of the end of the most recent Fiscal Quarter, total assets representing 10% or more of the consolidated total assets of the Borrower and its Subsidiaries, (ii) for the most recent four Fiscal Quarters, total revenues representing 10% or more of the consolidated revenues of the Borrower and its Subsidiaries, or (iii) for the most recent four Fiscal Quarters, net income representing 10% or more of the consolidated net income of the Borrower and its Subsidiaries. MATURITY DATE means March 31, 1999. MULTIEMPLOYER PLAN means any Plan which is "multiemployer plan," as defined in Section 4001(a)(3) of ERISA. 1934 ACT means the Securities Exchange Act of 1934. 95 20 NONCASH REVENUES means revenues that are not received in the form of cash or in the form of accounts receivable currently payable in cash. NONCASH WORKING CAPITAL means, at any time of determination, the difference between (i) the consolidated current assets of the Borrower and its Subsidiaries determined in accordance with GAAP, excluding cash and Permitted Cash Investments, and (ii) the consolidated current liabilities of the Borrower and its Subsidiaries determined in accordance with GAAP, excluding current maturities of long-term Debt. NON-CONSENSUAL LIEN means a Lien permitted under Section 5.3(a)(iii), (iv), (v), (vi), (vii), (viii) or (ix). NOTICE OF BORROWING means a notice substantially in the form of Exhibit B-1. NOTICE OF CONTINUANCE/CONVERSION means a notice substantially in the form of Exhibit B-2. OBLIGATIONS means all present and future debts, obligations and liabilities of every type and description of the Borrower or any other Loan Party at any time arising under or in connection with this Agreement, any other Loan Document or any Rate Contract, due or to become due to the Agent, any Lender, any Indemnified Person or any other Person and includes, without limitation, (i) all liability for principal of and interest on any Advances, and (ii) all liability under the Loan Documents for any additional interest, fees, taxes, compensation, costs, losses, expense reimbursements and indemnification. OECD means the Organization for Economic Cooperation and Development. OTHER TAXES is defined in Section 2.16(b). PBGC means the Pension Benefit Guaranty Corporation or any entity succeeding to any of its functions under ERISA. PENSION PLAN means any Plan which is (i) an "employee pension benefit plan" as defined in Section 3(2) of ERISA and (ii) not a Multiemployer Plan. PERMITTED CASH INVESTMENTS means short-term investment grade debt securities of any type authorized from time to time under the investment policy for short-term cash investments approved by the Borrower's board of directors. PERMITTED STOCK TRANSACTION means a purchase by the Borrower of its common stock or any forward purchase agreements, synthetic forward purchase agreements, options, calls, puts, collars and other derivative transactions with respect to the Borrower's common stock entered into or performed by the Borrower. 96 21 PERSON means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. PLAN means any "employee benefit plan" as defined in Section 3(3) of ERISA (i) which the Borrower or any ERISA Affiliate maintains, administers, contributes to or is required to contribute to, or, within the six years prior to the Closing Date, maintained, administered, contributed to or was required to contribute to, or under which the Borrower or any ERISA Affiliate may incur any liability and (ii) which covers any employee or former employee of the Borrower or any ERISA Affiliate (with respect to their relationship with such entities). PLEDGE AND SECURITY AGREEMENT means the pledge and security agreement executed by the Borrower and certain of the Borrower's Subsidiaries and delivered pursuant to Section 3.1(a) and each joinder therein by any other Subsidiary of the Borrower and each other security agreement at any time delivered by the Borrower or any Subsidiary of the Borrower to create a Lien that secures any of the Obligations. POTENTIAL DEFAULT means any event or condition described in Section 6.1 which, with any notice or passage of time (or both) expressly described in Section 6.1, would constitute an Event of Default. PRO RATA SHARE means, at any time of determination and in respect to any Lender, the ratio of (x) such Lender's then commitment to make Advances hereunder (as set forth in Schedule I or, if such Lender has entered into one or more Assignments and Acceptances, in the Register) to (y) the then aggregate amount of all such commitments, and after termination or expiration of such commitments shall be determined based on the Pro Rata Shares as in effect on the last day on which any such commitments were outstanding. QUALIFIED PLAN means a pension plan (as defined in Section 3(2) of ERISA) intended to be tax-qualified under Section 401(a) of the Code and which the Borrower or any ERISA Affiliate sponsors, maintains, or to which it makes or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding period covering at least five plan years, but excluding any Multiemployer Plan. QUARTER means a calendar quarter. RATE CONTRACT means any interest rate and currency swap agreement, cap, floor or collar agreement, interest rate insurance, currency spot or forward contract or other agreement or arrangement designed to provide protection against fluctuations in interest or currency exchange rates entered into by the Borrower and any Person which is, or at the time such contract, agreement or arrangement was entered into, the Agent or any Lender or an Affiliate of the Agent or any Lender. REAL ESTATE COLLATERAL DOCUMENTS means (i) the Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing and (ii) the Unsecured Environmental Indemnity Agreement, each executed by the Borrower and delivered pursuant to Section 3.1(a). 97 22 REFERENCE BANKS means Credit Lyonnais, ABN-AMRO N.V. and The First National Bank of Boston. REGISTER is defined in Section 8.7(d). REPORTABLE EVENT means any of the events set forth in Section 4043(b) of ERISA, a withdrawal from a plan described in Section 4063 of ERISA or a cessation of operations described in Section 4062(e) of ERISA. REQUISITE LENDERS means Lenders at the time holding, in the aggregate, at least 51% in Pro Rata Shares. ROPA FACILITY means the real property and improvements thereon located at 535, 545, 555 and 575 River Oaks Parkway, San Jose, CA. SEELY CAMPUS means the real property and improvements thereon located at 2655 Seely Avenue, San Jose, CA. SEELY CAMPUS VACANT LAND means the real property that is part of the Seely Campus and identified as parcels 3 and 4 on Exhibit A to the Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing to be delivered under Section 3.1(a). SUBORDINATED DEBT means any Debt of Borrower or any of its Subsidiaries, which pursuant to its terms is subordinate to the Obligations. SUBSIDIARY means, with respect to any Person, any corporation, association, partnership, joint venture or other business entity of which more than 50% of the voting stock or other equity interests is owned or controlled directly or indirectly by such Person or one or more Subsidiaries of such Person or a combination thereof; PROVIDED that IMS shall not be considered a Subsidiary of the Borrower for purposes of the Loan Documents so long as (i) the majority of the persons serving on IMS' board of directors are not directors, officers or employees of the Borrower or any of its Subsidiaries, (ii) IMS is not otherwise an Affiliate of the Borrower in any respect other than by virtue of Borrower's right to vote its shares of stock of IMS and (iii) the Borrower complies with Section 5.3(k). TAXES is defined in Section 2.16(a). TOTAL DEBT means, as of any date of determination, all outstanding Debt of the Borrower and its Subsidiaries which must, according to GAAP, be reported on the Borrower's consolidated balance sheet and all outstanding Accommodation Obligations of the Borrower and its Subsidiaries as to any Debt of any other Person which must, according to GAAP, be set forth in the footnotes to the Borrower's consolidated balance sheet. 98 23 TRANSFER AND PERFECTION NOTICE means an instrument in the form of Exhibit C-4 or Exhibit C-5 (if such instrument is then sufficient under applicable law, when duly signed by the parties indicated thereon, to perfect a security interest in the account or investments described therein) or any other instrument by which a Lien upon Permitted Cash Investments, as security for the Obligations, is lawfully and enforceably created and perfected without any consent, acknowledgment or other act of any Person other than the Agent. No Transfer and Perfection Notice shall limit or restrict the control and dominion of the Borrower and Guarantors over their cash, cash equivalents or Permitted Cash Investments or any account to which cash, cash equivalents or Permitted Cash Investments may be deposited or give the Agent or any Lender any control or dominion over any such cash, cash equivalent, Permitted Cash Investment or account. UNFUNDED PENSION LIABILITY means, with respect to any Pension Plan that is subject to Title IV of ERISA, the excess of such Pension Plan's accrued benefits, as defined in Section 3(23) of ERISA, over the current value of such Pension Plan's assets, as defined in Section 3(26) of ERISA (but excluding from the definition of "current value" of "assets" of such Pension Plan, accrued but unpaid contributions). UNITED STATES AND U.S. mean the United States of America. VENTURE FUND means Telos Venture Partners, L.P., a California limited partnership. WELFARE PLAN means any Plan which is an "employee welfare benefit plan" as defined in Section 3(1) of ERISA. WITHDRAWAL LIABILITIES means the aggregate amount of the liabilities, if any, pursuant to Section 4201 of ERISA if the Borrower and each ERISA Affiliate made a complete withdrawal from all Multiemployer Plans and any increase in contributions pursuant to Section 4243 of ERISA. I.2. ACCOUNTING TERMS. All accounting terms not expressly defined herein shall be construed, except where the context otherwise requires, and all financial computations required under this Agreement shall be made in accordance with GAAP applied on a consistent basis. If GAAP changes during the term of this Agreement so as to affect the calculation of any term defined herein or any measure of financial performance or financial condition employed or referred to herein, the Borrower and the Lenders agree to negotiate in good faith toward an amendment of this Agreement which shall approximate, to the extent possible, the economic effect of the original provisions hereof after taking into account such change in GAAP, but until the parties are able to agree upon such amendment (i) the Borrower shall be deemed in compliance with the provisions hereof only if and to the extent it would have been in compliance if such change in GAAP had not occurred and (ii) the Borrower shall deliver to the Agent, with each financial report delivered by the Borrower hereunder, information sufficient to confirm such compliance as if such change in GAAP had not occurred. I.3. OTHER DEFINITIONAL PROVISIONSERROR! Bookmark not defined. 99 24 (a) Unless otherwise specified herein or therein, all terms defined in this Agreement shall have the defined meanings when used in any other Loan Document or in any certificate or other document made or delivered pursuant hereto. (b) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement, and section, schedule and exhibit references are to this Agreement unless otherwise specified. The meaning of defined terms shall be equally applicable to the singular and plural forms of the defined terms. The term "including" is not limiting and means "including without limitation." (c) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding"; and the word "through" means "to and including." (d) References to agreements and other documents shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document. (e) References to statutes shall include all regulations promulgated thereunder and references to statutes or regulations shall be construed as including all statutory and regulatory provisions consolidating, amending or replacing the statute or regulation. (f) The captions and headings of this Agreement are for convenience of reference only and shall not affect the construction of this Agreement. (g) Unless the context otherwise requires, all terms used in this Agreement and defined in the Uniform Commercial Code, as enacted in the State of California, shall have the meanings assigned therein. II AMOUNTS AND TERMS OF THE ADVANCES II.1. REVOLVING CREDIT FACILITY. (a) ADVANCES. Subject to the terms and conditions herein, each Lender severally agrees to lend to the Borrower, from time to time on any Borrowing Date, an amount in Dollars equal to such Lender's Pro Rata Share of a Borrowing that (i) is requested by the Borrower for such Borrowing Date and (ii) does not exceed the Loan Availability as of such Borrowing Date. (b) BORROWINGS. Each Borrowing shall be in an aggregate amount not less than $1,000,000 or an integral multiple of $100,000 in excess thereof, if it is a Borrowing of Base Rate Advances, and not less than $5,000,000 or an integral multiple of $250,000 in excess thereof, if it is a Borrowing of 100 25 Eurodollar Rate Advances. Until the Maturity Date, the Borrower may reborrow under Section 2.1(a) any Advances that it has voluntarily prepaid pursuant to Section 2.11. (c) NOTICE OF BORROWING. To request a Borrowing, the Borrower shall deliver a Notice of Borrowing to the Agent not later than 2:00 p.m. New York City time (i) three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Rate Advances, and (ii) one Business Day prior to the requested Borrowing Date, in the case of Base Rate Advances. The Agent shall give each Lender prompt notice thereof by telecopier, telex or cable. The Notice of Borrowing shall specify (i) the requested Borrowing Date, (ii) the amount of the Borrowing and whether it will consist of Base Rate Advances or Eurodollar Rate Advances, and (iii) in the case of a Borrowing comprised of Eurodollar Rate Advances, the initial Interest Period for such Eurodollar Rate Advances. (d) TELEPHONIC NOTICE. In lieu of delivering a Notice of Borrowing, the Borrower may give the Agent telephonic notice of any proposed Borrowing by the time required under Section 2.1(c) and in such event shall promptly (but in no event later than the Borrowing Date for the requested Borrowing) deliver a confirmatory Notice of Borrowing to the Agent. If the telephonic request differs in any respect from the written Notice of Borrowing subsequently delivered, the telephonic request shall govern as to the terms of all Advances made in accordance with such telephonic request. The Agent's determination of the contents of any telephonic request shall, absent manifest error, be conclusive and binding on all parties hereto. (e) FUNDING OF ADVANCES. Upon fulfillment of the applicable conditions set forth in Article III, each Lender shall, before 12:00 noon New York City time on the Borrowing Date, make available for the account of its Applicable Lending Office to the Agent at its address referred to in Section 8.2, in same day funds, such Lender's Pro Rata Share of a Borrowing. After the Agent receives such funds, the Agent will, not later than 3:00 p.m. New York City time on the Borrowing Date, make such funds available to the Borrower as the Borrower may direct. (f) NOTICE OF BORROWING IRREVOCABLE. Each Notice of Borrowing and telephonic request shall be irrevocable and binding on the Borrower. (g) ASSUMPTION OF FUNDING. Unless the Agent receives notice from a Lender prior to any Borrowing Date that such Lender will not make available to the Agent such Lender's Pro Rata Share of the Borrowing to be made on such Borrowing Date, the Agent may assume that such Lender has made its Pro Rata Share available to the Agent on such Borrowing Date in accordance with Section 2.1(e), and the Agent may, in reliance upon such assumption, make available to the Borrower on such Borrowing Date a corresponding amount. If and to the extent that such Lender fails to make its Pro Rata Share available to the Agent, such Lender and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to Base Rate Advances and (ii) in the case of such Lender, the Federal Funds Rate until the third Business Day after demand by the Agent to such Lender 101 26 for such repayment and thereafter at the rate applicable to Base Rate Advances. If such Lender shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Lender's Advance as part of such Borrowing for purposes of this Agreement and the Borrower shall thereupon be excused from making the repayment described in the preceding sentence. (h) FAILURE OF LENDER TO FUND. All obligations of the Lenders hereunder shall be several, and not joint. The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance as part of such Borrowing. No Lender shall be responsible for the failure of any other Lender to make an Advance on any Borrowing Date. (i) FACILITY RESERVE; MANDATORY FACILITY REDUCTION. The credit otherwise available under this Agreement shall be subject to temporary and permanent reduction as follows: (A) FACILITY RESERVE. The credit available under this Agreement shall be temporarily reduced by $20,000,000 (the "Facility Reserve"), from and after the Closing Date and until the date on which the Borrower delivers the following documents, if such documents are delivered no later than the 90th day after the Closing Date: (i) A legal opinion addressed to the Agent by a reputable attorney authorized to practice law in Japan, substantially confirming (in conformity with local practice for legal opinions of this type), as to the Agent's security interest in the shares of capital stock of Cadence Design Systems K.K. identified as Pledged Shares in Schedule A to the Pledge and Security Agreement, each and all of the matters contemplated in the form of legal opinion attached hereto as Exhibit D-2; and (ii) The original stock certificates representing such shares accompanied by all necessary or appropriate instruments of transfer and all related documents, acts and deeds necessary in the opinion of such counsel to transfer such Pledged Shares to the Agent, in pledge, free from the interest of any subsequent bona fide purchaser. (B) MANDATORY FACILITY REDUCTION. The credit available under this Agreement shall be permanently reduced by $20,000,000 on the 90th day after the Closing Date if: (i) The Facility Reserve remains in effect on such day; or (ii) The Borrower has not delivered to the Agent, on or before such day: a. A legal opinion addressed to the Agent by one or more reputable attorneys authorized to practice law in France, the United Kingdom and Belgium (or, if Cadence Design Systems GmbH is then a direct subsidiary of the Borrower, Germany), substantially confirming (in conformity with local practice for legal opinions of this 102 27 type), as to the Agent's security interest in the shares of capital stock of Cadence Design Systems S.A., Cadence Design Systems Ltd. and Valid Europe S.A. (or Cadence Design Systems GmbH if it is then a direct subsidiary of the Borrower), respectively, identified as Pledged Shares in Schedule A to the Pledge and Security Agreement (or, if Cadence Design Systems GmbH is then a direct subsidiary of the Borrower, shares representing 65% of its outstanding capital stock), each and all of the matters contemplated in the form of legal opinion attached hereto as Exhibit D-2; and b. The original stock certificates representing such shares accompanied by all necessary or appropriate instruments of transfer and all related documents, acts and deeds necessary in the opinion of such attorneys to transfer such Pledged Shares to the Agent, in pledge, free from the interest of any subsequent bona fide purchaser. II.2. EXTENSION OF MATURITY DATE. (a) REQUEST FOR EXTENSION. No earlier than January 1, 1998 and no later than March 31, 1998, the Borrower may, by written notice to the Agent and each Lender, request each Lender to determine whether such Lender wishes, at its sole option and election, to agree to maintain its commitment to make Advances hereunder during the Extension Period. (b) NO DUTY. No Lender shall be in any respect obligated to agree to any such request or bound by any restriction, limitation or duty in any manner related thereto. Each Lender may freely decline any such request and shall be deemed to have declined it unless it expressly agrees in writing to maintain its commitment as set forth in Section 2.2(c). (c) PROCEDURE. Any Lender that wishes to agree to any such request for a one-year extension may so notify the Agent within 30 days after receipt of the Borrower's request for extension (such notice being preliminary and subject to such Lender's final agreement upon its approval of the aggregate number and commitment amounts of the Lenders so agreeing). The Agent thereupon shall promptly advise the Borrower and the Lenders of any and all notices so received. Thereafter, any Lenders willing to agree to maintain their commitments to make Advances hereunder during the Extension Period may do so by an agreement in writing signed by all such Lenders. (d) TERMINATION AND REPAYMENT AS TO OTHER LENDERS. On the Business Day immediately preceding the Maturity Date, the commitment of each Lender, except a Lender which has entered into an agreement in writing as set forth in Section 2.2(c), shall be terminated, and on the Maturity Date, the Borrower shall repay, in full and in cash, all Advances and other Obligations outstanding to each Lender whose commitment is so terminated. 103 28 II.3. EVIDENCE OF DEBT. (a) PROMISE TO REPAY. Borrower hereby agrees to pay when due the principal amount of each Advance, and further agrees to pay all unpaid interest accrued thereon, in accordance with the terms of this Agreement. Borrower further agrees that if, in the opinion of any Lender, a promissory note or other evidence of debt is required or appropriate to reflect or enforce any Advances owing to, or to be made by, such Lender, then Borrower shall promptly execute and deliver to such Lender a promissory note or other evidence of debt (in form and substance satisfactory to such Lender) payable to such Lender in an amount equal to the Advances owing to such Lender under this Agreement from time to time. (b) LOAN ACCOUNT. Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the Debt of Borrower to such Lender resulting from each Advance owing to such Lender from time to time, including the amount of principal and interest payable and paid to such Lender from time to time hereunder. The entries made in each such loan account or accounts shall be conclusive and binding for all purposes, absent manifest error. II.4. FEES. (a) CLOSING FEES. [Intentionally Omitted.] (b) COMMITMENT FEES. On the first day of each Quarter, commencing July 1, 1996 and continuing thereafter until the Facility Amount is permanently reduced to zero, the Borrower shall pay a commitment fee to the Agent, for the account of the Lenders in accordance with their Pro Rata Shares at the time the fee accrued, in an amount computed by applying the Commitment Fee Rate to the Loan Availability, day to day in the prior Quarter. (c) AGENT'S FEES. The Borrower shall pay when due all fees payable under the Fee Letter. II.5. VOLUNTARY FACILITY REDUCTIONS. The Borrower at any time may terminate in whole, and from time to time may reduce ratably in part, the unused portions of the commitments of the Lenders to extend credit hereunder, by giving the Agent at least three Business Days' prior written notice that, effective as of a Business Day set forth in the notice, the Facility Amount shall be reduced by an amount that (i) does not exceed the Loan Availability as of such Business Day and (ii) is equal to either (A) the then Facility Amount or (B) an integral multiple of $1,000,000. Such notice, once given, shall be irrevocable, and the Facility Amount, once reduced, may not be increased under any circumstances. 104 29 II.6. FACILITY REDUCTIONS; REPAYMENT. The Borrower agrees to repay the Advances and reduce the Facility Amount as follows: (a) SCHEDULED FACILITY REDUCTIONS PRIOR TO THE MATURITY DATE. On each date set forth below, the Facility Amount shall be automatically and permanently reduced by the amount set forth next to such date below: Date Amount of Reduction ---- ------------------- March 31, 1997 $10,000,000 September 30, 1997 10,000,000 March 31, 1998 10,000,000 September 30, 1998 15,000,000 (b) TERMINATION OR REDUCTION ON MATURITY DATE. On the Business Day immediately preceding the Maturity Date, the Facility Amount shall be automatically and permanently reduced to zero, except that if any Lender has agreed to maintain its commitment to make Advances hereunder during the Extension Period as set forth in Section 2.2(c), then the Facility Amount shall be automatically and permanently reduced on such Business Day to the difference between (i) the aggregate amount of all such commitments of all Lenders so agreeing less (ii) all Facility Reductions that became effective after the date of such agreement. (c) TERMINATION ON EXTENDED MATURITY DATE. On the Extended Maturity Date, if the Facility Amount was not previously reduced to zero, the Facility Amount shall be automatically and permanently reduced to zero. (d) NONSCHEDULED MANDATORY FACILITY REDUCTIONS. In addition to the foregoing Facility Reductions, the Facility Amount shall be automatically and permanently reduced: (i) ASSET SALE PROCEEDS. Whenever the Borrower or any of the Guarantors receives any Cash Proceeds of Sale, except Excluded Proceeds, by an amount equal to 100% of such Cash Proceeds of Sale less all costs of sale paid in cash by the Borrower or any of its Subsidiaries in connection with the Asset Sale from which such Cash Proceeds of Sale arose; PROVIDED, HOWEVER that to the extent necessary to avoid the payment of Breakage Costs, the Borrower may elect to defer such reduction until the last day of the next maturing Interest Periods then in effect in their order of maturity, but only if cash in the amount equal to such reduction has been deposited in a cash collateral account maintained with the Agent and governed by terms acceptable to the Agent; (ii) SUBORDINATED DEBT PROCEEDS. Whenever the Borrower or any of its Subsidiaries receives any proceeds from any issuance and sale of Subordinated Debt that is permitted to be issued and sold upon any waiver of the provisions of Section 5.3(d) by the Requisite Lenders (other than proceeds from Subordinated Debt permitted to be issued and sold as described in 105 30 Section 5.3(d)(x) in connection with an acquisition), by an amount equal to 75% of all proceeds so received, net of placement fees and underwriting expenses paid in cash by the Borrower or such Subsidiary in connection with the sale; (iii) EXCESS CASH FLOW. On the 90th day after the end of each fiscal year, commencing with the fiscal year ending on or about December 31, 1997 (i.e., on or about March 31, 1998), in an amount equal to the lesser of (i) $25,000,000, and (ii) 50% of the Excess Cash Flow for such fiscal year; and (iv) FOREIGN COLLATERAL DOCUMENTS. On the 90th day after the Closing Date, if the conditions set forth in Section 2.1(i)(B) are then met, in the amount set forth in said Section. (e) APPLICATION OF NONSCHEDULED FACILITY REDUCTIONS. All Facility Reductions, whether voluntary or mandatory, other than the Facility Reductions scheduled to occur on certain dates pursuant to Sections 2.6(a), (b) and (c), shall be credited to each such future scheduled Facility Reduction on a ratable basis, proportionately to the ratio of such future scheduled Facility Reduction to all such future scheduled Facility Reductions. (f) EXCESS REVOLVING CREDIT EXPOSURE. If at any time, by reason of any voluntary or mandatory Facility Reduction or for any other reason, the aggregate outstanding Advances are greater than the then Facility Amount less any Facility Reserve then in effect, the Borrower shall immediately, without notice or demand, repay Advances in an amount equal to such excess. (g) CHANGE OF CONTROL. If, within the period commencing on the date of a Change of Control and ending 30 Business Days after the Borrower gives the Agent and the Lenders written notice of such Change of Control, the Requisite Lenders shall notify the Agent and the Borrower in writing that the credit facility established under this Agreement shall be terminated, then on the 30th day following the giving of such notice (i) all Advances then outstanding shall be due and payable in full, and (ii) the Facility Amount shall be automatically and permanently reduced to zero. II.7. INTEREST. The Borrower agrees to pay interest on the unpaid principal amount of each Advance made by each Lender from the date of such Advance until such principal amount shall be repaid in full, at the following rates per annum: (a) BASE RATE ADVANCES. Whenever such Advance is a Base Rate Advance, a rate per annum equal on each day to the Base Rate as in effect on such day, with all such interest accrued in any one Quarter payable quarterly on the first day of the next following Quarter and in any case on the date the Facility Amount is reduced to zero and all Advances are repaid, or required to be repaid, in full. (b) EURODOLLAR RATE ADVANCES. Whenever such Advance is a Eurodollar Rate Advance, a rate per annum equal on each day during the Interest Period for such Eurodollar Rate Advance to the sum of the Eurodollar Rate for such Interest Period determined for such day plus the Eurodollar Rate Margin, 106 31 with all interest so accrued payable on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on the day which occurs three months after the first day of such Interest Period. (c) DEFAULT INTEREST. Overdue principal and, to the extent permitted by law, overdue interest in respect of any Advance will bear interest equal to the greater of (i) the rate applicable to Base Rate Advances plus 2% per annum or (ii) the rate otherwise payable on such Advance (without giving effect to this provision) plus 2% per annum. II.8. ADDITIONAL INTEREST ON EURODOLLAR RATE ADVANCES. The Borrower shall pay each Lender additional interest on the unpaid principal amount of each Advance of such Lender for each day that such Advance is outstanding as a Eurodollar Rate Advance, at a rate per annum equal to the remainder obtained by subtracting (i) the Eurodollar Rate for the Interest Period for such Eurodollar Rate Advance from (ii) the rate determined by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such Lender for such day. Such additional interest shall be determined by such Lender, notified to the Borrower through the Agent and payable when and as interest is payable on such Eurodollar Rate Advance or, if later, five Business Days after the Borrower receives notice thereof. If the Borrower so requests, such Lender shall provide the Borrower through the Agent a certificate setting forth the calculation and supporting information for such additional interest, which shall be conclusive and binding for all purposes, absent manifest error. II.9. INTEREST RATE DETERMINATION AND PROTECTION. (a) DETERMINATION OF EURODOLLAR RATE. The Eurodollar Rate for each Interest Period for Eurodollar Rate Advances comprising part of the same Borrowing shall be determined by the Agent on the basis of applicable rates furnished to and received by the Agent from the Reference Banks two Business Days before the first day of such Interest Period. (b) NOTICE OF EURODOLLAR RATE. The Agent shall give prompt notice to the Borrower and the Lenders of the Eurodollar Rate for any Interest Period when determined by the Agent. (c) FAILURE TO PROVIDE INFORMATION. If any one of the Reference Banks does not furnish to the Agent timely information sufficient to enable the Agent to determine a Eurodollar Rate, the Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. If fewer than two Reference Banks furnish timely information to the Agent for determining the Eurodollar Rate for any Eurodollar Rate Advances, the Agent shall determine the Eurodollar Rate based on information furnished by Credit Lyonnais. If Credit Lyonnais is unable to obtain timely information for determining the Eurodollar Rate for any Eurodollar Rate Advances, the Agent shall forthwith notify the Borrower and the Lenders that the interest rate cannot be determined for such Eurodollar Rate Advances and the obligation of the Lenders to make or continue, or to convert Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. 107 32 (d) SUSPENSION OF EURODOLLAR RATE ADVANCES. If, with respect to any Eurodollar Rate Advances, the Requisite Lenders notify the Agent that either (i) the Eurodollar Rate for any Interest Period for such Eurodollar Rate Advances is at least two basis points less than the cost to such Lenders of obtaining funds in Dollars in the London interbank market in the amounts substantially equal to such Lenders' Eurodollar Rate Advances and for a period equal to such Interest Period or (ii) funding is not available to such Lenders in such market in Dollars, then the Agent shall forthwith so notify the Borrower and the Lenders and thereupon (A) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, convert into a Base Rate Advance, and (B) the obligation of the Lenders to make or continue, or to convert Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. (e) FAILURE TO SPECIFY DURATION. If the Borrower fails, prior to the date the Eurodollar Rate for any Interest Period is determined by the Agent, to specify the duration of any Interest Period for any Eurodollar Rate Advances, the Interest Period shall be one month. (f) MINIMUM AMOUNTS. No Borrowing of less than $5,000,000 may be made or continued as, or converted into, Eurodollar Rate Advances. If at any time the aggregate outstanding principal amount of all Eurodollar Rate Advances having the same Interest Period is reduced to less than $5,000,000, such Advances shall automatically and immediately convert into Base Rate Advances. (g) AGENT'S DETERMINATION CONCLUSIVE. Each determination by the Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. II.10. VOLUNTARY CONVERSION OF ADVANCES. (a) NOTICE OF CONVERSION/CONTINUATION. Subject to the provisions of Sections 2.9 and 2.14, the Borrower may on any Business Day, by giving the Agent a Notice of Continuance/Conversion not later than 2:00 p.m. (New York City time) on the third preceding Business Day, (i) convert Base Rate Advances comprising the same Borrowing into Eurodollar Rate Advances, (ii) convert Eurodollar Rate Advances comprising the same Borrowing into Base Rate Advances or (iii) continue Eurodollar Rate Advances as Eurodollar Rate Advances, but (A) the Borrower may convert a Eurodollar Rate Advance into a Base Rate Advance only on the last day of an Interest Period for such Eurodollar Rate Advance, (B) the Borrower may continue a Eurodollar Rate Advance as a Eurodollar Rate Advance only as of the last day of an Interest Period for such Eurodollar Rate Advance, and (C) no Advance may be converted into or continued as a Eurodollar Rate Advance at any time when an Event of Default or Potential Default has occurred and is continuing. (b) TELEPHONIC NOTICE. In lieu of delivering a Notice of Continuance/Conversion, the Borrower may give the Agent telephonic notice of any proposed conversion or continuance by the time required under Section 2.10(a) and in such event shall promptly (but in no event later than the date of the 108 33 requested conversion or continuance) deliver a confirmatory Notice of Continuance/Conversion to the Agent. If the telephonic request differs in any respect from the written Notice of Continuance/Conversion subsequently furnished, the telephonic request shall govern as to the terms of such notice. The Agent's determination of the contents of any telephonic request shall, absent manifest error, be conclusive and binding on all parties hereto. (c) REQUIREMENTS. Each Notice of Continuance/Conversion or telephonic request shall specify (i) the date of the continuance or conversion, (ii) the Advances to be converted or continued and (iii) when Advances are converted into or continued as Eurodollar Rate Advances, the duration of the Interest Period for such Advances. (d) BASE RATE ADVANCES. Unless a Eurodollar Rate has been determined for a particular Advance and applies to such Advance on a particular day in accordance with the provisions hereof, such Advance shall be a Base Rate Advance and shall accrue interest at the rate then applicable to Base Rate Advances. II.11. PREPAYMENTS. The Borrower from time to time may prepay, without premium or penalty, the outstanding principal amounts of Advances comprising part of the same Borrowing, in whole or ratably in part, so long as (i) the Borrower gives one Business Day's prior written notice to the Agent stating the proposed date and aggregate principal amount of the prepayment, (ii) each partial prepayment is made in an aggregate principal amount of $1,000,000 or an integral multiple of $500,000 in excess thereof, (iii) if any Eurodollar Rate Advance is paid prior to the last day of the Interest Period for such Advances, all unpaid interest accrued to the date of prepayment on the principal amount prepaid and all Breakage Costs incurred as a result of the prepayment are also paid, and (iv) all unpaid interest accrued to the date of prepayment is paid concurrently with any prepayment in full. Notice of prepayment, once given, shall be irrevocable, and the amount of the prepayment specified in the notice shall accordingly be due and payable on the prepayment date specified therein. II.12. FUNDING LOSSES. If (i) any Eurodollar Rate Advance is repaid or converted to a Base Rate Advance on any day other than the last day of an Interest Period for such Eurodollar Rate Advance (whether as a result of any optional prepayment, mandatory prepayment, payment upon acceleration, mandatory conversion or otherwise), (ii) the Borrower fails to borrow any Eurodollar Rate Advance in accordance with a Notice of Borrowing or a telephonic request delivered to the Agent (whether as a result of the failure to satisfy any applicable conditions or otherwise), (iii) any Base Rate Advance is not converted into a Eurodollar Rate Advance or any Eurodollar Rate Advance is not continued as a Eurodollar Rate Advance in accordance with a Notice of Continuance/Conversion or telephonic request delivered to the Agent (whether as a result of the failure to satisfy any applicable conditions or otherwise), or (iv) the Borrower fails to make any prepayment in accordance with any notice of prepayment delivered to the Agent, the Borrower shall, upon demand by any Lender, reimburse such Lender for all reasonable costs and losses incurred by such Lender as a result of such repayment, prepayment or failure ("Breakage Costs"), including reasonable costs and losses incurred by a Lender as a result of funding arrangements or contracts entered into by such Lender to fund Eurodollar Rate Advances. Breakage Costs shall be payable only if demanded within 90 days after the end of the applicable 109 34 Interest Period and shall be due 30 days after demand. Demand shall be made by delivery to the Borrower and the Agent of a certificate of the Lender making the demand, setting forth in reasonable detail the calculation of the Breakage Costs for which demand is made. Such certificate shall, in the absence of manifest error, be conclusive and binding on the Borrower. II.13. INCREASED COSTS. (a) INCREASE IN COST. If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements, in the case of Eurodollar Rate Advances, included in the Eurodollar Rate Reserve Percentage) in or in the interpretation of any law or regulation after January 1, 1996 or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) made after January 1, 1996, there shall be any increase in the cost to any Lender or any participant under Section 8.7(f) of agreeing to make or making, funding or maintaining Eurodollar Rate Advances, then the Borrower shall from time to time pay to the Agent for the account of such Lender or participant additional amounts sufficient to compensate such Lender or participant for such increased cost. Such costs shall be payable only if demanded within six months after they were incurred and shall be due 30 days after demand. Demand shall be made by delivery to the Borrower and the Agent of a certificate of the Lender or participant making the demand, setting forth in reasonable detail the calculation of the costs for which demand is made. Such certificate shall, in the absence of manifest error, be conclusive and binding on the Borrower. (b) INCREASE IN CAPITAL REQUIREMENTS. If any Lender determines that compliance with any change in law or regulation or any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), in each case after January 1, 1996, affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend or funding hereunder and other commitments or funding of this type, then, upon demand by such Lender, the Borrower shall, within 30 days after demand from time to time by such Lender, pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender determines in good faith that such increase in capital to be allocable to the existence of such Lender's commitment to lend or funding hereunder. No such compensation may be demanded as to increased capital maintained by a Lender more than six months before compensation was first demanded by such Lender under this Section 2.13(b). Demand for such compensation shall be made by delivery to the Borrower and the Agent of a certificate of the Lender making the demand, setting forth the amount demanded. Such certificate shall, in the absence of manifest error, be conclusive and binding on the Borrower. (c) REPLACEMENT LENDERS AND PARTICIPANTS. If, and on each occasion that, (i) a Lender fails to make its Advance as part of any Borrowing within three days after any Borrowing Date as required by Section 2.1(a), 2.1(e) and 2.1(g), or (ii) a Lender or a participant under Section 8.7(f) makes a demand for 110 35 compensation pursuant to Sections 2.8, 2.13(a) or 2.13(b) with respect to Eurodollar Rate Advances, or (iii) a Lender is excused from funding Eurodollar Rate Advances pursuant to Sections 2.9(c), 2.9(d) or 2.14 or (iv) Taxes are required, pursuant to Section 2.16(a), to be deducted from or with respect to any amount payable to any Lender or the Agent, the Borrower may in whole permanently replace such Lender or participant, as the case may be, with an Eligible Assignee willing to become a Lender hereunder, on the following terms: (A) The replacement Lender must be satisfactory to the Agent in its reasonable discretion; (B) The Borrower shall give the Agent and the Lender or participant being replaced at least five Business Days' prior written notice of the replacement. The notice must be given within 180 days after the date of such failure to fund or such demand was made or excuse was invoked by such Lender or participant and must state the day (which must be a Business Day not more than ten days after the notice is given) on which the replacement will be effective; (C) On the effective date of the replacement, (i) the replacement Lender shall purchase the Advances owed to such replaced Lender or participant for a purchase price equal to the principal amount thereof and all interest accrued thereon as of such effective date, payable in immediately available funds on such effective date, (ii) the replacement Lender shall assume the Pro Rata Share of the commitment to make Advances of such replaced Lender or participant, (iii) an Assignment and Acceptance covering such Advances and Pro Rata Share shall be delivered to the replacement Lender by the Lender being replaced or by the participant being replaced and the Lender from which it holds its participation, and (iv) the Borrower shall pay to the Agent for the account of the replaced Lender or participant all Breakage Costs resulting from the replacement and all additional interest, fees, compensation, costs, losses, taxes, expense reimbursements, indemnities and other Obligations due to the Lender or participant being replaced; and (D) The Borrower will remain liable to each replaced Lender or participant for all Obligations that survive the repayment of the Advances. II.14. ILLEGALITY. Notwithstanding any other provision of this Agreement, if any Lender shall notify the Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other Governmental Authority asserts that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances hereunder, then (i) the obligation of such Lender to make or continue, or to convert Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, and (ii) the Borrower shall forthwith either (A) prepay in full all Eurodollar Rate Advances of such Lender then outstanding, together with interest accrued thereon and Breakage Costs related thereto, or (B) convert all Eurodollar Rate Advances of such Lender then outstanding into Base Rate Advances and pay all interest accrued thereon to the date of conversion and all Breakage Costs related thereto. 111 36 II.15. PAYMENTS AND COMPUTATIONS. (a) PAYMENTS. The Borrower shall make each payment due hereunder not later than 2:00 p.m. (New York City time) on the day payment is due, in Dollars received by the Agent at its address referred to in Section 8.2 in same day funds. Any payment due to a Lender shall be paid to the Agent for account of such Lender. When the Agent receives a payment for account of a Lender, the Agent will promptly cause like funds to be distributed to such Lender for account of its Applicable Lending Office. (b) COMPUTATIONS. All computations of interest, additional interest and fees accruing at a per annum rate shall be made on the basis of the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest, additional interest or commitment fees are payable and a year of 360 days, except that interest at the Base Rate shall be computed on a year of 365 days or, in a leap year, 366 days. (c) PAYMENT ON BUSINESS DAY. Whenever any payment hereunder is due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall be included in the computation of interest or fees. If, however, such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (d) PRESUMPTION OF PAYMENT. Unless the Agent receives notice from the Borrower prior to the date on which any payment is due to the Agent for the benefit of the Lenders hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower does not make such payment to the Agent in full when due, each Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender, together with interest thereon for each day from the date such amount was distributed to such Lender until the Business Day such Lender repays such amount to the Agent, at the Federal Funds Rate until the third Business Day after such demand and thereafter at the rate applicable to Base Rate Advances. 112 37 II.16. TAXES. (a) NET PAYMENTS. Any and all payments by the Borrower hereunder shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Agent, taxes imposed on its net income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender or the Agent (as the case may be) is organized or any municipal subdivision thereof and, in the case of each Lender, taxes imposed on its net income, and franchise taxes imposed on it, by the jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities, collectively, are "Taxes"). If the Borrower is required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender or the Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.16) such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received if no such deductions had been made, (ii) the Borrower shall make such deductions, and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) PAYMENT OF OTHER TAXES. In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document ("Other Taxes"). (c) INDEMNIFICATION. The Borrower will indemnify each Lender and the Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.16) paid by such Lender or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. Payment under this indemnity shall be due 30 days after written demand therefor. (d) EVIDENCE OF PAYMENTS. Within 30 days after the date of any payment of Taxes, the Borrower will furnish to the Agent, at its address referred to in Section 8.2, the original or a certified copy of a receipt evidencing payment thereof. If no Taxes are payable in respect of any payment hereunder, the Borrower will furnish to the Agent, at such address, a certificate from each appropriate taxing authority, or an opinion of counsel acceptable to the Agent, in either case stating that such payment is exempt from or not subject to Taxes. (e) WITHHOLDING TAX EXEMPTION. If any Lender is a "foreign corporation" within the meaning of the Code, such Lender shall deliver to the Agent (i) either (A) if such Lender qualifies for an exemption from, or a reduction of, United States withholding tax under a tax treaty, a properly completed and executed Internal Revenue Service form 1001 before the payment of any interest in the first calendar year and in each third succeeding calendar year during which interest may be paid under this Agreement, or (B) if such Lender qualifies for an exemption for interest paid under this Agreement 113 38 from United States withholding tax because it is effectively connected with a United States trade or business of such Lender, two properly completed and executed copies of Internal Revenue Service form 4224 before the payment of any interest is due in the first taxable year of such Lender, and in each succeeding taxable year of such Lender, during which interest may be paid under this Agreement, and (ii) such other form or forms as may be required or reasonably requested by the Agent to establish or substantiate exemption from, or reduction of, United States withholding tax under the Code or other laws of the United States. Each Lender agrees to notify the Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (f) WITHHOLDING TAXES. Where any Lender which is a "foreign corporation" is entitled to a reduction in the applicable withholding tax, the Agent may withhold from any interest payment to Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by Section 2.16(e) are not delivered to the Agent, then the Agent may withhold from any interest payment to any Lender not providing such forms or other documentation, an amount equivalent to the applicable withholding tax. (g) INDEMNIFICATION. If the Internal Revenue Service or any authority of the United States or other jurisdiction asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Lender which is a "foreign corporation" (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify the Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify the Agent fully for all amounts paid, directly or indirectly, by the Agent as tax or otherwise, including penalties and interest, together with all reasonable expenses incurred, including reasonable legal expenses and allocated staff costs and any other reasonable out-of-pocket expenses. (h) SUBSEQUENT LENDERS. If any Lender grants participations in or otherwise transfers its rights under this Agreement, the participant or transferee shall be bound by the terms of Sections 2.16(e), (f) and (g) as though it were such Lender. II.17. SHARING OF PAYMENTS. (a) Except as set forth in Section 2.17(b) below, all payments received by the Agent on account of any outstanding Obligations shall be applied by the Agent to the payment of Obligations that are then due as directed by the Borrower or as determined in good faith by the Agent. (b) All payments and distributions received on account of any Obligations after the Advances have become due and payable (whether at maturity, by acceleration or otherwise) shall be applied to the payment of the Obligations in the following order: First, to pay Obligations in respect of fees, expense reimbursements or indemnities then due to the Agent, 114 39 Second, to the ratable payment, based on the Pro Rata Shares, of the principal of and interest on the Advances (including any and all Disallowed Post-Petition Interest/Expense Claims in any Bankruptcy, Insolvency or Liquidation Proceeding), Third, to the ratable payment, based on the total amounts due, of all other Obligations (including any and all Disallowed Post-Petition Interest/Expense Claims in any Bankruptcy, Insolvency or Liquidation Proceeding), except Obligations in respect of Rate Contracts, and Fourth, to the ratable payment, based on the total amounts due, of all Obligations in respect of Rate Contracts. (c) If, at any time after the Advances have become due and payable (whether at maturity, by acceleration or otherwise), any holder of Obligations obtains or receives any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of any Obligations owed to it in excess of the amount which it was entitled to receive pursuant to the provisions of Section 2.17(b) above, such holder of Obligations shall forthwith purchase from the other holders of Obligations such participations in the Obligations outstanding to them as shall be necessary to cause such purchasing holder to share the excess payment with the other holders of Obligations, to the end that all payments and distributions in any manner obtained or received after the Advances have become due and payable are applied and shared as set forth in Section 2.17(b) above. If all or any portion of such excess payment is thereafter recovered from such purchasing holder, such purchase from the other holders shall be rescinded and each such other holder shall repay to the purchasing holder the purchase price to the extent of its fairly allocable share of the recovery, but without interest. (d) The Borrower agrees that any holder of Obligations purchasing a participation from another holder pursuant to Section 2.17(c) above may, to the fullest extent permitted by law, exercise collection rights (including the right of set-off) with respect to such participation as fully as if such holder were the direct creditor of the Borrower in the amount of such participation. III CONDITIONS OF LENDING III.1. CONDITIONS PRECEDENT ON THE CLOSING DATE. This Agreement shall become effective and binding upon the parties hereto only if each of the following conditions precedent is satisfied or waived by each Lender no later than April 30, 1996: (a) LOAN DOCUMENTS. The Agent must have received, with sufficient copies for each Lender: (i) this Agreement, including all exhibits and schedules hereto, duly executed by the Borrower, the Agent and each of the Lenders; 115 40 (ii) a Guaranty, in substantially the form of Exhibit C-1, duly executed by each Subsidiary of the Borrower that is not, on the Closing Date, an Inactive Subsidiary or a Foreign Subsidiary; (iii) a Pledge and Security Agreement in substantially the form of Exhibit C-2, duly executed and delivered by the Borrower and each Guarantor, together with (A) certificates representing the Pledged Shares referred to in Schedule A to such Pledge and Security Agreement, accompanied by undated stock powers executed in blank, and (B) evidence satisfactory to the Lenders that all other actions necessary or, in the opinion of the Lenders, desirable to perfect and protect the security interests created by the Pledge and Security Agreement have been taken, including delivery to the Agent of (x) all instruments constituting Collateral, duly endorsed, (y) UCC-1 financing statements duly executed by the Borrower and each Guarantor in form sufficient for filing in all offices in which the Agent or any Lender may consider filing to be appropriate in order to perfect the Agent's security interest, and (z) opinions of recognized counsel from the applicable jurisdiction of formation of each Material Foreign Subsidiary in substantially the form of Exhibit D-2, except as permitted by Section 2.1(i), 5.2(e) or 5.2(k); (iv) an Intellectual Property Assignment in substantially the form of Exhibit C-3, duly executed, acknowledged and delivered by the Borrower and each Guarantor, if applicable, in form sufficient for recording in the United States Patent and Trademark Office and the United States Copyright Office; (v) Transfer and Perfection Notices as to Permitted Cash Investments of the Borrower and the Guarantors, to the extent required under Section 5.2(j); (vi) the Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing in substantially the form of Exhibit C-6 and the Unsecured Environmental Indemnity Agreement in substantially the form of Exhibit C-7, each duly executed, acknowledged and delivered by the Borrower, together with recording instructions and evidence satisfactory to the Lenders that all other actions necessary or, in the opinion of the Lenders, desirable to perfect and protect the security interests created by the Real Estate Collateral Documents have been taken, including delivery to the Agent of (A) UCC-1 fixture filing financing statements duly executed by the Borrower in form sufficient for filing in Santa Clara County and (B) a title insurance policy and ALTA survey satisfactory to the Agent and its counsel; and (vii) a letter evidencing delivery to the Agent of an opinion letter from Ernst & Young LLP stating that the value of the Borrower's intellectual property assets is at least $250,000,000, and otherwise in form and substance satisfactory to the Agent. (b) CORPORATE DOCUMENTS. The Agent must have received, with sufficient copies for each Lender: 116 41 (i) copies of the articles or certificate of incorporation and by-laws or other governing documents of each Loan Party as in effect on the Closing Date, certified as of the Closing Date by the Secretary of State of the state in which such Loan Party is incorporated or formed or the Secretary or an Assistant Secretary of such Loan Party, as applicable; (ii) copies of resolutions of the Board of Directors of each Loan Party approving the transactions contemplated hereby and authorizing the execution, delivery and performance of each Loan Document to which it is a party, certified as of the Closing Date by a Secretary or an Assistant Secretary of such Loan Party; (iii) a certificate of the Secretary or an Assistant Secretary of each Loan Party certifying the names and true signatures of the officers of such Loan Party authorized to sign each Loan Document to which it is a party and, in the case of the Borrower, to request an extension of credit hereunder; and (iv) a good standing certificate for each Loan Party, issued as of a recent date by the Secretary of State of (A) the state in which such Loan Party is incorporated or formed and (B) each state in which it owns material assets and conducts material operations. (c) GOVERNMENTAL CONSENTS. Each Loan Party must have obtained all consents, approvals and authorizations required from any Governmental Authority in connection with the execution, delivery and performance of its obligations under the Loan Documents. (d) NO INJUNCTION. No law or regulation shall prohibit, and no order, judgment or decree of any Governmental Authority shall enjoin, prohibit or restrain, and no litigation shall be pending or threatened which in the reasonable judgment of the Agent or Requisite Lenders would enjoin, prohibit or restrain (i) the making of the Advances, or (ii) the consummation of the transactions contemplated by the Loan Documents. (e) OTHER DELIVERIES. The Agent must have received, with sufficient copies for each Lender: (i) a copy of the Borrower's Annual Report on Form 10-K for the year ended December 30, 1995; (ii) a certificate dated as of the Closing Date and signed by the Chairman, Chief Executive Officer or Authorized Officer of the Borrower, certifying that, as of the Closing Date, (A) the representations and warranties contained in Article IV of this Agreement are true and correct on and as of the Closing Date, as though made on and as of such date, (B) no Event of Default or Potential Default has occurred and is continuing, (C) since December 30, 1995, there has been no Material Adverse Change, and (D) each of the other conditions precedent set forth in this Article III has been satisfied; 117 42 (iii) all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement or any other Loan Document; and (iv) such other certificates, agreements, documents or instruments as the Agent or the Requisite Lenders may reasonably request in writing. (f) LEGAL OPINIONS. The Agent must have received, with sufficient copies for each Lender, an opinion of Gray Cary Ware & Freidenrich, counsel for the Borrower and the Guarantors, substantially in the form of Exhibit D-1 and as to such other matters as any Lender through the Agent may reasonably request. (g) PAYMENT OF EXISTING DEBT. The Agent must have received evidence satisfactory to the Requisite Lenders that all Debt of the Borrower and its Subsidiaries, except Debt permitted to be outstanding pursuant to Section 5.3(d), has been repaid in full and all related financing commitments have been terminated. (h) PAYMENT OF FEES AND EXPENSES. All fees and expense reimbursements due to the Agent and the Lenders under this Agreement, the Commitment Letter and the Fee Letter must have been paid. (i) NO MATERIAL ADVERSE CHANGE. Since December 30, 1995, there must not have been any Material Adverse Change. III.2. CONDITIONS PRECEDENT TO EACH EXTENSION OF CREDIT. No Lender shall be obligated to make any Advance on any Borrowing Date (including the Closing Date, if such date is also a Borrowing Date) unless each of the following conditions precedent is then satisfied or waived by the Requisite Lenders: (a) NOTICE. The Borrower shall have delivered a fully completed Notice of Borrowing, dated such Borrowing Date. (b) CERTIFICATION. Each of the following statements shall be true and correct, and the Agent shall have received for the account of each Lender a certificate dated such date and signed by an Authorized Officer, certifying that: (i) the representations and warranties contained in Article IV of this Agreement, in Article III of the Pledge and Security Agreement, and in Article III of the Intellectual Property Assignment are true and correct in all material respects on and as of such Borrowing Date, both before and after giving effect to the extension of credit to be made hereunder on such Borrowing Date and the application of the proceeds therefrom, as though made on and as of such date; and (ii) no event has occurred and is continuing, or would result from such extension of credit or from the application of the proceeds therefrom, which constitutes an Event of Default 118 43 or a Potential Default. The delivery of a Notice of Borrowing and the acceptance by the Borrower of the proceeds of a Borrowing shall constitute a representation and warranty by the Borrower that, on the date such Borrowing is made, the foregoing statements are true. IV REPRESENTATIONS AND WARRANTIES IV.1. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The Borrower represents and warrants as follows: (a) ORGANIZATION. Each Loan Party is a corporation, limited liability company or partnership duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and is duly qualified to do business and in good standing in each jurisdiction where its material assets are located or its material operations are conducted, except where the failure to be so qualified could not reasonably be expected to cause a Material Adverse Change. (b) POWER AND AUTHORITY. Each Loan Party has the corporate or partnership power (i) to carry on its business as now being conducted and as proposed to be conducted by it, (ii) to execute, deliver and perform each Loan Document to which it is a party, and (iii) to take all action necessary to consummate the transactions contemplated under each Loan Document to which it is a party. (c) DUE AUTHORIZATION. The execution, delivery and performance by each Loan Party of each Loan Document to which it is or will be a party have been duly authorized by all necessary action of its board of directors (or, in case of a Loan Party that is not a corporation, its governing authority) and neither contravene its certificate or articles of incorporation or by-laws (or, in case of a Loan Party that is not a corporation, its governing agreements) nor result in or require the creation of any Lien (other than pursuant to the Collateral Documents) upon any of its property or assets. (d) SUBSIDIARIES AND OWNERSHIP OF CAPITAL STOCK. Set forth in Schedule 4.1(d) or in Schedule A to the Pledge and Security Agreement, as such Schedule may be amended pursuant to Section 5.2(e), is a complete list of all direct and indirect Subsidiaries of the Borrower. Such Schedules also set forth the number of issued and authorized shares of each class of capital stock of and other equity, ownership or profit interests in such Subsidiary and the identity of the holders of all such shares. Except as set forth in such Schedules, no capital stock of or other equity, ownership or profit interest in any such Subsidiary is subject to issuance or sale under any warrant, option or purchase right, conversion or exchange right, call, commitment or claim of any right, title or interest therein or thereto. The outstanding capital stock of each such Subsidiary is duly authorized, validly issued, fully paid and nonassessable and, other than the stock of IMS, is not "margin stock," as that term is defined in Regulations G, T, U and X of the Board of Governors of the Federal Reserve System. 119 44 (e) GOVERNMENTAL APPROVAL. No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery and performance by each of the Loan Parties of any Loan Document to which it is or will be a party, except for those listed on Schedule 4.1(e) and any filings or recordings required under the Loan Documents to perfect the security interest in favor of the Agent, each of which has been duly obtained or made and is in full force and effect. (f) BINDING AND ENFORCEABLE. This Agreement is, and each other Loan Document to which any Loan Party will be a party is or when delivered will be, legal, valid and binding obligations of the Loan Parties enforceable against the Loan Parties in accordance with their respective terms, subject to laws generally affecting the enforcement of creditors' rights. (g) FINANCIAL INFORMATION. The consolidated balance sheets of the Borrower and its Subsidiaries as at December 31, 1994 and December 30, 1995 and the related income and cash flow statements for the periods then ended, each other financial statement of the Borrower and its Subsidiaries delivered to the Agent or Lenders on or prior to the Closing Date (excluding any forecasts or financial projections which may have been delivered to the Agent or any Lender), and each financial statement delivered to the Lenders pursuant to Section 5.2(c), as and when delivered to the Agent or Lenders, fairly present the consolidated financial condition of the Borrower and its Subsidiaries as at the date thereof and the consolidated results of their operations for the period then ended, all in accordance with GAAP consistently applied but subject, in the case of unaudited financial statements, to normal year-end adjustments and the absence of footnotes. (h) MATERIAL ADVERSE CHANGE. Since December 30, 1995, there has been no Material Adverse Change. (i) COMPLIANCE. The execution, delivery and performance by each Loan Party of each Loan Document to which it is or will be a party complies with all applicable laws. Each Loan Party is in compliance in all material respects with all material applicable laws, rules, regulations and orders. (j) LITIGATION. Set forth on Schedule 4.1(j) is a list of all pending or overtly threatened actions or proceedings affecting any Loan Party before any court, governmental agency or arbitrator, and all loss contingencies within the meaning of GAAP, other than any action or proceeding that would not subject the Loan Parties to liability in excess of $10,000,000 individually or $20,000,000 in the aggregate. Except as identified on Schedule 4.1(j), there is no pending or overtly threatened action or proceeding affecting any Loan Party before any court, governmental agency or arbitrator, which would, if adversely determined, result in a Material Adverse Change or which relates to or could reasonably be expected to affect the legality, validity or enforceability of any Loan Document. (k) NO CONFLICT. The execution, delivery and performance by each Loan Party of each of the Loan Documents to which it is a party do not and will not (i) to its best knowledge, conflict with, result 120 45 in a breach of, or constitute (with or without notice or the lapse of time or both) a default under, any instrument, lease, indenture, agreement or other contractual obligation issued by any Loan Party or enforceable against it or any of its property or assets if (A) such agreement is required to be filed with the Securities and Exchange Commission in accordance with the 1934 Act, (B) such Agreement is not readily replaceable without any material adverse effect on such Loan Party or its business or (C) any such conflict, breach or default would have a material adverse effect on the business of such Loan Party or (ii) require any approval of its stockholders or partners that has not been obtained. (l) NO DEFAULT. No event has occurred and is continuing which constitutes an Event of Default or a Potential Default. (m) PAYMENT OF TAXES. Each Loan Party has filed all federal income tax returns and all other tax returns required to be filed by it or has timely filed extensions relating thereto and has paid all taxes and assessments payable by it which have become due except to the extent being contested in accordance with the provisions of Section 5.2(h). (n) MARGIN REGULATIONS. No proceeds of any Advance will be used for any purpose that requires any Lender to deliver or obtain any certification under, or to comply with any margin requirement or other provision of, Regulations G, T, U or X of the Board of Governors of the Federal Reserve System. (o) CONDUCT OF BUSINESS. The Borrower and its Subsidiaries are engaged in the lines of business described in Schedule 4.1(o) and activities reasonably incidental thereto. (p) ENVIRONMENTAL MATTERS. Except as set forth in Schedule 4.1(p), as it may from time to time be amended by the Borrower, no Material Environmental Claim is pending or, to the knowledge of the Borrower, overtly threatened against the Borrower or any of its Subsidiaries or any of their past or present property or assets. Except as set forth in Schedule 4.1(p), and except in respect of matters that, in the aggregate, are not and cannot reasonably be expected to result in a Material Environmental Claim or a Material Adverse Change, the operations of the Borrower and its Subsidiaries comply and have complied in all material respects with all applicable Environmental Laws. (q) ERISA COMPLIANCE. (i) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other applicable federal or state law. (ii) Each Pension Plan which is intended to be tax-qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service to qualify under Section 401 of the Code, and the trusts created thereunder have been determined to be exempt from tax under the provisions of Section 501 of the Code, and to the best knowledge of the Borrower nothing has occurred which would cause the loss of such qualification or tax-exempt status. 121 46 (iii) Except as set forth in Schedule 4.1(q), (i) none of the Pension Plans which is subject to Title IV of ERISA has any material Unfunded Pension Liability as to which the Borrower or any ERISA Affiliate is or may be liable; (ii) neither the Borrower nor any ERISA Affiliate has nor reasonably expects to incur any material liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such material liability) under Section 4201 or 4243 of ERISA with respect to any Multiemployer Plan; (iii) no ERISA Event has occurred or, to the best knowledge of the Borrower, is reasonably expected to occur; and (iv) neither the Borrower nor any ERISA Affiliate has maintained any Welfare Plan which provides, or requires the Borrower or any ERISA Affiliate to provide, medical or other welfare benefits to any participant after the termination of such participant's employment with the Borrower or such ERISA Affiliate (except to the extent required by the provisions of Part 6 of Title I, Subtitle B of ERISA or Sections 162(k) and 4980B of the Code). (iv) Each Welfare Plan which is a "group health plan," as defined in Section 607(1) of ERISA, has been operated in compliance with provisions of Part 6 of Title I of ERISA and Sections 162(k) and 4980B of the Code at all times. (v) Neither the Borrower nor any ERISA Affiliate has engaged, directly or indirectly, in a prohibited transaction (as defined in Section 4975 of the Code or Section 406 of ERISA) for which no statutory or administrative exemption is applicable in connection with any Plan the consequences of which, in the aggregate, constitute or can reasonably be expected to result in a Material Adverse Change. (r) TITLE TO ASSETS; NO INFRINGEMENT. Each Loan Party has good and merchantable title, as of the date of each of its financial statements delivered hereunder, to all of its material assets reflected therein, free and clear of all Liens except Liens permitted under Section 5.3(a), and such assets do not in any material respect infringe upon any patent, trademark, copyright or other legally protected interest of any other Person. (s) Perfection. On and after the Closing Date and, with respect to perfection upon the filing, recording or delivery of the financing statements, Intellectual Property Assignment, Transfer and Perfection Notices and the Real Estate Collateral Documents delivered pursuant to Section 3.1(a) or Section 5.2(e), the provisions of each Collateral Document are effective to create in favor of the Agent, for the benefit of the Lenders, legal, valid and perfected security interests in all right, title and interest in the Collateral described therein (to the extent that a security interest in such Collateral can be perfected by the filing, recording or delivery of such financing statements, Intellectual Property Assignment, Transfer and Perfection Notices and Real Estate Collateral Documents) enforceable against each Loan Party that owns an interest in such Collateral, subject to laws generally affecting the enforcement of creditors' rights. The Loan Parties have delivered to the Agent the instruments constituting Collateral as to which (i) delivery to the Agent is required under Section 3.1(a) or Section 5.2(e) and (ii) possession by the Agent is required to perfect the security interest in favor of the Agent in such Collateral. 122 47 (t) Undisclosed Liabilities. Except as set forth on Schedule 4.1(t), neither the Borrower nor any of its Subsidiaries has any liabilities, contingent or otherwise, which, if fixed or enforced or rendered non-contingent, would or could constitute a Material Adverse Change. (u) License Agreements. The standard form of license agreements setting forth the customary terms on which any Loan Party sells or licenses substantially all (with only immaterial exceptions) of the products or services sold, licensed or offered by it in the ordinary course of its business do not in any manner restrict the creation of any security interest in any right of such Loan Party thereunder. As of the date hereof, no license agreement under which any Loan Party is the licensee and which is material to the conduct of its business prohibits or restricts the creation of a security interest in any right of the Loan Party thereunder. V COVENANTS OF THE BORROWER V.1. Financial Covenants. So long as any Obligation remains unpaid or any Lender is obligated to extend credit hereunder, unless the Requisite Lenders otherwise consent in writing: (a) Minimum Adjusted EBITDA. The Borrower will not cause, permit or suffer Adjusted EBITDA, determined as of each Fiscal Quarter End Date set forth below for the four Fiscal Quarters then ended (taken as a single period), to be less than the amount set forth as to such day below:
Minimum Four-Fiscal Quarter Approximate Fiscal Quarter End Date Adjusted EBITDA Dec. 31, 1995 through March 31, 1996 $100,000,000 June 30, 1996 102,000,000 Sept. 30, 1996 104,000,000 Dec. 31, 1996 106,000,000 March 31, 1997 108,000,000 Thereafter 110,000,000
V(nnnn) Maximum Total Debt/Adjusted EBITDA Ratio. The Borrower will not cause, permit or suffer the ratio of (i) Total Debt determined as of each Fiscal Quarter End Date set forth below plus the net aggregate maximum contingent liability of the Borrower in respect of Permitted Stock Transactions (except any liability which the Borrower has the unconditional right or option to discharge by delivery of its common stock) determined as of such day by marking each such Permitted Stock Transaction to market, to (ii) Adjusted EBITDA for the four Fiscal Quarters then ended (taken as a single period) to be greater than the amount set forth as to such day below: 123 48
Maximum Total Debt/Adjusted Approximate Fiscal Quarter End Date EBITDA Ratio Dec. 31, 1995 through June 30, 1996 1.50 Sept. 30, 1996 through Dec. 31, 1996 1.45 Mar. 31, 1997 1.40 June 30, 1997 1.35 Sept. 30, 1997 through Dec. 31, 1997 1.25 Thereafter 1.10
(b) Minimum Fixed Charge Coverage Ratio. The Borrower will not cause, permit or suffer the Fixed Charge Coverage Ratio, determined as of any Fiscal Quarter End Date, to be less than 1.25. (c) Minimum Liquidity. The Borrower will not, on any day, cause, permit or suffer the sum of cash, Permitted Cash Investments and Loan Availability (which may only be counted so long as no Event of Default or Potential Default is then continuing) to be less than $50,000,000. V.2. Affirmative Covenants. So long as any Obligation remains unpaid or any Lender is obligated to extend credit hereunder, unless the Requisite Lenders otherwise consent in writing the Borrower will, and will cause its Subsidiaries to: (a) Compliance with Laws. Comply in all material respects with all applicable laws, rules, regulations and orders. (b) Inspection of Property and Books and Records. Except in the case of Inactive Subsidiaries, (i) maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving its assets and business, and (ii) permit representatives of the Agent or any Lender to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its officers, employees and independent public accountants, all at the expense of the Borrower and at such reasonable times during normal business hours and as often as may be reasonably requested (which in the case of any Lender other than Agent shall not exceed two times per year), upon reasonable advance notice to the Borrower, except that when an Event of Default exists the Agent or any Lender may take any such action at any time during business hours and on same-day notice. 124 49 (c) Reporting Requirements. Furnish to the Lenders: (i) as soon as available and in any event within 45 days after the end of each of the first three Fiscal Quarters in each year, the consolidated balance sheet of the Borrower and its Subsidiaries (and IMS, if required by GAAP) as at the end of such Fiscal Quarter and their consolidated income and cash flow statements for such Fiscal Quarter and for the fiscal year to date, certified by an Authorized Officer; (ii) as soon as available and in any event within 90 days after the end of each fiscal year of the Borrower, a copy of the Annual Report on Form 10-K for such year for the Borrower and its Subsidiaries (and IMS, if required by GAAP), containing consolidated financial statements for such year certified without any qualification by a firm of certified public accountants of nationally recognized standing; (iii) as soon as available, a copy of each management letter delivered to the Borrower by any outside auditing firm, if such management letter identifies a material weakness; (iv) as soon as possible and in any event within five Business Days after becoming aware of any Event of Default or Potential Default, any pending or overtly threatened material litigation, any Material Environmental Claim, any ERISA Event or any Material Adverse Change, a statement of an Authorized Officer setting forth details of such Event of Default or Potential Default, litigation, claim, event or change and the action which the Borrower has taken and proposes to take with respect thereto; (v) promptly after the filing thereof, copies of all reports and all registration statements filed by or on behalf of the Borrower with the Securities and Exchange Commission or any national securities exchange, excluding filings on Form S-8 (or any successor form) and any other filing solely in respect of stock option plans of the Borrower; (vi) promptly after delivery, copies of each report to any holder of Debt of the Borrower or any Subsidiary in excess of $2,000,000, if such report relates to any default or event of default with respect to such Debt; (vii) concurrently with the delivery of the financial statements referred to in clause (i) and (ii) above, a compliance certificate of an Authorized Officer in substantially the form of Exhibit E-1 and setting forth the information requested therein; (viii) such other information respecting the current or past assets, liabilities, condition or operations, financial or otherwise, of the Borrower or any of its Subsidiaries as the Agent or any Lender through the Agent from time to time may reasonably request. 125 50 (d) Preservation of Corporate Existence, Etc. Subject to Section 5.3(h) and in the case of each Loan Party and each Material Subsidiary, (i) preserve and maintain in full force and effect its corporate or partnership existence and good standing under the laws of the jurisdiction in which it was incorporated or organized and all rights, privileges, qualifications, permits, licenses and franchises material to the normal conduct of its business, (ii) use its reasonable efforts, in the ordinary course and consistent with past practice, to preserve its business organization and preserve the goodwill and business of the customers, suppliers and others doing business with it, and (iii) preserve or renew all of its patent, copyrights, trademarks and licenses therefor and other intellectual property, the non-preservation of which constitutes or could reasonably be expected to result in a Material Adverse Change. (e) New Subsidiaries. Promptly, and in any event within ten Business Days, after the date on which a new Subsidiary of the Borrower (other than an Inactive Subsidiary) is formed or acquired or the date a Subsidiary ceases to be an Inactive Subsidiary or a Foreign Subsidiary, (i) notify the Agent of such event; and (ii) in the case of each Subsidiary that is not a Foreign Subsidiary and each Material Foreign Subsidiary, deliver to the Agent all stock certificates and other instruments added to the Collateral thereby, accompanied by an undated stock power or transfer document executed in blank (except that 35% of the outstanding stock of each Material Foreign Subsidiary need not be delivered, and stock of a Material Foreign Subsidiary which is held and owned solely by another Material Foreign Subsidiary need not be delivered); and promptly, and in any event within 20 Business Days, after such formation, acquisition or change, (A) amend Schedule 4.1(d) and Schedule A of the Pledge and Security Agreement in light of such event; (B) cause such Subsidiary (unless it is a Foreign Subsidiary) to execute and deliver the Guaranty in substantially the form of Exhibit C-1, a Pledge and Security Agreement in substantially the form of Exhibit C-2 and an Intellectual Property Assignment in substantially the form of Exhibit C-3 and all financing statements and other documents required thereunder or appropriate to perfect the security interest created thereby; and (C) deliver to the Agent in respect of the new Subsidiary an opinion of counsel confirming as to the new Subsidiary the matters required to be confirmed under Section 3.1(a)(iii) and 3.1(f), as applicable. (f) Maintenance of Property. Maintain and preserve all its property which is necessary for use in its business in good working order and condition, except for ordinary wear and tear and except as permitted under Section 5.3(b). (g) Insurance. Maintain insurance with financially sound and reputable insurers with respect to its properties and business against loss or damage of the kinds consistent with industry practice of Persons engaged in the same or similar business and operating in the same geographic area, of such types and in such amounts as are carried under similar circumstances by such other Persons. (h) Payment of Taxes and Lienable Items. Except as set forth on Schedule 5.2(h), pay and discharge, as they become due and payable, all claims for tax liabilities, assessments and governmental charges or levies against it or upon its properties or assets and all lawful claims which, if unpaid, would, with the passage of time or notice or both, by law become a Lien upon its property, unless (i) such claim 126 51 is contested in good faith, (ii) adequate reserves have been established for such claim to the extent required by GAAP and other adequate provision for the payment thereof has been made, (iii) enforcement of such claim is effectively stayed for the entire duration of such contest, and (iv) if such claim is determined to be due, it is paid, with all interest or penalties thereon, promptly and in any event within the time period prescribed by applicable law, after resolution of such contest; provided, however that in the case of each of clauses (ii) and (iii), an aggregate of up to $100,000 of such claims at any one time outstanding shall be permitted. (i) Use of Proceeds. Use the proceeds of the Advances solely for lawful and permitted corporate purposes of the Borrower and its Subsidiaries and not in contravention of this Agreement or any other agreement or obligation binding upon it and in strict compliance with all applicable laws, regulations and orders. (j) Permitted Cash Investments. To the extent it has cash, keep its cash (other than cash in collection or disbursement) invested in such accounts and through such intermediaries that the Agent's security interest under the Pledge and Security Agreement can lawfully be created and perfected by the provisions of the Pledge and Security Agreement and a Transfer and Perfection Notice to the depositary or intermediary, except that such investment shall not be required as to any cash of the Borrower or any of its Subsidiaries in amounts in excess of the difference between (i) $50,000,000 less (ii) the then Loan Availability (or, if the statements in clause (i) and (ii) in Section 3.2(b) are not then true and correct, zero). (k) Further Assurances. (i) Promptly and in no event later than five Business Days after becoming aware thereof, notify the Lenders if any written information, exhibits and reports furnished to the Lenders contained any untrue statement of a material fact or omitted to state any material fact or any fact necessary to make the statements contained therein not misleading in light of the circumstances in which made, and correct any defect or error that may be discovered therein or in the execution, acknowledgment or recordation of any Loan Document. (ii) Promptly upon request by the Agent or the Requisite Lenders, execute, deliver, acknowledge, file, re-file, register and re-register any and all such further acts, security agreements, assignments, estoppel certificates, financing statements and continuations thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments as the Agent or the Requisite Lenders may reasonably require from time to time in order (A) to carry out more effectively the purposes of this Agreement or any other Loan Document, (B) to subject to the Liens created by any of the Collateral Documents any of the properties, rights or interests described in or intended to be covered by any Collateral Document, (C) to establish and maintain the validity, effectiveness, perfection and priority of any Collateral Document or any Liens intended to be created thereby, (D) to maintain the pledge to the Agent of 100% and 65%, respectively, of the outstanding equity interests of each Subsidiary which is 127 52 not a Foreign Subsidiary and each Material Foreign Subsidiary as required by Sections 3.1(a) and 5.2(e) (subject to Clause (iv) below) or (E) to better assure, convey, grant, assign, transfer, preserve, protect and confirm to the Agent and the Lenders the rights granted or now or hereafter intended to be granted to the Lenders under any Loan Document or under any other instrument executed in connection therewith. (iii) Notwithstanding the foregoing Clause (ii) above, the Borrower shall not be required to deliver to the Agent notes or other instruments evidencing loans and advances to employees of the Borrower or any of its Subsidiaries or any equity securities so long as the unrecovered initial cost of such notes, other instruments and equity securities does not exceed $3,000,000. (iv) Use its reasonable best efforts to deliver to the Agent as soon as reasonably practicable and in no event later than the 90th day after the Closing Date: (A) a legal opinion addressed to the Agent by a reputable attorney authorized to practice in the jurisdiction in which each Material Foreign Subsidiary has been organized, substantially confirming (in conformity with local practice for legal opinions of this type), as to the Agent's security interest in the shares of capital stock of such Material Foreign Subsidiary identified as Pledged Shares in Schedule A to the Pledge and Security Agreement, each and all of the matters contemplated in the form of legal opinion attached hereto as Exhibit D-2; and (B) the original stock certificates representing such shares accompanied by all necessary or appropriate instruments of transfer and all related documents, acts and deeds necessary in the opinion of such counsel to transfer such Pledged Shares to the Agent, in pledge, free from the interest of any subsequent bona fide purchaser. (l) Licenses. Maintain standard forms of license agreements that conform with the representations contained in the first sentence of Section 4.1(u). V.3. Negative Covenants. So long as any Obligation remains unpaid or any Lender is obligated to extend credit hereunder, without the written consent of the Requisite Lenders the Borrower will not, and will not cause or permit any Subsidiary of the Borrower to: (a) Liens. Directly or indirectly make, create, incur, assume or suffer to exist any Lien upon or with respect to any part of its property or assets, whether now owned or hereafter acquired, or become or remain bound by any agreement to do so, except: (i) any Lien (other than a Lien on the Collateral) (A) existing on the Closing Date and described in Schedule 5.3(d), securing Debt permitted under Section 5.3(d)(i), or (B) granted to secure any extension, renewal, refinancing or replacement of any such Debt if (x) the principal amount secured thereby is not increased and (y) the property subject to the Lien so granted is limited to the property that was subject to the original Lien and any accessions, fixtures, improvements or equipment added thereto in the ordinary course of business; 128 53 (ii) any Lien created under any Loan Document; (iii) any Lien for taxes, fees, assessments or other governmental charges which are not delinquent and remain payable without penalty or which are being contested as permitted under Section 5.2(h); (iv) any carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other similar Lien created by operation of law and arising in the ordinary course of business which is not delinquent or remains payable without penalty or which is being contested as permitted under Section 5.2(h); (v) any Lien (other than a Lien imposed by Environmental Laws or by ERISA) on the property of the Borrower or any of its Subsidiaries imposed by law, or pledges or deposits required by law pursuant to worker's compensation, unemployment insurance and other social security legislation, or made to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases (including landlords' Liens), government contracts, performance and return-of-money bonds and other similar obligations incurred in the ordinary course of business (exclusive of obligations in respect of the payment for borrowed money), in an aggregate amount not exceeding $2,000,000 at any one time outstanding; (vi) any easement, right-of-way, restriction and other similar encumbrance incurred in the ordinary course of business if, in the aggregate, such items are not substantial in amount and do not constitute and cannot reasonably be expected to result in a Material Adverse Change; (vii) any Lien arising out of any judgment or award against it, if (A) such Lien is being contested as permitted under Section 5.2(h), (B) there is no material likelihood of the sale, forfeiture or loss of any part of its properties, (C) such Lien does not materially interfere with the use of any material part of its properties, and (D) the existence of such Lien is not an Event of Default under Section 6.1(j); (viii) any Lien on property of a Person which becomes a Subsidiary after the date of this Agreement if such Lien existed at the time such Person became a Subsidiary of the Borrower and was not created in anticipation thereof; (ix) Leases or subleases and licenses and sublicenses granted to others not interfering in any material respect with the business of the Borrower and its Subsidiaries taken as a whole, and any interest or title of a lessor or licensor or under any lease or license; (x) Liens which constitute rights of set-off of a customary nature or bankers' Liens with respect to amounts on deposit, whether arising by operation of law or by contract, in connection with arrangements entered into with banks in the ordinary course of business; 129 54 (xi) any of the Liens described in Section 5.3(d)(iii), (iv), (v) or (vii), securing only the Debt permitted and described as secured by such Lien thereunder; and (xii) any Lien upon any capital stock of IMS owned by the Borrower on February 8, 1996, if and to the extent that the provisions of this Section 5.3(a) would otherwise cause any of the Obligations to be "indirectly secured" by such capital stock, within the meaning of Regulations G and U of the Board of Governors of the Federal Reserve System, or become or remain bound by any agreement restricting its ability to grant, create, incur, assume or suffer to exist any Lien upon or with respect to any part of its property or assets, whether now owned or hereafter acquired, as security for the payment of the Obligations or any refinancing or replacement thereof, except (A) restrictions set forth in the Loan Documents, (B) restrictions on junior Liens on property secured by a Lien permitted under clauses (i) or (xi) of this Section 5.3(a), if such restrictions are enforceable solely by the holder of the Lien so permitted, and (C) restrictions on the creation of a Lien on the lessee's interest under a lease, if such restrictions are enforceable solely by the lessor under such lease. (b) Disposition of Assets. Engage in any Asset Sale or otherwise directly or indirectly sell, assign, lease, convey, transfer or otherwise dispose of all or any portion of its assets, business or property, or agree to do any of the foregoing, except: (i) dispositions of inventory or used, worn-out or surplus property or equipment or Permitted Cash Investments, in each case in the ordinary course of business; (ii) the sale of any capital stock of IMS owned by the Borrower on February 8, 1996; (iii) the sale or liquidation of assets of the type described in Section 5.3(c)(ii), (v), (vi) or (viii); (iv) any other sale or disposition so long as (x) after giving effect to such sale or disposition and all other such sales and dispositions made in the same fiscal year, the aggregate gross revenues generated by or attributable to the assets sold or disposed of in all such sales or dispositions in such fiscal year did not in the prior fiscal year exceed 15% of the consolidated gross revenues of the Borrower and its Subsidiaries for such prior fiscal year and (y) the sale or disposition is made for cash or for other assets the fair value of which, when added to the then unrecovered investment in all such other assets so received, does not exceed $5,000,000; (v) receivable factoring arrangements of Foreign Subsidiaries permitted under Section 5.3(d)(xi); and (vi) a transfer of the Seely Campus to a wholly-owned Subsidiary of the Borrower if such Subsidiary executes a Guaranty and Pledge and Security Agreement prior to or concurrently 130 55 with such transfer. provided, however, that neither Borrower nor any Subsidiary shall dispose of any asset to effect a leaseback of such asset. Notwithstanding the foregoing, Borrower may transfer the Seely Campus to a wholly-owned Subsidiary of the Borrower without complying with either Clause (vi) above or the foregoing proviso subsequent to a release of the Agent's Lien on the Seely Campus pursuant to Section 7.7(v). (c) Investments. Directly or indirectly make, acquire, carry or maintain any Investment, or become or remain bound by any agreement to make, acquire, carry or maintain any Investment, except: (i) Investments held on the Closing Date and described in Schedule 5.3(c); (ii) Permitted Cash Investments; (iii) loans by the Borrower to any Subsidiary of the Borrower or by any such Subsidiary to the Borrower, so long as each promissory note or other instrument, if any, evidencing such loan has been delivered to the Agent in pledge; (iv) loans and advances to employees of the Borrower or any of its Subsidiaries, in an aggregate amount not exceeding $3,000,000 at any one time outstanding; (v) Investments in the Venture Fund, so long as the aggregate unrecovered investment made therein (not counting recoveries fairly characterized as income) does not exceed $60,000,000; (vi) Investments acquired in an Asset Sale permitted under Section 5.3(b)(iv); (vii) acquisitions permitted under Section 5.3(g)(i) or (iv); and (viii) other Investments so long as the aggregate unrecovered investment made by the Borrower and its Subsidiaries therein (counted at cost and not counting recoveries fairly characterized as income) does not exceed $20,000,000. (d) Limitation on Debt and Accommodation Obligations. Directly or indirectly create, incur, assume, guarantee or suffer to exist, or otherwise become or remain directly or indirectly liable with respect to, any Debt or any Accommodation Obligation, except: (i) Debt existing on the Closing Date and described in Schedule 5.3(d) and any extension, renewal or refinancing of such Debt so long as either (A) the principal amount of such Debt is not increased or (B) any increase in the principal amount of such Debt is permitted pursuant to another clause of this Section 5.3(d); 131 56 (ii) the Obligations; (iii) up to $20,000,000 in principal amount of Debt secured by the ROPA Facility and by the Borrower's obligations under a lease thereof; (iv) not less than $20,000,000 or more than $25,000,000 in principal amount of Debt secured by the Seely Campus, but only if on the date such Debt is incurred the Borrower concurrently makes a Facility Reduction pursuant to Section 2.5 in an amount equal to the principal amount of the Debt so incurred; (v) up to $30,000,000 in principal amount of Debt incurred for construction and permanent financing of one or more buildings and improvements on the Seely Campus Vacant Land; (vi) bank credit incurred by Foreign Subsidiaries, not exceeding $15,000,000 in the aggregate at any one time outstanding; (vii) Capital Leases, conditional sales agreements and other purchase money Debt for property, plant or equipment, not exceeding $10,000,000 in the aggregate at any one time outstanding; (viii) Debt under interest rate or currency hedging agreements; (ix) Debt, in an aggregate amount not exceeding $3,000,000 at any one time outstanding, consisting of obligations of the Borrower or a Subsidiary to purchase capital stock, warrants, options or other equity interests from an officer, employee or consultant of such Person pursuant to an employment contract or consulting agreement entered into with such officer, employee or consultant on reasonable and customary business terms; (x) Debt incurred to finance an acquisition permitted under Section 5.3(g)(iv), or outstanding against a Person acquired in any such acquisition before it was acquired, but only if (A) such Debt is unsecured and constitutes a liability solely of the Borrower, (B) such Debt matures after the Maturity Date or any Extended Maturity Date, (C) such Debt is not subject to any cross-default to any obligation, breach, Event of Default or Potential Default hereunder or to covenant terms substantially as favorable to the lender as those set forth herein or is subordinated to all Obligations and any refinancing or replacement thereof on terms satisfactory to the Requisite Lenders, and (D) on a pro forma basis (as though the acquisition had been made and the Debt had been incurred on the first day of the most recent 12-month financial covenant reporting period prior to the date of the acquisition) the Borrower would have been in compliance with the ratio of Total Debt to Adjusted EBITDA covenant set at a level that is 0.10 lower than the level then required under Section 5.1(b) and would have been in compliance with Fixed Charge 132 57 Coverage Ratio covenant set at a level that is 0.10 higher than the level then required under Section 5.1(c); (xi) liabilities of a Foreign Subsidiary to the purchaser of the accounts receivable of such Foreign Subsidiary under an off-balance sheet receivables factoring arrangement entered into by such Foreign Subsidiary in the ordinary course of its business, so long as the aggregate unrecovered investments of the purchasers under such arrangements do not at any one time exceed 30% of the net accounts receivable of all the Foreign Subsidiaries, taken as a whole; (xii) Debt in the nature of surety bonds issued at the request of the Borrower or any Subsidiary to secure contingent obligations of such Person in connection with litigation which is listed on Schedule 4.1(j) to the extent permitted under Section 5.3(a)(v); (xiii) Debt permitted under Section 5.3(c)(iii); and (xiv) other Debt not exceeding $5,000,000 at any one time outstanding. (e) Transactions with Affiliates. Enter or agree to enter into any transaction with any Affiliate of the Borrower or of any Subsidiary of the Borrower except (i) under the Loan Documents or (ii) subject to Section 5.3(k), in the ordinary course of business and pursuant to the reasonable requirements of the business of the Borrower or such Subsidiary and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than those readily available to the Borrower or such Subsidiary in a comparable arm's-length transaction with a Person not an Affiliate of the Borrower or such Subsidiary. (f) Restricted Junior Payments. Directly or indirectly (v) declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of its capital stock or any other equity, ownership or profit interests, (w) purchase, redeem or otherwise acquire for value any shares of any class of capital stock of, or other equity, ownership or profit interests in, the Borrower or any of its Subsidiaries or any warrants, rights or options to acquire any such shares or interests, now or hereafter outstanding, (x) enter into any agreement restricting the ability of any Subsidiary of the Borrower to declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities to its stockholders, (y) agree to or permit any amendment or modification of, or change in, any of the terms of agreements governing Subordinated Debt, or (z) pay, prepay, redeem, or purchase or otherwise acquire any Subordinated Debt, or make any deposit to provide for the payment of any Subordinated Debt when due, or exchange any Subordinated Debt, or give any notice in respect thereof, except that: (i) the Borrower may declare and make any dividend payments or other distributions payable solely by the Borrower in common stock of the Borrower; (ii) any Subsidiary of the Borrower may declare and make dividends and distributions 133 58 made solely to the Borrower or to a wholly-owned Subsidiary of the Borrower; (iii) when and as authorized by Borrower's board of directors, Borrower may purchase its common stock from an officer or employee of the Borrower or any of its Subsidiaries when contractually required upon termination of employment and the Borrower may enter into Permitted Stock Transactions, in each instance in compliance with all applicable laws and regulations, if on the date of such purchase or the date such Permitted Stock Transaction is entered into (A) no Event of Default or Potential Default is continuing or would result from such purchase or Permitted Stock Transaction and (B) Adjusted EBITDA determined as of the Fiscal Quarter End Date for which a compliance certificate was then most recently due and determined for the two Fiscal Quarters ending on such day was not less than the amount set forth below as to such day: Approximate Fiscal Quarter End Date: Minimum Six-Month Adjusted EBITDA: Dec. 30, 1995 through March 31, 1998 $60,000,000 June 30, 1998 through September 30, 1998 65,000,000 Thereafter 70,000,000 (iv) the Borrower may implement the provisions of that certain Rights Agreement, dated as of February 9, 1996 between the Borrower and Harris Trust and Savings Bank as in effect on the date hereof. (g) Mergers, Etc. Merge or consolidate with or into or enter into any agreement to merge or consolidate with or into any Person, or acquire any ownership interest in any assets, business or Person, except: (i) acquisitions of property, plant and equipment in the ordinary course of business; (ii) mergers or consolidations between wholly-owned Subsidiaries of the Borrower or between Borrower and any of its wholly-owned Subsidiaries; (iii) investments permitted under Section 5.3(c); (iv) an acquisition of the entire ownership interest in any assets used for, or any business or Person engaged in, any of the lines of business currently conducted by Borrower and its Subsidiaries and activities reasonably incidental thereto, so long as (A) the acquisition is made solely in exchange for cash or for Borrower's common stock, (B) no more than $50,000,000 in 134 59 cash is expended for any one acquisition, (C) no Debt is assumed or incurred in connection with the acquisition, except as permitted under Section 5.3(d)(x), (D) if the acquisition is accomplished by merger or consolidation, either the Borrower or a wholly-owned domestic Subsidiary of the Borrower is the surviving corporation and (E) no Event of Default or Potential Default is continuing or would result from such acquisition. (h) Conduct of Business. Engage in any business or activity other than the businesses described in Section 4.1(o) and any activity reasonably incidental thereto. (i) Compliance with ERISA. Directly or indirectly (or permit any ERISA Affiliate directly or indirectly to) (i) terminate any Plan subject to Title IV of ERISA so as to result in liability to the Borrower or any ERISA Affiliate in excess of $10,000,000; (ii) permit any ERISA Event to exist; (iii) make a complete or partial withdrawal (within the meaning of ERISA Section 4201) from any Multiemployer Plan so as to result in liability to the Borrower or any ERISA Affiliate in excess of $10,000,000; or (iv) permit the total Unfunded Pension Liabilities (using the actuarial assumptions utilized by the PBGC) for all Pension Plans (other than Pension Plans which have no Unfunded Pension Liabilities) to exceed $10,000,000. (j) Payment Restrictions Affecting Subsidiaries. Cause, permit or suffer any Subsidiary to become or remain subject to any contractual obligation that in any manner limits or restricts its right to pay dividends or make distributions, whether in cash or in property, to its stockholders or to make loans or sell assets to the Borrower or any of its Subsidiaries or to enter into any other lawful transaction with the Borrower or any of its Subsidiaries, except limitations and restrictions set forth in the Loan Documents. (k) Transactions with IMS. Make or suffer to exist any Investment in IMS (other than the shares of IMS' capital stock held by the Borrower on February 8, 1996 and any shares of stock issued in respect of stock dividends thereon or stock splits thereof), purchase or hold any Debt of IMS or issue or maintain any Accommodation Obligation of a Debt of IMS or, unless effected in accordance with Section 5.3(e), sell any asset to IMS or enter into or suffer to exist any other agreement or transaction with IMS (other than (i) the Stockholder Agreement dated as of May 10, 1995, (ii) the Shareholder Agreement dated as of May 17, 1995, (iii) the Asset Transfer Agreement dated as of June 30, 1994, (iv) the Connections Partner Membership Agreement dated as of June 30, 1994, (v) the Corporate Services Agreement dated as of May 1, 1995, (vi) the Tax Sharing Agreement dated as of April 1, 1995 and (vii) the Joint Sales Agency Agreement as referred to in an internal memorandum of the Borrower dated October 3, 1995, each between IMS and the Borrower, and the performance of the Borrower's obligations and exercise of its rights under such agreements). (l) Licenses. In respect of any license agreement under which any Loan Party is the licensee and which is material to the conduct of such Loan Party's business, agree to any prohibition of or restriction on the creation of a security interest in any right of such Loan Party thereunder, other than, in the case only of any such license agreement that relates to any intellectual property not previously licensed to the Borrower or any of its Subsidiaries, such restrictions on the creation of a security interest as such Loan Party is required, in its commercially reasonable judgment, to accept. 135 60 VI EVENTS OF DEFAULT VI.1. Events of Default. If any of the following events (each, an "Event of Default") shall occur and be continuing: (a) Non-Payment of Principal. The Borrower fails to pay when due any principal of any Advance; or (b) Non-Payment of Interest. The Borrower fails to pay when due any interest payable under Section 2.7 and such failure continues for three days; or (c) Non-Payment of Other Obligations. The Borrower fails to pay any additional interest payable under Section 2.8 or any fee payable under Section 2.4 or any other Obligation, and such failure continues for ten Business Days after either (A) it is acknowledged in writing by the Borrower or (B) written notice thereof is given to the Borrower by the Agent or any Lender; or (d) Representations and Warranties. Any representation or warranty made by any Loan Party under or in connection with any Loan Document proves to have been incorrect in any material respect when made; or (e) Financial and Negative Covenants. The Borrower fails to perform or observe any term, covenant or agreement set forth in Section 5.1 or Section 5.3; or (f) Reporting and Collateral Covenants. The Borrower fails to perform or observe any term, covenant or agreement set forth in Sections 5.2(c), (e), (j) or (k), and such failure continues for ten Business Days after either (A) it is acknowledged in writing by the Borrower or (B) written notice thereof is given to the Borrower by the Agent or any Lender; or (g) Other Agreements. The Borrower or any Loan Party fails to perform or observe any term, covenant or agreement contained in this Agreement or any other Loan Document (other than those specifically referred to in any of the preceding paragraphs of this Section 6.1) and such failure continues for 30 days after either (A) it is acknowledged in writing by the Borrower or (B) written notice thereof is given to the Borrower by the Agent or any Lender; or (h) Default as to Other Debt. The Borrower or any of its Subsidiaries (i) fails to pay, when due and payable (whether at the scheduled maturity or upon any required prepayment, acceleration, demand or otherwise), any principal of or premium or interest on any Debt (except any Borrowings) outstanding in a principal amount of at least $2,000,000, and such failure continues for longer than the period of grace, if any, specified for such failure in the indenture or agreement governing such Debt, or 136 61 (ii) commits, permits or suffers a breach, default or event of default to occur under any indenture or agreement governing any Debt (except any Borrowings) outstanding in a principal amount of at least $2,000,000 and such breach, default or event of default continues for longer than the period of grace, if any, specified for such failure in such indenture or agreement; or any such Debt of at least $2,000,000 is declared to be due and payable or is required to be prepaid prior to the stated maturity thereof; provided, however, that no such failure, breach, default, event of default, declaration or requirement as to any Debt (x) which is the liability solely of a Foreign Subsidiary shall be an Event of Default hereunder until either (A) it is acknowledged in writing by the Borrower or (B) it continues for 10 Business Days after written notice thereof is given to the Borrower by the Agent or any Lender and (y) no such failure, breach, default, event of default, declaration or requirement as to any Debt shall be an Event of Default hereunder if, in the case of a wholly-owned Subsidiary, such Debt is held entirely by the Borrower, or, in the case of the Borrower, such Debt is held entirely by one or more of its wholly-owned Subsidiaries; or (i) Bankruptcy. (x) The Borrower or any Material Subsidiary is generally not paying its debts as they become due or admits in writing its inability to pay its debts generally or makes a general assignment for the benefit of creditors; (y) or any proceeding is instituted by or against any Loan Party or any Subsidiary of a Loan Party seeking an order for relief under the United States Bankruptcy Code or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property under any law relating to bankruptcy, insolvency, liquidation or reorganization or relief of debtors and either (i) any such relief in any such proceeding is sought or consented to by it or an order for any such relief is entered against it, or (ii) any such proceeding instituted against it remains undismissed and unstayed for a period of 60 days; or (z) any Loan Party or any Material Subsidiary takes any corporate action to authorize any of the actions set forth above in this Section 6.1(i); provided, however, that the occurrence of any action referred to in clause (y) with respect to any Inactive Subsidiary or the authorization of any such action as referred to in clause (z), shall not constitute an Event of Default if the Agent receives an opinion of recognized counsel in form and substance acceptable to the Requisite Lenders prior to such event or authorization stating that the bankruptcy or other dissolution of the Inactive Subsidiary should not result in the imposition of any Debts or other liabilities of such Inactive Subsidiary upon the Borrower or any of its other Subsidiaries, with reasonable qualifications depending upon local practice and law; or (j) Judgments. Any judgment or order for the payment of money is rendered against any of the Loan Parties or any of their Subsidiaries in an amount in excess of $2,000,000 individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of 60 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect; or (k) Material Adverse Change. There is any Material Adverse Change; or (l) Loan Documents. Any provision of any Loan Document after delivery thereof for any reason ceases to be valid and binding on each Loan Party party thereto, or any Loan Party shall 137 62 repudiate or purport to revoke or terminate any of its obligations under any Loan Document to which it is party, and such event continues for 10 Business Days after written notice thereof is given to the Borrower; or (m) Collateral Documents. The Collateral Documents, after delivery thereof pursuant to Section 3.1, for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected first priority security interest in any collateral purported to be covered thereby, and such event continues for 10 Business Days after written notice thereof is given to the Borrower; or (n) ERISA. (i) The Borrower or any ERISA Affiliate fails to satisfy its contribution requirements under Section 412(c)(11) of the Code, whether or not it has sought a waiver under Section 412(d) of the Code; or (ii) in the case of an ERISA Event involving the withdrawal from a Pension Plan of a "substantial employer" (as defined in Section 4001(a)(2) or Section 4062(e) of ERISA), the withdrawing employer's proportionate share of that Pension Plan's Unfunded Pension Liabilities is more than $2,000,000; or (iii) in the case of an ERISA Event involving the complete or partial withdrawal from a Multiemployer Plan, the withdrawing employer incurs a withdrawal liability in an aggregate amount exceeding $2,000,000; or (iv) a Plan that is intended to be qualified under Section 401(a) of the Code loses its qualification, and with respect to such loss of qualification, the Borrower or any ERISA Affiliate can reasonably be expected to be required to pay (for additional taxes, payments to or on behalf of Plan participants, or otherwise) an aggregate amount exceeding $2,000,000; or (vi) any combination of events listed in clauses (ii) through (iv) occurs that involves a net increase in aggregate Unfunded Pension Liabilities and unfunded liabilities in excess of $5,000,000; then, and in any such event, the Agent (x) shall at the request, or may with the consent, of the Requisite Lenders, by notice to the Borrower, declare the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate and the Facility Amount shall be automatically and permanently reduced to zero, and (y) shall at the request, or may with the consent, of the Requisite Lenders, by notice to the Borrower, declare the Advances, together with all interest thereon and all other Obligations, to be immediately due and payable, and thereupon the Advances and such interest and all other Obligations, shall be immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that if an order for relief under the United States Bankruptcy Code is entered at the request or upon the consent of the Borrower or involuntarily against the Borrower (A) the obligation of each Lender to make Advances shall automatically be terminated and the Facility Amount shall be immediately, automatically and permanently reduced to zero, and (B) the Advances and all such interest and other Obligations shall automatically become and be immediately due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. VI.2. Rights Not Exclusive. The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers or privileges or remedies provided by law or in equity, or under any other instrument, document or agreement. 138 63 VII THE AGENT VII.1. Authorization and Action. Each Lender hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement (including enforcement or collection of the Borrower's obligation to repay the Advances), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of Requisite Lenders, and such instructions shall be binding upon all Lenders; provided, however, that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or applicable law. The Agent shall not be liable to any Lender if, in accordance with the terms of this Agreement, it takes or omits to take any action pursuant to the instructions of the Requisite Lenders. The Agent agrees to give to each Lender prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement. The Agent agrees to perform and discharge the duties and powers delegated to it under this Agreement and the other Loan Documents in accordance with the terms hereof and thereof. VII.2. Agent not Liable. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or any of them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limiting the generality of the foregoing, the Agent (i) may treat the Lender making an Advance as the Lender of such Advance until the Agent receives written notice of the assignment or transfer thereof signed by such Lender and including the agreement of the assignee or transferee to be bound hereby as it would have been if it had been an original Lender party hereto, in form satisfactory to the Agent; (ii) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Borrower or to inspect the property (including the books and records) of the Borrower; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document or any other instrument or document furnished pursuant to any Loan Document or for the creation, validity, enforceability, sufficiency, value, perfection or priority of any Lien purported to be granted to the Agent, whether pursuant to any of the Collateral Documents or otherwise; and (vi) shall incur no liability under or in respect of this Agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram, cable or telex) believed by it in good faith to be genuine and signed or sent by the proper party or parties. 139 64 VII.3. Rights as Lender. With respect to its commitment and Pro Rata Share hereunder, the Advances and all other rights, claims and interests accorded it as Lender, Credit Lyonnais shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent; and the term "Lender" or "Lenders" shall include Credit Lyonnais in its individual capacity. Credit Lyonnais and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, any of its Subsidiaries and any Person who may do business with or own securities of the Borrower or any such Subsidiary, all as if Credit Lyonnais were not the Agent and without any duty to account therefor to the Lenders. Any Lender and its respective Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, any of its Subsidiaries and any Person who may do business with or own securities of the Borrower or any such Subsidiary, all as if such Lender were not a Lender hereunder and without any duty to account therefor to the other Lenders. VII.4. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the financial statements referred to in Section 4.1(g) and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it deems appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. VII.5. Indemnification. The Lenders agree to indemnify the Agent (to the extent not reimbursed by the Borrower) severally and ratably according to their Pro Rata Shares from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or the other Loan Documents or any action taken or omitted by the Agent under this Agreement or the other Loan Documents, except that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. Without limiting the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any reasonable out-of-pocket expenses (including reasonable fees and expenses of counsel) incurred by the Agent in connection with the preparation, execution, delivery, modification, amendment, protection or enforcement (whether through negotiations, by legal proceedings, in bankruptcy or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or the other Loan Documents, to the extent that the Agent is not reimbursed for such expenses by the Borrower. VII.6. Successor Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause (i) by the Borrower, if at any time the aggregate commitment for Advances then held by the institution acting as Agent and its Affiliates is less than $15,000,000 and (ii) by the Requisite Lenders. Upon any such resignation or removal, the Borrower may, upon the written consent of the Requisite Lenders (which consent shall not be unreasonably withheld or delayed), appoint a successor Agent from among the Lenders, except that the Requisite Lenders shall have the 140 65 sole right to appoint a successor Agent from among the Lenders whenever any Event of Default is continuing. If no successor Agent shall have been so appointed by the Requisite Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Borrower's or Requisite Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States of America or of any state and having total assets of at least $20,000,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. VII.7. Release of Collateral. The Agent is hereby irrevocably authorized to release any Lien granted to or held by the Agent upon (i) any and all Collateral when the Facility Amount has been permanently reduced to $25,000,000 or less, if no Event of Default or Potential Default is then continuing, (ii) any and all Collateral, when the Facility Amount has been permanently reduced to zero, all outstanding Advances have been repaid, and all other Obligations that are then due and payable and of which the Agent then has written notice demanding payment prior to release of Collateral have been paid, (iii) any Collateral constituting property that is or is to be sold, licensed or disposed of as part of or in connection with any Asset Sale permitted under this Agreement or upon any waiver hereunder by the Requisite Lenders, (iv) any Collateral consisting of an instrument evidencing Debt or other debt instrument, if the indebtedness evidenced thereby has been paid in full, (v) the Collateral granted under the Real Estate Collateral Documents if Debt permitted under Section 5.3(d)(iv) is incurred, (vi) the Collateral granted under the Real Estate Collateral Documents if the aggregate amount of all Facility Reductions voluntarily made by the Borrower pursuant to Section 2.5, cumulatively, is at least $25,000,000 and (vii) the Seely Campus Vacant Land if Debt permitted under Section 5.3(d)(v) is incurred. Upon request by the Agent or the Borrower at any time, each Lender shall confirm in writing the Agent's authority to release Collateral, or particular types or items of Collateral, as set forth in this Section 7.7. Subject to Section 8.1(h), the Agent shall not otherwise be obligated to release any Collateral unless it receives such written confirmation from the Requisite Lenders. VII.8. Release of Guarantor upon Sale of Stock. If at any time (i) all of the outstanding shares of capital stock and other equity, ownership and profit interests in any Guarantor are sold to a Person not an Affiliate of the Borrower in a permitted Asset Sale and (ii) no Event of Default or Potential Default is then continuing, then (x) upon request by the Agent or the Borrower each Lender shall confirm in writing that the liability of such Guarantor under the Guaranty is released and discharged effective when such transaction is consummated, as set forth in Section 2.12 of the Guaranty and (y) all Liens in favor of Agent in respect of the property and assets of such Guarantor shall be released in accordance with Section 7.7(iii). Such confirmation from the Requisite Lenders (A) shall establish conclusively that the liability of such Guarantor under the Guaranty is released and discharged as set forth in Section 2.12 of the Guaranty and (B) may be relied on, without further inquiry, by the purchaser in such transaction and each of its transferees. 141 66 VIII MISCELLANEOUS VIII.1. Amendments. No amendment or waiver of any provision of this Agreement, nor consent to any departure by the Borrower therefrom, shall be effective unless it is in writing and signed by the Requisite Lenders (and any such waiver or consent shall in any case be effective only in the specific instance and for the specific purpose for which given), but no amendment, waiver or consent shall, unless in writing and signed by the Lender to be bound thereby, do any of the following: (a) increase the obligation of such Lender to extend credit hereunder or subject such Lender to any additional obligations; (b) reduce the principal of or interest on the Advances or any fees or other amounts payable to such Lender hereunder or under any other Loan Document; (c) postpone any date fixed for any payment (including any mandatory prepayment) of principal of or interest on any Advances held by such Lender or any fees or other amounts payable to such Lender under any Loan Document; (d) reduce the amount payable to such Lender under Section 2.12; (e) waive, reduce or postpone any Facility Reduction required hereunder, other than any Facility Reduction described in Section 2.1(i)(B), which may be waived, reduced or postponed by the Requisite Lenders; (f) amend the definition of "Facility Amount," "Pro Rata Share" or "Requisite Lenders"; (g) waive any Event of Default that is continuing under Section 6.1(a), 6.1(b) or 6.1(c) in respect of a payment due to such Lender; (h) release any substantial portion of the Collateral other than in accordance with the terms of this Agreement; (i) release or limit the liability of any Guarantor under the Guaranty other than in accordance with the terms of the Guaranty; (j) amend Section 2.13, Section 2.17 or Section 6.1(a); or (k) amend this Section 8.1; 142 67 and no amendment, waiver or consent shall, unless in writing and signed by the Agent (and by the Lenders required above to take such action), affect the rights or duties of the Agent under this Agreement or any Loan Document. Copies of each such amendment, waiver or consent shall be delivered by the Borrower to each Lender. VIII.2. Notices. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered, if to the Borrower, at Cadence Design Systems, Inc., 2655 Seely Road, San Jose, CA 95134, Attention: Treasurer, with a copy to the General Counsel, at the same address; if to any Lender, at its Domestic Lending Office specified opposite its name on Schedule I hereto; and if to the Agent, at Credit Lyonnais, 1301 Avenue of the Americas, New York, New York 10019, Attention: Syndications Group, with a copy to Latham & Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, CA 90071, Attention: Hendrik de Jong; or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall be effective when received. VIII.3. No Waiver; Remedies. No failure on the part of any Lender or the Agent to exercise, and no delay in exercising, any right under any Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. VIII.4. Costs and Expenses. The Borrower agrees to pay on demand all reasonable costs and expenses incurred by Credit Lyonnais or any Person hereafter appointed as successor Agent (whether incurred in its individual capacity or as Agent) in connection with the preparation, negotiation, execution, delivery, modification and amendment of the Loan Documents and the other documents to be delivered under the Loan Documents, including the reasonable fees and out-of-pocket expenses of counsel for the Agent with respect thereto and with respect to advising the Agent as to its rights and responsibilities under the Loan Documents in connection with actions or inactions of the Loan Parties. The Borrower further agrees to pay on demand all reasonable costs and expenses, including reasonable fees and expenses of attorneys (including allocable costs of in-house counsel), accountants, advisors and other experts, incurred by the Agent or the Lenders in respect of any Event of Default or while any Event of Default is continuing or in connection with the protection, resolution or enforcement (whether through negotiations, by legal proceedings, in bankruptcy or otherwise) of the Obligations or the Collateral or any right, remedy, power, interest or claim of the Agent or any Lender under any Loan Document. VIII.5. Right of Set-off. Whenever any Event of Default is continuing, each Lender may at any time or from time to time, with the express written consent of the Requisite Lenders but without any prior notice to the Borrower or any other Person, set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other debt at any time owing by such Lender to or for the credit or the account of the Borrower, whether or not then due, against any and all Advances and other Obligations then owing to such Lender, whether or not then due. After any such set-off and application is made, the Lender that made it shall promptly notify the Borrower thereof, but the failure to do so shall not affect the validity of the set-off and application and shall not expose such Lender to any liability. The Lenders' 143 68 right of set-off under this Section 8.5 is cumulative with and additional to all other rights and remedies (including other rights of set-off) of the Lenders. VIII.6. General Indemnity. The Borrower agrees to indemnify and hold harmless Credit Lyonnais, each other Lender and each of their Affiliates and each director, officer, employee, attorney or agent of any of the foregoing persons (each such Person, an "Indemnified Person") from any losses, claims, costs, damages, expenses or liabilities (or actions, suits or proceedings, including any inquiry or investigation, with respect thereto) (collectively, "Claims") to which any Indemnified Person may become subject, insofar as such Claims arise out of, in any way relate to, or result from, this Agreement or any other Loan Document or any of the transactions contemplated hereby and thereby and to reimburse upon demand each Indemnified Person for any and all reasonable legal and other expenses incurred in connection with investigating, preparing to defend or defending any such Claim; provided, however, that: (a) Excluded Claims. The Borrower shall not have any obligation (i) to any Indemnified Person for any Claim made or prosecuted against such Indemnified Person by the Borrower, (ii) to any Lender or any of its Affiliates, directors, officers, employees, attorneys or agents, except Credit Lyonnais and its Affiliates, directors, officers, employees, attorneys or agents, for any Claim made or prosecuted against such Lender by another Lender, unless such Claim is based on or arises from a Claim asserted against such other Lender by any Person that is not a Lender (and Credit Lyonnais and its Affiliates, directors, officers, employees, attorneys or agents shall be and remain fully indemnified hereunder as to any and all Claims made or prosecuted against Credit Lyonnais or any of them, in any capacity, by any other Lender or Person), or (iii) to any Indemnified Person for any Claim based on or arising from the gross negligence or willful misconduct of such Indemnified Person; (b) Notice. The Borrower shall be given prompt notice of the commencement of any action or proceeding on any Claim and of any overt written threat of litigation on any Claim, but the failure to receive such notice shall not relieve the Borrower from any of its obligations under this Section 8.6 or under Section 8.4, except to the extent the Borrower has been actually damaged thereby; (c) Selection of Counsel. The Borrower shall have the right, with the consent of the Indemnified Person (which shall not unreasonably be withheld), to select a firm of attorneys as legal counsel to defend any Claim, and the Borrower shall pay the fees, expenses and disbursements of such counsel and any special or local counsel; and if the Indemnified Person or such legal counsel determines in good faith that representing such Indemnified Person would or could result in a conflict of interest, or that a defense, crossclaim or counterclaim is available to such Indemnified Person that is not available to any other Person represented by such legal counsel in the same proceeding, then to the extent reasonably necessary to avoid such a conflict of interest or to permit unqualified assertion of such a defense, crossclaim or counterclaim, such Indemnified Person shall be entitled to separate representation, at the Borrower's expense, by legal counsel selected by such Indemnified Person and reasonably acceptable to the Borrower, with all such legal counsel using reasonable efforts to avoid unnecessary duplication of effort by counsel; 144 69 (d) Separate Counsel. Each Indemnified Person shall have the right to be represented by counsel of its own choosing (i) at the Borrower's expense whenever any Event of Default is continuing, except that the Borrower shall be obligated under this Section 8.6(d) only to pay the reasonable fees and expenses of one firm of attorneys chosen by Credit Lyonnais to represent its interests and the other Indemnified Persons as a group, or (ii) when such Indemnified Person is entitled to separate representation at the Borrower's expense as set forth in Section 8.6(c), and (iii) at any time and under any circumstances at such Indemnified Person's expense; and the Borrower and the attorneys selected by the Borrower shall cooperate in all reasonable respects with such counsel; and (e) Settlement. The Borrower shall be entitled to settle any Claim, at the Borrower's sole cost and expense, without the consent of the Indemnified Person if (i) no Event of Default under the Facility is continuing, (ii) the settlement does not and will not, under any circumstances, impose any present or future payment or performance obligation upon the Indemnified Person, and (iii) the settlement includes the giving by the claimant to the Indemnified Person of an unconditional and irrevocable release from all liability in respect of such Claim; and otherwise only upon the prior written consent of the Indemnified Person, which shall not unreasonably be withheld. VIII.7. Assignments and Participations. (a) Permitted Assignment. Each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement, but (i) each such assignment shall be of a constant, and not a varying, percentage of all of the assigning Lender's rights and obligations under this Agreement, unless otherwise consented to by the Borrower and the Agent; (ii) the amount of the commitment and outstanding Advances of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall not be less than $5,000,000 or the total amount of the remaining commitment and outstanding Advances of such Lender, except that an assignment to an existing Lender may be in an amount less than $5,000,000, (iii) each such assignment shall be to an Eligible Assignee, and (iv) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Acceptance and a processing and recordation fee payable to the Agent of $2,500. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder, (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto) and (z) Schedule I hereto shall be replaced with Schedule I in the form attached to the Assignment and Acceptance. Each Lender consents to the substitution of Schedule I as set forth in the preceding sentence, provided that such replacement Schedule I does not change the Pro Rata Share of any Lender other than the assignor and assignee. 145 70 (b) Borrower Consent; Confidentiality. The Borrower shall have the right to consent to each proposed new Lender, with such consent not to be unreasonably withheld or delayed, except that the Borrower's consent to any shall not be required (i) if such consent has been unreasonably withheld or delayed by the Borrower, (ii) whenever any assignment or transfer is made to any person which then is a Lender or an Affiliate of a Lender, or (iii) as to any assignment or transfer made or agreed to while any Event of Default is continuing. Unless the Borrower's consent to a particular assignment or transfer is not required, the assigning Lender shall obtain the Borrower's consent to each proposed Eligible Assignee to which such Lender proposes to make an assignment or transfer and will obtain from such Eligible Assignee a written agreement to be bound by the provisions in Section 8.12, prior to providing any of the Borrower's confidential information to such Eligible Assignee. (c) Effect of Assignment. By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto that (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto or as to the Collateral or the validity, enforceability, perfection or priority of any Lien upon the Collateral; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.1(g) and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) Maintenance of Agreements. The Agent shall maintain at its address referred to in Section 8.2 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the commitments and Pro Rata Shares of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a 146 71 Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Procedure. Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee Lender representing that it is an Eligible Assignee, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit E-2 hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. (f) Participations. Each Lender may sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement, but (i) such Lender's obligations under this Agreement (including its commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and (iii) the Borrower, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. The grant of a participation interest shall be on such terms as the granting Lender determines are appropriate, provided only that (A) the holder of such a participation interest shall not have any of the rights of a Lender under this Agreement, except, if the participation agreement so provides, rights to demand the payment of costs of the type described in Section 2.13 and (B) the consent of the holder of such a participation interest shall not be required for amendments or waivers of provisions of the Loan Documents other than those described in Section 8.1(a) through (k). (g) Additional Information. Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.7, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower, but only if the assignee or participant or proposed assignee or participant is obligated to preserve the confidentiality of any confidential information relating to the Borrower received by it from such Lender. (h) Permitted Assignments. Any Lender may assign any of its rights and obligations under this Agreement to any other Lender or to any Affiliate of any Lender, without notice to or consent of the Borrower or the Agent, and each Lender or any of its Affiliates may assign any of its rights under this Agreement to any Federal Reserve Bank without notice to or consent of the Borrower or the Agent. VIII.8. Binding Effect. This Agreement shall become effective when it has been executed by the parties hereto and the conditions set forth in Section 3.1 have been satisfied and thereafter shall be binding upon and inure to the benefit of the Borrower, the Agent and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of each of the Lenders and the Agent. VIII.9. Governing Law. This Agreement and the other Loan Documents shall be governed by, and construed in accordance with, the laws of the State of California. Any legal action or proceeding with 147 72 respect to any Loan Document may be brought in the courts of the State of California or of the United States for the Northern District or the Central District of California, and by execution and delivery of this Agreement, each of the Borrower, the Agent and the Lenders consents, for itself and in respect of its property, to the jurisdiction of those courts. Each of the Borrower, the Agent and the Lenders irrevocably waives any objection, including any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the bringing of any action or proceeding in such jurisdiction in respect of any Loan Document. The Borrower, the Agent and the Lenders each waive personal service of any summons, complaint or other process, which may be made by any other means permitted by California law. VIII.10. Waiver of Jury Trial. The Borrower, the Lenders and the Agent WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY of any claim or cause of action based upon or arising out of or related to this Agreement or any other Loan Document or the transactions contemplated hereby or thereby in any action, proceeding or other litigation of any type brought by any of the parties against any other party or parties, whether based on contract, tort, statutory liability or otherwise. The Borrower, the Lenders and the Agent agree that any such claim or cause of action shall be tried by the court WITHOUT A JURY. This waiver shall apply to each future amendment, renewal, supplement or modification of any Loan Document and to each future Loan Document. VIII.11. Limitation of Liability. No claim may be made by the Borrower, any Subsidiary of the Borrower, any Lender, the Agent or any other Person against the Agent or any other Lender or the Affiliates, directors, officers, employees, attorneys or agents of any of them for any special, indirect or consequential damages or, to the fullest extent permitted by law, for any punitive damages in respect of any claim or cause of action (whether based on contract, tort, statutory liability, or any other ground) based on, arising out of or related to any Loan Document or the transactions contemplated hereby or any act, omission or event occurring in connection therewith, and the Borrower (for itself and on behalf of each of its Subsidiaries), the Agent and each Lender hereby waive, release and agree never to sue upon any claim for any such damages, whether such claim now exists or hereafter arises and whether or not it is now known or suspected to exist in its favor. VIII.12. Confidentiality. The Agent and each Lender agree that they will not, without the prior consent of the Borrower, disclose any information with respect to the Borrower which is furnished to the Agent or such Lender pursuant to this Agreement and which the Borrower has notified the Agent or such Lender, in writing, constitutes confidential information, except (i) to the Agent's or such Lender's directors, officers, employees, agents and financial and legal advisors under instructions to maintain confidentiality, (ii) to any actual or prospective assignee or participant under Section 8.7, so long as such assignee or participant agrees to be bound by the provisions of this Section 8.12, (iii) information that is known to the Agent or such Lender or its directors, officers, employees or advisors prior to its disclosure by the Borrower, (iv) information that has become publicly available other than by the Agent's or such Lender's improper disclosure, (v) information that is obtained from any source other than the Borrower or its Affiliates, unless the Agent or such Lender has actual knowledge that such source disclosed such information to it in breach of an obligation of confidentiality, and (vi) as may be required or appropriate in any proceeding to collect the Obligations or protect or enforce any right or remedy of the Agent or such Lender under the Loan Documents or in defense of any claim asserted against the 148 73 Agent or such Lender or in any other litigation or for compliance with any applicable law or any subpoena, discovery request or other legal process, so long as the Agent or such Lender (if not prohibited from doing so) gives the Borrower at least three Business Days' prior notice thereof. VIII.13. Entire Agreement. This Agreement, together with the other Loan Documents, embodies the entire Agreement and understanding among the Borrower, the Lenders and the Agent and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof, except for the rights of Credit Lyonnais under the Commitment Letter and the Fee Letter. VIII.14. Survival. The Borrower's liability for any and all additional interest, fees, taxes, compensation, costs, losses, expense reimbursements, indemnification and other similar Obligations arising under any Loan Document shall survive the expiration or termination of the commitments of the Lenders to extend credit hereunder and the repayment and retirement of all Advances at any time outstanding hereunder. VIII.15. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 149 74 IN WITNESS WHEREOF, the parties hereto have caused this Revolving Credit Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. CADENCE DESIGN SYSTEMS, INC. By: _____________________________________ Name: Title: CREDIT LYONNAIS, New York Branch, as Agent and as a Lender By: _____________________________________ Name: Title: ABN-AMRO BANK N.V. San Francisco International Branch, as a Lender By: ABN AMRO North America, Inc. as agent By: ____________________________ By: _____________________________________ Name: Name: Title: Title: THE FIRST NATIONAL BANK OF BOSTON, as a Lender 150 75 By: _____________________________________ Name: Title: UNION BANK, a Division of Union Bank of California, N.A., as a Lender By: _____________________________________ Name: Title: By: _____________________________________ Name: Title: 151 76 EXHIBIT B-1 FORM OF NOTICE OF BORROWING [DATE] Credit Lyonnais, New York Branch, as Agent c/o 515 South Flower Street, Ste. 2200 Los Angeles, California 90071 Attention: Mr. Pierre Bury Re: Notice of Borrowing Ladies and Gentlemen: The undersigned, Cadence Design Systems, Inc., a Delaware corporation ("Cadence"), refers to the Revolving Credit Agreement, dated as of April 11, 1996, among Cadence, the financial institutions signatory thereto as Lenders, and Credit Lyonnais, a bank organized under the laws of the Republic of France, acting through its New York Branch, as Agent for the Lenders (as amended, modified and supplemented to date, the "Credit Agreement," the terms defined therein being used herein as therein defined), and pursuant to Section 3.2 of the Credit Agreement hereby gives you irrevocable notice that the undersigned requests a Borrowing under the Credit Agreement, and in connection therewith sets forth below the information relating to such Borrowing as required by Section 2.1(c) of the Credit Agreement: (i) The Business Day of such Borrowing is , (the "Borrowing Date"). (ii) The Advances comprising such Borrowing will be [Base Rate Advances] [Eurodollar Rate Advances]. (iii) The aggregate amount of such Borrowing is $ . [(iv) The initial Interest Period for each Eurodollar Rate Advance made as part of such Borrowing is [one/two/three/six months].] 152 77 The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the Borrowing Date (before and after giving effect to the proceeds of such Borrowing and the application of the proceeds therefrom): (A) the representations and warranties contained in Article IV of the Credit Agreement, Article III of the Pledge and Security Agreement and Article III of the Intellectual Property Assignment are correct in all material respects; (B) no event has occurred and is continuing which constitutes an Event of Default or a Potential Default; (C) since December 30, 1995 or, if later, the date of the most recent financial statements delivered pursuant to clauses (i) or (ii) of Section 5.2(c) of the Credit Agreement, there has been no Material Adverse Change. Very truly yours, CADENCE DESIGN SYSTEMS, INC., a Delaware corporation By: Name: Title: 153 78 EXHIBIT B-2 FORM OF NOTICE OF CONTINUANCE/CONVERSION [DATE] Credit Lyonnais, New York Branch, as Agent c/o 515 South Flower Street, Ste. 2200 Los Angeles, California 90071 Attention: Mr. Pierre Bury Re: Notice of Continuance/Conversion Ladies and Gentlemen: The undersigned, Cadence Design Systems, Inc., a Delaware corporation ("Cadence"), refers to the Revolving Credit Agreement, dated as of April 11, 1996, among Cadence, the financial institutions signatory thereto as Lenders, and Credit Lyonnais, a bank organized under the laws of the Republic of France, acting through its New York Branch, as Agent for the Lenders (as amended, modified and supplemented to date, the "Credit Agreement," the terms defined therein being used herein as therein defined). Pursuant to Section 2.10 of the Credit Agreement, this represents a Notice of Continuance/Conversion, and in that connection sets forth below the information relating to such [continuance] [conversion] as required by Section 2.10(a) of the Credit Agreement: 1. $______________ of Advances shall be [converted from] [Base Rate] [Eurodollar Rate] Advances to [Base Rate] [Eurodollar Rate] [continued as Eurodollar Rate] Advances; 2. The effective date of the [continuance] [conversion] shall be ________________, _____ (which shall be the last day of an Interest Period if continuing Advances as Eurodollar Rate Advances or converting Advances from Eurodollar Rate Advances to Base Rate Advances); 154 79 [3. The final day of the initial Interest Period shall be ____________, _____.](1) 4. The Borrower hereby certifies to the Agent and each Lender that, on the date of this Notice of Continuance/Conversion: a. the representations and warranties contained in Article IV of the Credit Agreement, Article III of the Pledge and Security Agreement and Article III of the Intellectual Property Assignment are correct in all material respects as of the effective date of the [continuance] [conversion]; b. no event has occurred and is continuing, or would result from the [continuance] [conversion], which constitutes an Event of Default or a Potential Default; and c. since December 31, 1995 or, if later, the date of the most recent financial statements delivered pursuant to clauses (i) or (ii) of Section 5.2(c) of the Credit Agreement, there has been no Material Adverse Change. 5. This Notice of Continuance/Conversion shall only be effective if delivered to the Agent at the above address at least three Business Days before the date of the requested [continuance] [conversion]. IN WITNESS WHEREOF, the Borrower has executed this Notice of Continuance/Conversion on the date set forth above. CADENCE DESIGN SYSTEMS, INC., a Delaware corporation By: Name: Title: __________________________________ (1) Include if continuing Advances as Eurodollar Rate Advances or converting Base Rate Advances to Eurodollar Rate Advances. 155 80 EXHIBIT C-1 FORM OF SUBSIDIARY GUARANTY This SUBSIDIARY GUARANTY, dated as of April 11, 1996, is made by each entity that is identified on the signature pages hereof or that hereafter executes and delivers a Subsidiary Joinder in substantially the form set forth as Annex 1 hereto (each such entity, a "Guarantor") in favor of the lenders (the "Lenders") from time to time party to the Credit Agreement (as defined below) and Credit Lyonnais, as agent for the Lenders (Credit Lyonnais and any successor thereto in such capacity, the "Agent") and in favor of all other present and future Holders (as defined below) of any of the Guaranteed Obligations described herein. RECITALS A. The Lenders and the Agent have entered into that certain Revolving Credit Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among Cadence Design Systems, Inc., a Delaware corporation (the "Borrower"), the Lenders and the Agent. B. Each Guarantor is a direct or indirect subsidiary of the Borrower and expects to derive substantial direct and indirect benefit from the transactions contemplated by the Credit Agreement. C. It is a condition precedent to the extension of credit under the Credit Agreement that each Guarantor shall have guaranteed payment of each and all the Obligations (as that term is defined in the Credit Agreement) and all other debts, liabilities and obligations of the Borrower and each other Subsidiary of the Borrower under the Loan Documents, on the terms set forth herein. D. The Borrower has agreed, in the Credit Agreement, to cause all future subsidiaries of the Borrower (except Inactive Subsidiaries and Foreign Subsidiaries) to become party to this Guaranty, as a Guarantor hereunder. NOW, THEREFORE, in consideration of the foregoing and in order to induce the Lenders to extend credit to the Borrower under the Credit Agreement, each Guarantor hereby agrees as follows: 156 81 DEFINITIONS AND ACCOUNTING TERMS General Definitions. Except as otherwise specifically provided herein, the terms which are defined in Section 1.1 of the Credit Agreement shall have the same meanings when used in this Guaranty and the provisions of Sections 1.2 and 1.3 of the Credit Agreement shall apply to this Guaranty. Certain Defined Terms. As used in this Guaranty, the following terms shall have the following meanings: "Bankruptcy Code" means Title 11 of the United States Code, as from time to time amended. "Disallowed Post-Commencement Interest and Expenses" means interest computed at the rate provided in the Credit Agreement and claims for reimbursements, costs, expenses or indemnities under the terms of the Credit Agreement or any other Loan Document, accruing or claimed at any time after commencement of any Insolvency or Liquidation Proceeding, if the claim for such interest, reimbursement, cost, expense or indemnity is not allowable, allowed or enforceable against the Borrower or any Subsidiary of the Borrower in such Insolvency or Liquidation Proceeding. "Guaranteed Obligations" is defined in Section 2.1(a). "Guaranty" means this Subsidiary Guaranty, dated as of the date set forth above, made by the Guarantors for the benefit of the Lenders, the Agent and other Holders of Guaranteed Obligations. "Guaranty Taxes" is defined in Section 3.8(a). "Holder" means, in respect of any Guaranteed Obligation, the Person entitled to enforce payment thereof and specifically includes the Agent and each Lender. "Insolvency or Liquidation Proceeding" means (i) any case under the Bankruptcy Code, any other insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding, relative to the Borrower or any Guarantor or to any of their respective creditors, as such, or to a substantial part of any of their respective assets, or (ii) any proceeding for the liquidation, dissolution or other winding up of the Borrower or any Guarantor, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors or any other marshaling of assets and liabilities of the Borrower or any Guarantor. 157 82 "Subordinated Liabilities" is defined in Section 2.8(a). "Subsidiary Joinder" means an instrument substantially in the form of Annex 1 hereto. GUARANTY AND RELATED PROVISIONS Guaranty. Each Guarantor hereby unconditionally: guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of (i) all Obligations now outstanding or hereafter arising under or in connection with the Credit Agreement or any other Loan Document, whether for principal, interest, fees, taxes, additional compensation, expense reimbursements, indemnification or otherwise, and (ii) all liabilities of each Guarantor now outstanding or hereafter arising under the Guaranty and any Subsidiary Joinder, and (iii) each other debt, liability or obligation of the Borrower or any Subsidiary of the Borrower now outstanding or hereafter arising under any of the Loan Documents (such Obligations, liabilities and other debts, liabilities and obligations, collectively, are the "Guaranteed Obligations"), and agrees to pay on demand (i) all Disallowed Post-Commencement Interest and Expenses, to the Person entitled to payment thereof if the claim therefor had been allowed in any Insolvency or Liquidation Proceeding, and (ii) all reasonable costs and expenses (including, without limitation, reasonable attorneys' fees and legal expenses) incurred by any Holder of Guaranteed Obligations in enforcing this Guaranty. Acceleration of Payment. If (i) the Advances become immediately due and payable pursuant to Section 6.1 of the Credit Agreement, (ii) any Insolvency or Liquidation Proceeding is commenced voluntarily by any Guarantor, or (iii) any Insolvency or Liquidation Proceeding is commenced involuntarily against any Guarantor and either (x) remains pending for more than 60 days or (y) an order for relief is granted or consented to by the Borrower or by the debtor therein, then all liability of each Guarantor under this Guaranty in respect of any Guaranteed Obligation that is not then due and payable shall thereupon become and be immediately due and payable, without notice or demand. Guaranty Absolute and Unconditional. Each Guarantor guarantees that the Guaranteed Obligations will be paid in accordance with the terms of the Credit Agreement and the other Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights and claims of any Holder of Guaranteed Obligations against the Borrower or any Subsidiary of the Borrower with respect thereto and even if any such rights or claims are modified, reduced or discharged in an Insolvency or 158 83 Liquidation Proceeding or otherwise. The obligations of each Guarantor under this Guaranty are independent of the Guaranteed Obligations, and a separate action or actions may be brought and prosecuted against each Guarantor to enforce this Guaranty, whether or not any action is brought against the Borrower or any other Guarantor and whether or not the Borrower or any other Guarantor is joined in any such action or actions. The liability of each Guarantor under this Guaranty shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of the Credit Agreement or any other Loan Document or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, any of the Guaranteed Obligations, or any other amendment or waiver of or any consent to departure from the Credit Agreement or any other Loan Document, including, without limitation, any increase in the Guaranteed Obligations resulting from the extension of additional credit to the Borrower or any of its Subsidiaries or otherwise; (iii) any taking, exchange, release or non-perfection of any Lien securing, or any taking, release or amendment or waiver of or consent to departure from any other guaranty of, any of the Guaranteed Obligations; (iv) any manner or order of sale or other enforcement of any Lien securing any or all of the Guaranteed Obligations or any manner or order of application of the proceeds of any such Lien to the payment of the Guaranteed Obligations or any failure to enforce any Lien or to apply any proceeds thereof; (v) any change, restructuring or termination of the corporate structure or existence of the Borrower or any of its Subsidiaries; or (vi) any other circumstance which might otherwise constitute a defense (except the defense of payment) available to, or a discharge of, a surety or guarantor. Guaranty Irrevocable and Continuing. This Guaranty is an irrevocable and continuing offer and agreement guaranteeing payment of any and all Guaranteed Obligations and shall extend to all Guaranteed Obligations now outstanding or created or incurred at any future time, whether or not created or incurred pursuant to any agreement presently in effect or hereafter made, until all obligations of the Lenders to extend credit to the Borrower have expired or been terminated and all Guaranteed Obligations have been fully, finally and indefeasibly paid. To the extent any contingent Obligation survives the expiration or termination of the Credit Agreement and the repayment of the Advances, each Guarantor's liability under this Guaranty shall likewise survive. This Guaranty may be released only in writing except, with respect to a given Guarantor, as provided for in Section 2.12. Reinstatement. If at any time any payment on any Guaranteed Obligation is set aside, avoided or rescinded or must otherwise be restored or returned, this Guaranty and the liability of each Guarantor under this Guaranty shall remain in full force and effect and, if previously released or terminated, shall be automatically and fully reinstated, without any necessity for any act, consent or agreement of any Guarantor, as fully as if such payment had never been made and as fully as if any such release or termination had never become effective. 159 84 Waiver. Guarantor hereby waives and relinquishes all rights, remedies and defenses accorded by applicable law to sureties or guarantors and agrees not to assert or take advantage of any such rights, remedies or defenses, including without limitation: (a) any right to require any Holder of Guaranteed Obligations to proceed against Borrower or any other Person or to proceed against or exhaust any security held by any Holder of Guaranteed Obligations at any time or to pursue any other remedy in the power of any Holder of Guaranteed Obligations before proceeding against Guarantor; (b) the defense of the statute of limitations in any action hereunder or in any action for the collection or performance of any Guaranteed Obligations; (c) any defense that may arise by reason of the incapacity, lack of authority, death or disability of any other Person or the failure of any Holder of Guaranteed Obligations to file or enforce a claim against the estate (in administration, bankruptcy or any other proceeding) of any other Person; (d) demand, presentment, protest and notice of any kind, including without limitation notice of the existence, creation or incurring of any new or additional indebtedness or obligation or of any action or non-action on the part of Borrower, any Holder of Guaranteed Obligations, any endorser or creditor of Borrower or Guarantor or on the part of any other Person under this or any other instrument in connection with any obligation or evidence of indebtedness held by any Holder of Guaranteed Obligations as Collateral or in connection with any Guaranteed Obligations; (e) all rights and defenses arising out of an election of remedies by any Holder of Guaranteed Obligations, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a Guaranteed Obligation, has destroyed the Guarantor's rights of subrogation and reimbursement against the principal by the operation of Section 580d of the California Code of Civil Procedure or otherwise; (f) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (g) any duty on the part of any Holder of Guaranteed Obligations to disclose to Guarantor any facts such Holder may now or hereafter know about Borrower, regardless of whether such Holder has reason to believe that any such facts materially increase the risk beyond that which Guarantor intends to assume, or has reason to believe that such facts are unknown to Guarantor, or has a reasonable opportunity to communicate such facts to Guarantor, since Guarantor acknowledges that Guarantor is 160 85 fully responsible for being and keeping informed of the financial condition of Borrower and of all circumstances bearing on the risk of non-payment of any Guaranteed Obligations; (h) any rights to a fair value hearing under California Code of Civil Procedure Section 580a to determine the size of a deficiency judgment following any foreclosure sale on any encumbered property; (i) any defense arising because of the election by any Holder of Guaranteed Obligations, in any proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy Code; and (j) any defense based upon any borrowing or grant of a security interest under Section 364 of the Federal Bankruptcy Code. Without limiting the generality of the foregoing, Guarantor hereby expressly waives any and all benefits which might otherwise be available to Guarantor under California Civil Code Sections 2809, 2810, 2819, 2839, 2845 through 2850, 2899 and 3433, California Code of Civil Procedure Sections 580a, 580b, 580d and 726, and California Commercial Code Section 3605. Subrogation. Each Guarantor hereby represents, warrants and agrees, in respect of any and all present and future rights of subrogation, recourse, reimbursement, indemnity, exoneration, contribution and other claims that such Guarantor at any time may have against the Borrower, any other Guarantor or any other Person liable for the payment of any of the Guaranteed Obligations (including, without limitation, the owner of any interest in collateral subject to a Lien securing any of the Guaranteed Obligations) as a result of or in connection with this Guaranty or any payment hereunder, that: No Agreement. Such Guarantor has not entered into, and agrees that it will not enter into, any agreement providing, directly or indirectly, for any such right or claim against the Borrower or, except as set forth in Section 2.10, against any other Subsidiary of the Borrower, and each such agreement now existing or hereafter entered into (except Section 2.10) is and shall be void; Release. Such Guarantor waives and releases any such right or claim against the Borrower, any other Guarantor or any other such Person until the Guaranteed Obligations have been paid in full; Capital Contribution. Neither the execution and delivery of this Guaranty by such Guarantor nor any payment by such Guarantor under this Guaranty shall give 161 86 rise to any claim (as that term is defined in the Bankruptcy Code) in favor of such Guarantor against the Borrower until the Guaranteed Obligations have been paid in full; and Subordination of Contribution Rights. Such Guarantor reserves, as against each other Guarantor, its right of contribution under Section 2.10 but agrees that all such contribution rights shall be included among the Subordinated Liabilities. Subordination Provisions. Subordination. Any and all present and future debts, liabilities and obligations of every type and description (whether for money borrowed, on intercompany accounts, for provision of goods or services, under tax sharing or contribution agreements or on account of any other transaction, agreement, occurrence or event and whether absolute or contingent, direct or indirect, matured or unmatured, liquidated or unliquidated, created directly or acquired from another, or sole, joint, several or joint and several) of the Borrower or any Subsidiary of the Borrower now outstanding or hereafter incurred or owed to any Guarantor (the "Subordinated Liabilities") shall be, and hereby are, subordinated to full and final payment of the Guaranteed Obligations. Prohibited Payments. If any Event of Default or Potential Default occurs, then for so long as such Event of Default or Potential Default may be continuing, no Guarantor will demand, sue for, accept or receive, or cause or permit any other Person to make, any payment on or transfer of property on account of any Subordinated Liabilities. No Liens or Transfers. Each Guarantor agrees that (i) it will not demand, accept or hold any Lien upon any real or personal property of the Borrower or any of its Subsidiaries as security for any of the Subordinated Liabilities and (ii) any such Lien shall be void. Insolvency Proceedings. In any Insolvency or Liquidation Proceeding, the Holders of Guaranteed Obligations shall be entitled to receive payment in full of all amounts due or to become due on or in respect of the Guaranteed Obligations, or provision shall be made for such payment in money or money's worth, before any Guarantor is entitled to receive any payment or distribution of any kind or character, whether in cash, property or securities, on account of any of the Subordinated Liabilities, and to that end the Holders of Guaranteed Obligations shall be entitled to receive, for application to the payment thereof, all payments and distributions of any kind or character, whether in cash, property or securities (including any such payment or distribution which may be payable or deliverable by reason of the payment of any other debt or liability of the Borrower or any Subsidiary of the Borrower being subordinated to 162 87 the payment of the Subordinated Liabilities), which may be payable or deliverable in respect of the Subordinated Liabilities in any such Insolvency or Liquidation Proceeding. Disallowed Post-Commencement Interest and Expenses. If in any Insolvency or Liquidation Proceeding (i) any payment or distribution of any kind or character, whether in cash, property or securities (including any such payment or distribution which may be payable or deliverable by reason of the payment of any other debt or liability of the Borrower or any Subsidiary of the Borrower being subordinated to the payment of the Subordinated Liabilities) is payable or deliverable in respect of the Subordinated Liabilities, and (ii) the Holders of Guaranteed Obligations are not otherwise entitled to receive such payment or distribution pursuant to Section 2.8(d), and (iii) any amount remains unpaid to any Holder of Guaranteed Obligations on account of any Disallowed Post-Commencement Interest and Expenses, then the Holders of Guaranteed Obligations shall be entitled to receive payment of all such unpaid Disallowed Post-Commencement Interest and Expenses from and out of any and all such payments and distributions in respect of the Subordinated Liabilities. Held in Trust. If any payment, transfer or distribution is made to any Guarantor upon any Subordinated Liabilities that is not permitted to be made under this Section 2.8 or that the Holders of Guaranteed Obligations are entitled to receive under this Section 2.8, such Guarantor shall receive and hold the same in trust, as trustee for the benefit of the Holders of Guaranteed Obligations, and shall forthwith transfer and deliver the same to the Agent, in precisely the form received (except for any required endorsement), for application to the payment of Guaranteed Obligations or any unpaid Disallowed Post-Commencement Interest and Expenses. Claims in Bankruptcy. Each Guarantor will file all claims against the Borrower or any Subsidiary of the Borrower in any Insolvency or Liquidation Proceeding in which the filing of claims is required or permitted by law upon any of the Subordinated Liabilities and will assign to the Agent, for the benefit of the Holders of Guaranteed Obligations, all rights of such Guarantor thereunder. If any Guarantor does not file any such claim at least 30 days prior to any applicable claims bar date, the Agent or any Lender is hereby authorized (but shall not be obligated), as attorney-in-fact for such Guarantor with full power of substitution, either to file such claim or proof thereof in the name of such Guarantor or, at the option of the Agent or such Lender, to assign the claim and cause the claim or proof thereof to be filed by an agent or nominee. The Agent and Lenders and their agents and nominees shall have the sole right, but no obligation, to accept or reject any plan proposed in such Insolvency or Liquidation Proceeding and to cast any votes and to take any other action with respect to all claims upon any of the Subordinated Liabilities. 163 88 Subordination Effective and not Impaired. This Section 2.8 shall remain effective for so long as this Guaranty is continuing and thereafter for so long as any Guaranteed Obligation is outstanding. Each Guarantor's obligations under this Section 2.8: (i) shall be absolute and unconditional as set forth in Section 2.3, irrevocable and continuing as set forth in Section 2.4, subject to reinstatement as set forth in Section 2.5 and not affected or impaired by any of the matters waived in Section 2.6; (ii) shall be subject to the provisions of Article III; and (iii) shall otherwise be as equally enduring and free from defenses as such Guarantor's liability under this Guaranty. Fraudulent Transfer Limitation. If, in any action to enforce this Guaranty or any proceeding to allow or adjudicate a claim under this Guaranty, a court of competent jurisdiction determines that enforcement of this Guaranty against any Guarantor for the full amount of the Guaranteed Obligations is not lawful under, or would be subject to avoidance under, Section 548 of the Bankruptcy Code or any applicable provision of comparable state law, the liability of such Guarantor under this Guaranty shall be limited to the maximum amount lawful and not subject to avoidance under such law. Contribution among Guarantors. The Guarantors desire to allocate among themselves, in a fair and equitable manner, their rights of contribution from each other when any payment is made by one of the Guarantors under this Guaranty. Accordingly, if any payment is made by a Guarantor under this Guaranty (a "Funding Guarantor") that exceeds its Fair Share, the Funding Guarantor shall be entitled to a contribution from each other Guarantor in the amount of such other Guarantor's Fair Share Shortfall, so that all such contributions shall cause each Guarantor's Aggregate Payments to equal its Fair Share. For these purposes: "Fair Share" means, with respect to a Guarantor as of any date of determination, an amount equal to (i) the ratio of (x) the Adjusted Maximum Amount of such Guarantor to (y) the aggregate Adjusted Maximum Amounts of all Guarantors, multiplied by (ii) the aggregate amount paid on or before such date by all Funding Guarantors under this Guaranty. "Fair Share Shortfall" means, with respect to a Guarantor as of any date of determination, the excess, if any, of the Fair Share of such Guarantor over the Aggregate Payments of such Guarantor. "Adjusted Maximum Amount" means, with respect to a Guarantor as of any date of determination, the maximum aggregate amount of the liability of such Guarantor under this Guaranty, limited to the extent required under Section 2.9 (except that, for purposes solely of this calculation, any assets or liabilities arising by virtue of any rights to or obligations of contribution under this Section 2.10 shall not be counted as assets or liabilities of such Guarantor). 164 89 "Aggregate Payments" means, with respect to a Guarantor as of any date of determination, the aggregate net amount of all payments made on or before such date by such Guarantor under this Guaranty (including, without limitation, under this Section 2.10). The amounts payable as contributions hereunder shall be determined by the Funding Guarantor as of the date on which the related payment or distribution is made by the Funding Guarantor, and such determination shall be binding on the other Guarantors absent manifest error. The allocation and right of contribution among the Guarantors set forth in this Section 2.10 shall not be construed to limit in any way the liability of any Guarantor under this Guaranty to the Holders of the Guaranteed Obligations. Joint and Several Obligation. This Guaranty and all liabilities of each Guarantor hereunder shall be the joint and several obligation of each Guarantor and may be freely enforced against each Guarantor, for the full amount of the Guaranteed Obligations (subject to Section 2.9), without regard to whether enforcement is sought or available against any other Guarantor. Release of Guarantor. If (i) all of the outstanding shares of capital stock and other equity, ownership and profit interests in any Guarantor are sold to a Person not an Affiliate of the Borrower in a transaction which is permitted under Section 5.3(b)(iv) of the Credit Agreement and (ii) the conditions set forth in Section 5.3(b)(iv) of the Credit Agreement are met in respect of such transaction, then the liability of such Guarantor under this Guaranty shall be automatically and permanently released and discharged, effective when such transaction is consummated and such requirements are met. MISCELLANEOUS PROVISIONS Condition of the Borrower. Each Guarantor is fully aware of the financial condition of the Borrower and its Subsidiaries and is executing and delivering this Guaranty based solely upon such Guarantor's own independent investigation of all matters pertinent hereto and is not relying in any manner upon any representation or statement by any Holder of Guaranteed Obligations. Each Guarantor represents and warrants that it is in a position to obtain, and each Guarantor hereby assumes full responsibility for obtaining, any additional information concerning the financial condition of the Borrower and each of its Subsidiaries and any other matter pertinent hereto as such Guarantor may desire, and such Guarantor is not relying upon or expecting any Holder of Guaranteed Obligations to furnish to such Guarantor any information now or hereafter in the possession of any Holder of Guaranteed Obligations concerning the same or any other matter. By executing this Guaranty, each Guarantor knowingly accepts the full range of risks encompassed within a contract of this type, which risks each Guarantor acknowledges. No 165 90 Guarantor shall have the right to require any Holder of Guaranteed Obligations to obtain or disclose any information with respect to the Guaranteed Obligations, the financial condition or prospects of the Borrower or any Subsidiary of the Borrower, the ability of the Borrower or any Subsidiary of the Borrower to pay or perform the Guaranteed Obligations, the existence, perfection, priority or enforceability of any collateral security for any or all of the Guaranteed Obligations, the existence or enforceability of any other guaranties of all or any part of the Guaranteed Obligations, any action or non-action on the part of any Holder of Guaranteed Obligations, the Borrower, any Subsidiary of the Borrower or any other Person, or any other event, occurrence, condition or circumstance whatsoever. Amendments. Amendment to Guaranty. No amendment or waiver of any provision of this Guaranty, no consent to any departure by any Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Agent and the Requisite Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given, except that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, (i) reduce or discharge the liability of any Guarantor hereunder, (ii) postpone any date fixed for payment hereunder, or (iii) change the number of Lenders required to take any action hereunder. Amendment or Modification of Other Loan Documents. The other Loan Documents may be amended, modified or supplemented in accordance with their terms without notice to or consent or agreement by any Guarantor, including, without limitation, so as to (i) alter, compromise, modify, accelerate, extend, renew, refinance or change the time or manner for making of Advances, provision of other financial accommodations, or the payment or performance of all or any portion of the Guaranteed Obligations, (ii) increase or reduce the rate of interest or amount of principal payable on the Obligations, (iii) release or discharge the Borrower, any other Loan Party or any other Person as to all or any portion of the Guaranteed Obligations, or (iv) release, substitute or add any one or more guarantors or endorsers, accept additional or substituted security for payment or performance of the Guaranteed Obligations, or release or subordinate any security therefor. Notices. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered, if to the Borrower, at Cadence Design Systems, Inc., 2655 Seely Road, San Jose, CA 95134, Attention: Treasurer, with a copy to the General Counsel, at the same address; if to any Lender, at its Domestic Lending Office specified opposite its name on Schedule I to the Credit Agreement; and if to the Agent, at Credit Lyonnais, 1301 Avenue of the Americas, New York, New York 10019, Attention: Syndications Group, with a 166 91 copy to Latham & Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, CA 90071, Attention: Hendrik de Jong; or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall be effective when received. Right of Set-off. If the Requisite Lenders give their express written consent pursuant to Section 8.5 of the Credit Agreement, each Lender shall have the right at any time or from time to time thereafter, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other liability at any time owing by such Lender to or for the credit or the account of any Guarantor against any and all liability of such Guarantor under this Guaranty, whether or not such Lender shall have made any demand under this Guaranty and even though such deposit or liability may then be unmatured. Each Lender agrees promptly to notify the affected Guarantor after any such set-off and application made by such Lender, but the failure to give such notice shall not affect the validity of such set-off and application and shall not expose such Lender to any liabilities. The rights of each Lender under this Section 3.4 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have. Successors and Assigns. This Guaranty is binding upon and enforceable against each Guarantor, its successors and assigns, and shall inure to the benefit of, and be enforceable by, each Holder of any of the Guaranteed Obligations and such Holder's heirs, representatives, successors and assigns. No Inquiry. Each Holder of Guaranteed Obligations may rely, without further inquiry, on the power and authority of each Guarantor, the Borrower and each of its Subsidiaries and on the authority of all officers, directors and agents acting or purporting to act on their behalf. Involuntary Proceedings. So long as any Lender is obligated to extend credit under the Credit Agreement or any Guaranteed Obligations are outstanding, no Guarantor will, without the prior written consent of the Agent and the Requisite Lenders, commence or join with any other Person in commencing any Insolvency or Liquidation Proceeding against the Borrower or any of its Subsidiaries. Payments Free and Clear of Taxes. Payment. Each Guarantor agrees to pay any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Guaranty, excluding, with respect to any 167 92 Holder of Guaranteed Obligations, taxes imposed on its net income (collectively, the "Guaranty Taxes"). Indemnity. Each Guarantor hereby indemnifies each Holder of Guaranteed Obligations for the full amount of Guaranty Taxes (including, without limitation, any Guaranty Taxes imposed by any jurisdiction on amounts payable under this Section 3.8) paid by such Holder and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto (plus interest on any amounts not paid within thirty days from the date written demand is made therefor at a rate equal to the rate payable under the Credit Agreement on Base Rate Advances during the continuance of a default in the repayment of Advances), whether or not such Guaranty Taxes were correctly or legally asserted; provided, however, that if any such Holder subsequently recoups all or any part of such amount from the relevant taxation authority or other authority, then such Holder shall identify and remit the amount of the recoupment to such Guarantor within five Business Days after it receives the recoupment. Survival. Without prejudice to the survival of any other agreement of any Guarantor hereunder, the agreements and obligations of each Guarantor contained in this Section 3.8 shall survive the full and final payment and performance of the Guaranteed Obligations. Receipt. Within 30 days after the date of any payment of Guaranty Taxes by any Guarantor, such Guarantor shall furnish to the Agent a receipt for any Guaranty Taxes paid by such Guarantor pursuant to this Section 3.8. No Waiver; Remedies. No failure on the part of any Holder of Guaranteed Obligations to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, and no single or partial exercise of any right hereunder shall preclude any other or further exercise of any other right or of the same right as to any other matter or on a subsequent occasion. Remedies Cumulative. All rights, powers and remedies of each Holder of Guaranteed Obligations under this Guaranty, under any other agreement now or at any time hereafter in effect between any such Holder and any Guarantor (whether relating to the Guaranteed Obligations or otherwise) or now or hereafter existing at law or in equity or by statute or otherwise, shall be cumulative and concurrent and not alternative and each such right, power and remedy may be exercised independently of, and in addition to, each other such right, power or remedy. Severally Enforceable. This Guaranty may be enforced severally and successively by any one or more of the Holders of Guaranteed Obligations in one or more 168 93 actions, whether independent, concurrent, joint, successive or otherwise. The claims, rights and remedies of any Holder of Guaranteed Obligations (i) may not be modified or waived by any other Holder, except as set forth in Section 3.2(a), and (ii) shall not be reduced, discharged, affected or impaired by any deed, act or omission, whether or not wrongful, of any other Holder. Counterparts. This Guaranty may be executed in counterparts, and each such counterpart for all purposes shall be deemed an original and all such counterparts together shall constitute but one and the same agreement. Severability. If any provision hereof or the application thereof in any particular circumstance is held to be unlawful or unenforceable in any respect, all other provisions hereof and such provision in all other applications shall nevertheless remain effective and enforceable to the maximum extent lawful. Integration. This Guaranty and the other Loan Documents to which any Guarantor is party are intended as an integrated and final expression of the entire agreement of such Guarantor with respect to the subject matter hereof and thereof. No representation, understanding, promise or condition concerning the subject matter hereof and thereof shall be binding upon any Holder of Guaranteed Obligations unless expressed herein or therein, and no course of prior dealing or usage of trade, and no parol or extrinsic evidence of any nature, shall be admissible to supplement, modify or vary any of the terms hereof or thereof. Acceptance of or acquiescence in a course of performance rendered under this Guaranty or any other dealings between any Guarantor and any Holder of Guaranteed Obligations shall not be relevant to determine the meaning of this Guaranty even though the accepting or acquiescing party had knowledge of the nature of the performance and opportunity for objection. Counsel. Each Guarantor acknowledges and agrees that the Lenders have encouraged Guarantor to obtain the counsel of Guarantor's own qualified attorney, duly licensed to practice in the State of California, before Guarantor executes this Guaranty. By executing this Guaranty, Guarantor represents and warrants that either: (a) Guarantor has obtained such counsel; or (b) Guarantor has determined, on its own, to execute and deliver this Guaranty without first obtaining such counsel, notwithstanding the Lenders' encouragement to the contrary. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; WAIVER OF DAMAGES. GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA. 169 94 SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OR THE CENTRAL DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS GUARANTY, EACH PARTY HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE JURISDICTION OF THOSE COURTS. EACH PARTY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS GUARANTY OR ANY DOCUMENT RELATED HERETO. SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS MAY BE MADE BY ANY MEANS PERMITTED BY CALIFORNIA LAW. WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ALL RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS GUARANTY, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE, AND AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH PARTY FURTHER AGREES THAT ITS RIGHT TO A TRIAL BY JURY IS HEREBY WAIVED AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS GUARANTY OR ANY OTHER LOAN DOCUMENT OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY AND THE OTHER LOAN DOCUMENTS. LIMITATION OF LIABILITY. NO CLAIM MAY BE MADE BY ANY GUARANTOR AGAINST THE AGENT OR ANY LENDER OR THE AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR AGENTS OF ANY OF THEM FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM (WHETHER BASED UPON ANY BREACH OF CONTRACT, TORT, BREACH OF STATUTORY DUTY OR ANY OTHER THEORY OF LIABILITY) ARISING OUT OF OR RELATED TO THE 170 95 TRANSACTIONS CONTEMPLATED BY THIS GUARANTY, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, AND EACH GUARANTOR HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY CLAIM FOR ANY SUCH DAMAGES, WHETHER OR NOT NOW ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR. Acceptance and Notice. Each Guarantor acknowledges acceptance hereof and reliance hereon by each Holder of any of the Guaranteed Obligations and waives, irrevocably and forever, all notice thereof. IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. SEELEY PROPERTIES, INC. By: Name: Title: RIVER OAKS PLACE ASSOCIATES, L.P. By: Seeley Properties, Inc., its general partner By: Name: Title: Annex 1 Form of Subsidiary Joinder AGREEMENT TO BE BOUND BY GUARANTY 171 96 This Agreement to be Bound by Guaranty (this "Agreement") is executed as of the _____ day of _________, ____, by [NAME OF NEW SUBSIDIARY] , a ____________ [corporation] [partnership] [etc.] (the "New Subsidiary"). RECITALS On or about April 11, 1996, Cadence Design Systems, Inc., a Delaware corporation (the "Borrower") executed that certain Revolving Credit Agreement, dated as of April 11, 1996 (as amended to date, the "Credit Agreement"), by and among the Borrower, Credit Lyonnais, as Administrative Agent, and the financial institutions party thereto. Terms not defined herein are used as defined in the Credit Agreement. As a condition to the execution of the Credit Agreement by the Agent and the Lenders, all of the Subsidiaries of the Borrower (other than the Inactive Subsidiaries and Foreign Subsidiaries) executed that certain Subsidiary Guaranty, dated as of April 11, 1996 (as amended to date, the "Guaranty"), by and among the entities listed in the signature pages thereof in favor of the Agent, the Lenders and all other Holders (as defined in the Guaranty). Section 5.2(e) of the Credit Agreement provides that when the Borrower acquires or forms a new Subsidiary (other than an Inactive Subsidiary or a Foreign Subsidiary) or when an Inactive Subsidiary ceases to be an Inactive Subsidiary or a Foreign Subsidiary ceases to be a Foreign Subsidiary, the Borrower will cause such Subsidiary to deliver an executed counterpart to the Guaranty and such Subsidiary shall become a party to the Guaranty. On [Insert Date] , the New Subsidiary [Describe acquisition/formation of New Subsidiary, or "activation" of Inactive or Foreign Subsidiary] . The New Subsidiary will benefit from the funds available to the Borrower under the Credit Agreement, and in recognition of this benefit and in order to comply with the Credit Agreement, the New Subsidiary is willing to enter into this Agreement. AGREEMENT NOW, THEREFORE, the New Subsidiary agrees as follows: Representations and Warranties. On and as of the date of this Agreement (the "Effective Date") and for the benefit of the Agent, the Lenders and all other Holders (as defined in the Guaranty), the New Subsidiary hereby makes each of the representations and warranties contained in the Guaranty. 172 97 Agreement to be Bound. The New Subsidiary agrees that, on and as of the Effective Date, it shall become a Guarantor under the Guaranty and shall be bound by all the provisions of the Guaranty the same as if the New Subsidiary had executed the Guaranty on the Closing Date. Waiver. Without limiting the generality of the waivers in the Guaranty, the New Subsidiary specifically agrees to be bound by the Guaranty and waives any right to notice of acceptance of its execution of this Agreement and of its agreement to be bound by the Guaranty. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California. IN WITNESS WHEREOF, the New Subsidiary has caused this Agreement to be Bound by Guaranty to be executed by its duly authorized officer. [NAME OF NEW SUBSIDIARY] By: ___________________________ Name: Title: 173 98 EXHIBIT C-2 FORM OF PLEDGE AND SECURITY AGREEMENT This PLEDGE AND SECURITY AGREEMENT, dated as of April 11, 1996, is made by CADENCE DESIGN SYSTEMS, INC., a Delaware corporation ("Cadence"), SEELEY PROPERTIES, INC., a California corporation, and RIVER OAKS PLACE ASSOCIATES, L.P., a California limited partnership (collectively, the "Grantors"), in favor of CREDIT LYONNAIS, a bank organized under the laws of the Republic of France, acting through its New York Branch, as Agent for the Lenders under the Credit Agreement described below ("Secured Party"). RECITALS A. Cadence has entered into that certain Revolving Credit Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among Cadence, the financial institutions party thereto as Lenders, and Credit Lyonnais, as Agent. B. It is a condition precedent to the extension of credit under the Credit Agreement that the Grantors shall have granted the security interests described herein as security for each and all the Obligations (as that term is defined in the Credit Agreement) and as security for the other debts, liabilities and obligations secured hereunder. NOW, THEREFORE, in consideration of the foregoing and in order to induce the Lenders to extend credit under the Credit Agreement, the Grantors hereby agree as follows: DEFINITIONS AND ACCOUNTING TERMS General Definitions. Except as otherwise specifically provided herein, the terms which are defined in Section 1.1 of the Credit Agreement shall have the same meanings when used in this Agreement and the provisions of Sections 1.2 and 1.3 of the Credit Agreement shall apply to this Agreement. U.C.C. Definitions. Where applicable and except as otherwise expressly provided herein, terms used herein (whether or not capitalized) shall have the respective meanings assigned to them in the Uniform Commercial Code as enacted in the State of California (the "UCC"). Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings: 174 99 "Agreement" means this Pledge and Security Agreement, dated as of the date set forth above, made by the Grantors for the benefit of Secured Party. "Claims" is defined in Section 2.1(g). "Collateral" is defined in Section 2.1. "Pledged Shares" is defined in Section 2.1(a). "Proceeds" includes (i) all payments, dividends, cash, options, warrants, rights, instruments and other property of any type or nature at any time received, receivable or otherwise distributed, voluntarily or involuntarily, (x) on account of, in respect of or in exchange for any item of Collateral or (y) upon the collection, sale or other disposition of any item of Collateral; (ii) any insurance or payments under any indemnity, warranty or guaranty now or hereafter payable in respect of any item of Collateral or any proceeds thereof or any loss relating thereto; (iii) all proceeds of any Collateral; and (iv) any property or interest in property acquired with or in exchange for any of the foregoing. "Secured Obligations" is defined in Section 2.2. "Secured Party" means Credit Lyonnais, as Agent for the Lenders under the Credit Agreement. "UCC" is defined in Section 1.2. SECURITY INTEREST AND COLLATERAL Creation of Security Interest. As security for the due and punctual payment and performance of all Secured Obligations, each Grantor hereby grants Secured Party a security interest in all right, title and interest of the Grantor in, to, under or derived from the following property (collectively, the "Collateral"), in each case whether now owned or hereafter acquired by the Grantor and wherever located: The shares of stock listed on Schedule A hereto (the "Pledged Shares"); All other shares of stock or equity securities of, or ownership interests in, any issuer of the Pledged Shares or any other Person, in each case whether or not represented by a certificated security or other instrument, except, as to Cadence, (i) the 175 100 outstanding capital stock of IMS held by Cadence on February 8, 1996, (ii) the outstanding capital stock of any Foreign Subsidiary other than 65% of the outstanding capital stock of each Material Foreign Subsidiary and (iii) notes or other instruments evidencing loans and advances to employees of Cadence or any of its Subsidiaries or any equity securities so long as the aggregate unrecovered initial cost of such notes, other instruments and equity securities does not exceed $3,000,000; Except as may be provided in Section 2.1(b), all options, warrants and rights to subscribe for or purchase voting or nonvoting capital stock or equity securities of, or ownership interests in, any issuer of the Pledged Shares or any other Person, in each case whether or not represented by a certificated security or other instrument; All inventory, including, without limitation, (i) all raw materials, work in process and finished goods held for sale or lease or leased or furnished or to be furnished under contracts of service, (ii) all goods returned to or stopped in transit by the Grantor and (iii) all supplies and materials used or consumed in any business of the Grantor; and all documents of title; All equipment, including, without limitation, manufacturing, distribution and sales equipment, office equipment, supplies, appliances, data processing and communications equipment, furniture, furnishings, tools, fixtures, trade fixtures, automobiles, trucks, trailers, other motor vehicles and aircraft and all other goods (other than inventory) used or bought for use for any business; All accounts and accounts receivable, including, without limitation, all rights to payment for goods sold or leased or for services rendered which are not evidenced by an instrument or chattel paper, and all liens and security interests at any time securing the same; All money, notes, bonds, debentures, evidences of indebtedness and all other debt instruments and debt securities, all chattel paper, all loans receivable, all tax refunds, all deposits and deposit accounts, all brokerage, investment and securities accounts and interests in, and entitlements to, the financial assets from time to time held therein, all royalties, guaranties, and indemnities, all claims and causes of action of every type and description, and all other rights and claims for the payment of money (in each case whether due or to become due, whether arising by contract or founded in tort or arising by law or otherwise, and whether or not earned by performance, and specifically including all "claims," as such term is defined in Section 101 of the United States Bankruptcy Code, as in effect on the date hereof (hereinafter, "Claims")), and all liens and security interests at any time securing the same; 176 101 All other general intangibles, including, without limitation, permits, licenses, franchises, contracts, patents, patent applications, copyrights, copyright applications, rights and interests in copyrights and works protectable by copyright, trademarks, trademark applications, trade names, service marks and service mark applications and other indicia of origin, technical knowledge and processes, formal or informal licensing arrangements, blueprints, technical specifications, computer software, know-how, trade secrets, customer lists, supplier lists, corporate books and records, business plan and other corporate information, and all embodiments thereof, and rights thereto, together with the goodwill of the business symbolized by or connected with the Grantor's trademarks, licenses and other rights described in this subsection; All replacements, additions, parts, appurtenances, accessions, substitutions, repairs, products, offspring, issues, rents and profits of, to or from any of the foregoing; and All Proceeds of any of the foregoing, provided, nevertheless, that the Collateral shall not include any interest in real property (or any estate for years therein), and the foregoing grant of a security interest shall not require Secured Party to provide any goods or services or assume any other duties or obligations under the documents or agreements set forth in Section 2.1(h) above. Notwithstanding the foregoing provisions of this Section 2.1: A. Such grant of a security interest shall not extend to, and the term "Collateral" shall not include, any right (other than a right to the payment of money) of any Grantor under any license agreement, whether the Grantor is the licensor or the licensee, if, to the extent that and for as long as the license agreement prohibits the creation of a security interest in such right or requires any consent for the assignment or grant of a security interest therein that has not been given; provided, however, that, whether or not any agreement purports to restrict the assignment of any account or the creation of any security interest in any account, chattel paper or general intangible for money due or to become due or in any proceeds of such agreement or purports to require any consent thereto, such grant of a security interest shall in any event extend to, and the term "Collateral" shall include, (i) all present and future accounts, chattel paper and general intangibles for money due or to become due, (ii) all proceeds thereof, (iii) all proceeds of or from the exercise, collection or enforcement of any right which is excluded under this Clause A, and (iv) any right which is excluded under this Clause A, automatically and without need of any further confirmation, act or deed, if, as and when the prohibition or consent requirement giving rise to such exclusion is eliminated or waived or the required consent is given. 177 102 B. If any license agreement permits the creation of a security interest in any right (other than a right to the payment of money) of any Grantor thereunder but prohibits or restricts the foreclosure or other enforcement of such security interest, then such grant of a security interest shall extend to, and the term "Collateral" shall include, such right but the foreclosure or enforcement of such security interest shall be limited as necessary to comply with such prohibition or restriction. C. Such grant of a security interest shall not extend to, and the term "Collateral" shall not include, any governmental license or permit in which it is unlawful to grant a security interest. Secured Obligations. The Collateral secures (i) the payment of all present and future Obligations and all other debts and liabilities of any one or more of the Grantors now outstanding or hereafter arising under the Credit Agreement, this Agreement or any other Loan Document, whether for principal, interest, fees, cost and expense reimbursements, indemnification or otherwise and whether outstanding to the Agent, a Lender or any other Person, (ii) the performance by the Grantors of all of their other obligations of every kind and character arising under the Credit Agreement, this Agreement or any other Loan Document and (iii) all costs and expenses incurred by Secured Party in asserting, enforcing or protecting a Claim in respect of any such debts, liabilities and obligations or the Collateral in any bankruptcy case or insolvency proceeding to which any of the Grantors or any other Loan Party may be party and all collection costs and enforcement expenses incurred by Secured Party in collecting any such Claim or in retaking, holding, preparing for sale, selling or otherwise disposing of or realizing on any Collateral or otherwise exercising or enforcing any of its rights or remedies hereunder, together (in each case) with Secured Party's reasonable attorneys' fees and disbursements and court costs related thereto (collectively, the "Secured Obligations"). Delivery of Instruments. All stock certificates, notes, bonds, debentures and other instruments constituting the Collateral (except checks received and collected in the ordinary course of business) shall be delivered to and held by Secured Party on the date hereof or, if hereafter acquired, immediately upon acquisition thereof by the Grantors and without any notice from or demand by Secured Party, in each case in suitable form for transfer by delivery or accompanied by duly executed instruments of transfer or assignments in blank or with appropriate endorsements, in form and substance satisfactory to Secured Party, except as provided in Sections 5.2(e), 5.2(j) and 5.2(k) of the Credit Agreement. Further Assurances. Subject to Sections 5.2(e), 5.2(j) and 5.2(k)(iii) of the Credit Agreement, the Grantors will promptly (and in no event later than five days after request by Secured Party) execute and deliver, and use their reasonable and diligent best efforts to obtain from other Persons, all instruments and documents (including, without limitation, assignments, 178 103 transfer documents and transfer notices, financing statements and other lien notices), in form and substance satisfactory to Secured Party, and take all other actions which are necessary or, in the good faith judgment of Secured Party, desirable or appropriate to create, perfect, protect or enforce Secured Party's security interests in the Collateral, to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral, to protect the Collateral against the rights, Claims or interests of third Persons or to effect or to assure further the purposes and provisions of this Agreement and the Credit Agreement, including Section 5.2(k)(ii) thereof, and the Grantors will pay all costs related thereto and all reasonable expenses incurred by Secured Party in connection therewith. Notwithstanding the foregoing, no Grantor shall be obligated to file any application for the registration of any Intellectual Property Collateral (as defined in the Intellectual Property Assignment) which it would not otherwise file in the exercise of its ordinary business practices or to take any actions to perfect any security interest with respect to any Intellectual Property Collateral outside the U.S. SECTION 2.5 Survival of Security Interest. Except as otherwise required by law, the security interest granted hereby shall, unless released in writing by Secured Party pursuant to the Credit Agreement, (i) remain enforceable as security for all Secured Obligations now outstanding or created or incurred at any future time (whether or not created or incurred pursuant to any agreement presently in effect or hereafter made and notwithstanding any subsequent repayment of any of the Secured Obligations or any other act, occurrence or event), until all obligations of the Lenders to extend credit to Cadence have expired or been terminated and all Secured Obligations have been fully and finally paid and (ii) survive any sale, exchange or other disposition of the Grantors' interest in any Collateral and remain enforceable against each transferee and subsequent owner of such interest, even if such sale, exchange or other disposition is permitted at the time under the Credit Agreement. SECTION 2.6 Reinstatement. If at any time any payment on any Secured Obligation is set aside, avoided, or rescinded or must otherwise be restored or returned, this Agreement and the security interest created hereby shall remain in full force and effect and, if previously released or terminated, shall be automatically and fully reinstated, without any necessity for any act, consent or agreement of the Grantors, as fully as if such payment had never been made and as fully as if any such release or termination had never become effective. REPRESENTATIONS AND WARRANTIES Representations and Warranties of Grantors. Each Grantor represents and warrants that: Schedule A completely and accurately sets forth all requested information regarding the Pledged Shares. The Pledged Shares have been duly authorized and validly 179 104 issued, are fully paid and non-assessable and were not issued in breach or derogation of preemptive rights of any Person. The Grantor's chief executive office is located at the address shown as the chief executive office on Schedule B hereto. The Grantor has no places of business other than its chief executive office and the other locations set forth on Schedule B. All tangible Collateral, except instruments delivered to Secured Party in pledge and financial intermediary accounts, and all of the Grantor's records relating to any Claims owned by it are kept solely at the Grantor's chief executive office, except for certain office equipment and other tangible Collateral that is kept at other offices as set forth in Schedule B hereto. The Grantor does not do business, and for the previous five years has not done business, under any fictitious business names or trade names other than those listed on Schedule C hereto. The Grantor at all times is (or, as to any item of Collateral acquired after the date hereof, will be) the sole legal and beneficial owner of all Collateral reflected on its books and records as belonging solely to it and has exclusive possession and control thereof (except as otherwise occurring in the ordinary course of business) free and clear of any Liens except those created by this Agreement or permitted under Section 5.3(a) of the Credit Agreement. No financing statement, notice of lien, mortgage, deed of trust or instrument similar in effect covering the Collateral or any portion thereof or any proceeds thereof exists or is on file in any public office, except as may have been filed in favor of Secured Party, as set forth on Schedule 5.3(d) to the Credit Agreement and as otherwise permitted under Section 5.3(a) of the Credit Agreement. The Collateral has not been and will not be used or bought by the Grantor for personal, family or household purposes. All originals of all stock certificates, notes, bonds, debentures and other instruments constituting Collateral (except checks received and collected by the Grantor in the ordinary course of business) have been delivered to Secured Party with all necessary or appropriate endorsements or instruments of transfer executed in blank, except as otherwise permitted by Sections 5.2(e), 5.2(j) and 5.2(k) of the Credit Agreement. Except (i) as set forth in Schedule D, (ii) as to laws generally applicable to the creation, perfection or enforcement of security interests in personal property and (iii) as to such contractual consents as have been obtained by the Grantor, neither the Grantor nor any of the Collateral purported to be granted by it is subject to any requirement of law or contractual obligation which 180 105 prohibits, restricts or limits the execution, delivery or performance of this Agreement or the creation, perfection or enforcement of the security interest purported to be created hereby. None of the Collateral constitutes "margin stock," as defined in Regulation U of the Board of Governors of the Federal Reserve System. The proper taxpayer identification number for the Grantor is accurately set forth on Schedule E. COVENANTS Covenants of Grantors. Each Grantor covenants and agrees that so long as the security interest created hereby remains outstanding: The Grantor will deliver to Secured Party each instrument included in the Collateral as set forth in Section 2.3. The Grantor will not (i) cause, permit or suffer any voluntary or involuntary change in its name, identity or corporate structure, or in the location of its chief executive office, and (ii) keep any tangible Collateral or any records relating to any Claim owned by it, or permit or suffer any such Collateral or records to be moved, to any other location unless (in each case) (x) Schedule B has first been appropriately supplemented with respect thereto, and (y) an appropriate financing statement has been filed in the proper office and in the proper form, and all other requisite actions have been taken, to perfect or continue the perfection (without loss of priority) of Secured Party's security interest in the Collateral, except as otherwise provided in Sections 5.2(e), 5.2(j) or 5.2(k) of the Credit Agreement. The Grantor will defend the Collateral against all claims and demands of all Persons at any time claiming the same or any interest therein, to the extent such Collateral is material to the conduct of its business. The Grantor will not encumber, sell, exchange or otherwise dispose of any item of Collateral or any interest therein, or permit or suffer any such item to be encumbered, sold, exchanged or otherwise disposed of, unless (i) such action is permitted at the time under the Credit Agreement and (ii) the Grantor makes all payments on account of the Obligations required to be made therefrom, if any, and the Grantor and each other Loan Party takes all other actions required to be taken in connection therewith, under the Credit Agreement, this Agreement or any other 181 106 Loan Document. Secured Party is hereby authorized to file one or more financing statements, and continuations thereof and amendments thereto, relative to all or any part of the Collateral, without the signature of the Grantor where permitted by law. The Grantor will maintain insurance as required in Section 5.2(g) of the Credit Agreement. Secured Party may at any time (but shall not be obligated to) (i) perform any of the obligations of the Grantor under this Agreement if the Grantor fails to perform such obligation within 30 days (or, in the case of insurance, within 10 days) after written demand by Secured Party and (ii) make any payments and do any other acts it may deem necessary or desirable to protect its security interest in the Collateral, including, without limitation, the right to pay, purchase, contest or compromise any Lien that attaches or is asserted against any Collateral, to procure insurance, and to appear in and defend any action or proceeding relating to the Collateral, and the Grantor will promptly reimburse Secured Party for all payments made by Secured Party in doing so, together with interest thereon at the rate then applicable under the Credit Agreement to the Advances, and all reasonable costs and expenses related thereto as set forth in Section 8.11 hereof. VOTING RIGHTS, DIVIDENDS AND DISTRIBUTIONS Voting Rights. So long as no Event of Default has occurred and is continuing or would result from any exercise thereof, each Grantor shall have and may exercise all voting rights with respect to any and all shares of stock, equity securities and other equity, ownership or profit interests constituting Collateral, except that: the Grantor may not and will not act or vote in favor of any action that would be or cause a breach of any obligations of the Grantor or any other Loan Party under the Credit Agreement or under any other Loan Document; the Grantor may not and will not act or vote in favor of (i) the authorization or issuance of any options, warrants, voting rights, or preference shares or additional shares, or (ii) any reclassification, readjustment, reorganization, merger, consolidation, sale or disposition of assets, or dissolution, without giving Secured Party at least 15 days' prior written notice thereof, except as permitted under Sections 5.3(b) and 5.3(g) of the Credit Agreement and except in compliance with Section 5.2(k)(ii) of the Credit Agreement; and 182 107 the Grantor may not and will not act or vote in favor of any action that does or is reasonably likely to have a material adverse effect on the value of the Collateral. Upon the occurrence and during the continuance of an Event of Default, Secured Party may (but shall not be obligated to) terminate the Grantors' rights to exercise voting rights with respect to any or all such shares of stock, equity securities and ownership interests, either by giving written notice of such termination to the Grantors or by transferring such shares, securities or interests into Secured Party's name, and Secured Party shall thereupon have the sole right and power to exercise such voting rights. Dividends, Distributions and Payments. So long as no Event of Default has occurred and is continuing or would result, the Grantors shall be entitled to receive all dividends and distributions on all shares of stock, equity securities and other equity, ownership and profit interests constituting Collateral and all payments on any notes, bonds, debentures and other instruments constituting Collateral, so long as the Grantors make all payments on account of the Obligations required to be made therefrom, if any, and the Grantors and each other Loan Party take all other actions required to be taken in connection therewith, under the Credit Agreement, this Agreement or any other Loan Document. DEFAULTS AND REMEDIES Remedies. Upon and at any time after the occurrence and during the continuance of any Event of Default, Secured Party may exercise and enforce, in any order, (i) each and all of the rights and remedies available to a secured party upon default under the UCC or other applicable law, (ii) each and all of the rights and remedies available to it, as Agent or as Secured Party, under the Credit Agreement or any other Loan Document and (iii) each and all of the following rights and remedies: Secured Party may notify any or all account debtors and obligors on any Collateral to make payment directly to Secured Party. Secured Party may take possession of all items of Collateral that are not then in its possession and require the Grantors or the Person in possession thereof to deliver such Collateral to Secured Party at one or more locations designated by Secured Party and reasonably convenient to it and the Grantors. Secured Party may sell, lease, license or otherwise dispose of any or all of the Collateral or any part thereof in one or more parcels at a public sale or in a private sale or transaction, on any exchange or market or at Secured Party's 183 108 offices or on the Grantors' premises or at any other location, for cash, on credit or for future delivery, and may enter into all contracts necessary or appropriate in connection therewith, without any notice whatsoever unless required by law. The Grantors agree that at least ten calendar days' written notice to the Grantors of the time and place of any public sale or the time after which any private sale is to be made shall be commercially reasonable. The giving of notice of any such sale or other disposition shall not obligate Secured Party to proceed with the sale or disposition, and any such sale or disposition may be postponed or adjourned from time to time, without further notice. (d) Secured Party may, on a royalty-free basis, use and license use of any trademark, trade name, trade style, copyright, patent or technical knowledge or process owned, held or used by the Grantors in respect of any Collateral as to which any right or remedy of Secured Party is exercised or enforced. In addition, each holder of any Secured Obligation may exercise and enforce such rights and remedies for the collection of such Secured Obligation as may be available to it by law or agreement. Remedies Cumulative. Secured Party may exercise and enforce each right and remedy available to it upon the occurrence and during the continuance of an Event of Default either before or concurrently with or after, and independently of, any exercise or enforcement of any other right or remedy of Secured Party or any holder of any Secured Obligation against any Person or property. All such rights and remedies shall be cumulative, and no one of them shall exclude or preclude any other. Surplus; Deficiency. Any surplus proceeds of any sale or other disposition of Collateral by Secured Party remaining after all the Secured Obligations are paid in full shall be paid over to the Grantors or to whomever may be lawfully entitled to receive such surplus or as a court of competent jurisdiction may direct, but if any obligation to make Advances then remains outstanding or if any contingent, unliquidated or unmatured Secured Obligation then remains outstanding, such surplus proceeds may be retained by Secured Party and held as Collateral until such time as all such obligations have expired or been terminated and all outstanding Secured Obligations have been determined, liquidated, paid in full and discharged. The Grantors shall be and remain liable for any deficiency. Information Related to Collateral. During the continuance of an Event of Default, if Secured Party determines to sell or otherwise dispose of any Collateral, the Grantors shall, and shall cause any Person controlled by them to, furnish to Secured Party all information Secured Party may request that pertains or could pertain to the value or condition of such Collateral or would or might facilitate its sale. 184 109 Sale Exempt from Registration. During the continuance of an Event of Default, Secured Party shall be entitled at any sale or other disposition of Collateral, if it deems it advisable to do so, to restrict the prospective bidders or purchasers to persons who will provide assurances satisfactory to Secured Party that they may be offered and sold the Collateral to be sold without registration under the Securities Act of 1933, as amended (the "Securities Act"), or any other applicable state or federal statute, and upon the consummation of any such sale, Secured Party shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Secured Party may solicit offers to buy the Collateral, or any part of it, from a limited number of investors deemed by Secured Party, in its commercially reasonable judgment, to meet the requirements to purchase securities under Regulation D promulgated under the Securities Act as then in effect (or any other regulation of similar import). If Secured Party solicits such offers from such investors, then the acceptance by Secured Party of the highest offer obtained therefrom shall be deemed to be a commercially reasonable method of disposition of such Collateral. Registration Rights. During the continuance of an Event of Default, if Secured Party determines that registration of any securities constituting Collateral under the Securities Act or other applicable law is required or desirable in connection with any sale, the Grantors will use their best efforts to cause such registration to be effectively made, at no expense to Secured Party, and to continue any such registration effective for such time as may be reasonably necessary in the opinion of the Secured Party. THE SECURED PARTY Credit Agreement Provisions. Secured Party is executing and delivering this Agreement, and accepting the security interests, rights, remedies, powers and benefits conferred upon Secured Party hereby, as Agent under the Credit Agreement. The provisions of Article VII of the Credit Agreement and all rights, powers, immunities and indemnities granted to the Agent under the Credit Agreement and other Loan Documents shall apply in respect of such execution, delivery and acceptance and in respect of any and all actions taken or omitted by Secured Party under, in connection with or with respect to this Agreement. No Liability. Secured Party makes no statement, promise, representation or warranty whatsoever, and shall have no liability whatsoever, to any holder of any Secured Obligations as to the authorization, execution, delivery, legality, enforceability or sufficiency of this Agreement or as to the creation, perfection, priority or enforceability of any security interest granted hereunder or as to existence, ownership, quality, condition, value or sufficiency of any Collateral or as to any other matter whatsoever. 185 110 Holders Bound. Except where the consent of others may be required pursuant to the express provisions of Section 8.1 of the Credit Agreement, any modification, amendment, waiver, termination or discharge of any security interest, right, remedy, power or benefit conferred upon Secured Party hereby that is effectuated in a writing signed by Secured Party shall be binding upon all holders of Secured Obligations if it is (i) authorized pursuant to any provision of the Credit Agreement or any other Loan Document, (ii) required by law or (iii) authorized or ratified by the Requisite Lenders. Duty of Care. Neither Secured Party nor any director, officer, employee, attorney or agent of Secured Party shall be obligated to care for the Collateral hereunder or to collect, enforce, vote or protect the Collateral or any rights or interests of the Grantors related thereto or to preserve or enforce any rights which the Grantors or any other Person may have against any third party, except only that Secured Party shall exercise reasonable care in physically safekeeping any item of Collateral that was delivered into Secured Party's possession. Secured Party shall be deemed to have exercised such reasonable care if the Collateral is accorded treatment substantially equal to that which Secured Party accords to its own property or if it selects, with reasonable care, a custodian or agent to hold such collateral for Secured Party's account. MISCELLANEOUS PROVISIONS Incorporation of Guaranty Provision. The respective obligations of Seeley Properties, Inc. and River Oaks Place Associates, L.P. under this Agreement: (i) shall be absolute and unconditional as set forth in Section 2.3 of its respective Guaranty, irrevocable and continuing as set forth in Section 2.4 of such Guaranty, subject to reinstatement as set forth in Section 2.5 of such Guaranty and not affected or impaired by any of the matters waived in Section 2.6 of such Guaranty; (ii) shall be subject to the provisions of Article III of such Guaranty; and (iii) shall otherwise be as equally enduring and free from defenses as such Grantor's respective liability under such Guaranty. Notices. All notices, requests, approvals, consents and other communications required or permitted to be made hereunder shall, except as otherwise provided, be given in the manner specified and to the addresses set forth in Section 8.2 of the Credit Agreement. Headings. The various headings in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provision hereof. Changes. This Agreement or any provision hereof may be changed, waived or terminated only by a statement in writing signed by the party against which such change, waiver or termination is sought to be enforced or otherwise in accordance with Section 7.7 of the Credit 186 111 Agreement. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Grantors Remain Liable. The Grantors shall remain liable under all contracts and agreements included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed. The exercise or enforcement by Secured Party of any of its rights and remedies under this Agreement or in respect of the Collateral shall not release the Grantors from any of their duties or obligations under any such contracts or agreements. Secured Party shall not be obligated to perform any such duties or obligations and shall not be liable for any breach thereof. No Waiver. No failure by Secured Party to exercise, or delay by Secured Party in exercising, any power, right or remedy under this Agreement shall operate as a waiver thereof. No waiver by Secured Party shall be effective unless given in a writing signed by it. No waiver so given shall operate as a waiver in respect of any other matter or in respect of the same matter on a future occasion. Acceptance of or acquiescence in a course of performance in respect of this Agreement shall not waive or affect the construction or interpretation of the terms of this Agreement even if the accepting or acquiescing party had knowledge of the nature of the performance and opportunity for objection. Entire Agreement. This Agreement and the other Loan Documents are intended by the parties as a final expression of their agreement and a complete and exclusive statement of the terms and conditions thereof. Severability. If any provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions hereof, or of such provision in any other application, shall not be in any way affected or impaired thereby and such other provisions and applications shall enforceable to the full extent lawful. Power of Attorney. Each Grantor hereby appoints and constitutes Secured Party or any delegate, nominee or agent acting for Secured Party as the Grantor's attorney-in-fact with the power and authority (but not the duty), in the name of the Grantor or in the name of Secured Party or such delegate, nominee or agent, to (i) execute, deliver and file such financing statements, agreements, deeds and writings as the Grantor is required to execute, deliver or file hereunder, (ii) during the continuance of an Event of Default endorse, collect or transfer any item of Collateral which the Grantor is required to endorse, collect or transfer hereunder or which Secured Party is permitted to endorse, collect or transfer hereunder, (iii) make any payments or take any action under Section 2.4 or Section 4.1(g) hereof, (iv) take any other action required of the Grantor or permitted to Secured Party hereunder, and (v) take any action reasonably necessary or incidental to any of the foregoing. This power of attorney is coupled with an 187 112 interest and is irrevocable as to each Grantor. Secured Party shall have no duty whatsoever to exercise any power herein granted it. Counterparts. This Agreement and any amendments, waivers, consents or supplements may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all of which shall together constitute one and the same agreement. Costs and Expenses. Each Grantor hereby agrees to pay or reimburse Secured Party for all reasonable costs and expenses (including, without limitation, reasonable attorneys' fees and disbursements and court costs) incurred in connection with or as a result of the exercise or enforcement by Secured Party of any right or remedy available to it or the protection or enforcement of its interest in the Collateral in any bankruptcy case or insolvency proceeding. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; LIMITATION OF LIABILITY; WAIVER OF BOND. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED UNDER THE LAWS OF THE STATE OF CALIFORNIA, EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE SECURITY INTERESTS HEREUNDER IN RESPECT OF ANY PARTICULAR COLLATERAL IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF CALIFORNIA. SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OR THE CENTRAL DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE JURISDICTION OF THOSE COURTS. EACH PARTY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS MAY BE MADE BY ANY MEANS PERMITTED BY CALIFORNIA LAW. WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ALL RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED 188 113 UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE, AND AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH PARTY FURTHER AGREES THAT ITS RIGHT TO A TRIAL BY JURY IS HEREBY WAIVED AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. LIMITATION OF LIABILITY. NO CLAIM MAY BE MADE BY THE GRANTORS AGAINST THE AGENT OR ANY LENDER OR THE AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR AGENTS OF ANY OF THEM FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM (WHETHER BASED UPON BREACH OF CONTRACT, TORT, BREACH OF STATUTORY DUTY OR ANY OTHER THEORY OF LIABILITY) ARISING OUT OF OR RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, AND EACH GRANTOR HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY CLAIM FOR ANY SUCH DAMAGES, WHETHER OR NOT NOW ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR. WAIVER OF BOND. EACH GRANTOR WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF SECURED PARTY IN CONNECTION WITH THE ENFORCEMENT OF ANY OF ITS REMEDIES HEREUNDER, INCLUDING, WITHOUT LIMITATION, ANY ORDER OR WRIT FOR REPLEVIN OR DELIVERY OF POSSESSION OF ANY COLLATERAL. SECTION 8.12 Successors and Assigns. This Agreement is binding upon and enforceable against the Grantors and their successors and assigns. It shall inure to the benefit of and may be enforced by Secured Party and its successors and assigns, for its and their own benefit and for the benefit of each and every present and future Lender or other Person entitled to 189 114 enforce any of the Secured Obligations and each of their respective heirs, representatives, successors and assigns. IN WITNESS WHEREOF, the parties have caused this Pledge and Security Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. CADENCE DESIGN SYSTEMS, INC., By: Name: Title: SEELEY PROPERTIES, INC. By: Name: Title: RIVER OAKS PLACE ASSOCIATES, L.P. By: Seeley Properties, Inc., its general partner By: Name: Title: CREDIT LYONNAIS By: Name: 190 115 Title: SCHEDULE A PLEDGED SHARES 191 116 EXHIBIT C-3 FORM OF INTELLECTUAL PROPERTY ASSIGNMENT This INTELLECTUAL PROPERTY ASSIGNMENT, dated as of April 11, 1996, is made by Cadence Design Systems, Inc., a Delaware corporation (the "Assignor"), in favor of and for the benefit of Credit Lyonnais, a bank organized under the laws of the Republic of France, acting through its New York Branch, as Agent for the Lenders under the Credit Agreement described below ("Secured Party"). RECITALS A. Pursuant to the Pledge and Security Agreement dated as of the date hereof, made in favor of Secured Party by the Assignor (the "Pledge and Security Agreement"), the Assignor has granted to Secured Party a Lien upon certain of its assets, including the Intellectual Property Collateral (as defined herein), in order to secure the prompt and complete payment and performance of the obligations under that certain Revolving Credit Agreement (the "Credit Agreement"), dated as of the date hereof, among the Assignor, the Secured Party and the financial institutions signatory thereto as Lenders. B. The Assignor owns the patents, trademarks and copyrights, and has rights under the patent licenses, trademark licenses and copyright licenses, as listed in Schedule I, and may hereafter own various patents, trademarks and copyrights, file various patent, trademark or copyright applications, or be a party to, or an assignee of a party to, various patent, trademark or copyright licenses. Any references to "Schedule I" in this Assignment shall refer to Schedule I attached hereto, which schedule is incorporated by reference into this Assignment. C. It is a condition precedent to the extension of credit under the Credit Agreement that the Assignor shall have granted the intellectual property assignments described herein. NOW, THEREFORE, in consideration of the foregoing and in order to induce the Lenders to extend credit under the Credit Agreement, the Assignor hereby agrees as follows: ARTICLE I DEFINITIONS SECTION 1.1 General Definitions. Except as otherwise specifically provided herein, the terms which are defined in Section 1.1 of the Credit Agreement shall have the same meanings when used in this Assignment and the provisions of Sections 1.2 and 1.3 of the Credit Agreement shall apply to this Assignment. 192 117 SECTION 1.2 U.C.C. Definitions. Where applicable and except as otherwise expressly provided herein, terms used herein (whether or not capitalized) shall have the respective meanings assigned to them in the Uniform Commercial Code as enacted in the State of California. SECTION 1.3 Certain Defined Terms. As used in this Assignment, the following terms shall have the following meanings: "Assignment" means this Intellectual Property Assignment, dated as of the date set forth above, made by the Assignor for the benefit of the Secured Party. "Copyright Licenses" means all rights acquired by the Assignor under any present or future written agreement granting any right with respect to any Copyrights/Copyright Applications, including the copyright licenses listed in Schedule I. "Copyrights/Copyright Applications" means all of the following: (1) all present and future copyrights, including the copyrights listed in Schedule I, in any original work of authorship fixed in any tangible medium of expression and all registrations and applications for registration of any such copyrights in the United States or any other country, including registrations, recordings and applications, and supplemental registrations, recordings and applications in the United States Copyright Office or in any similar office or agency of the United States or any state or territory thereof, or any other country; and (2) all proceeds of the foregoing, including license royalties and proceeds of infringement suits, the right to sue for past, present and future infringements, all rights corresponding thereto throughout the world and all renewals and extensions thereof. "Goodwill" means all present and future goodwill, trade secrets, proprietary or confidential information, technical information, procedures, formulae, quality control standards, designs, operating and training manuals, customer lists, distribution agreements and general intangibles owned by the Assignor and arising out of the Intellectual Property Collateral. "Intellectual Property Collateral" is defined in Section 2.1. "License" means any Patent License, Trademark License, Copyright License, or other present or future license of any right or interest acquired by the Assignor. 193 118 "Patent Licenses" means all rights acquired by the Assignor under any present or future written agreement granting any right with respect to any Patents/Patent Applications, including the patent licenses listed in Schedule I. "Patents/Patent Applications" means all of the following: (1) all present and future letters patent of the United States or any other country, all registrations and recordings thereof, and all applications in the United States Patent and Trademark Office or in any similar office or agency of the United States or any state or territory thereof, or any other country, including the patents listed in Schedule I; and (2) all proceeds of the foregoing, including license royalties and proceeds of infringement suits, the right to sue for past, present and future infringements, all rights corresponding thereto throughout the world and all reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof. "Secured Obligations" is defined in Section 2.2 of the Pledge and Security Agreement. "Trademark Licenses" means all rights of the Assignor under any present or future written agreement granting any right with respect to any Trademarks/Trademark Applications, including the trademark licenses listed in Schedule I. "Trademarks/Trademark Applications" means all of the following: (1) all present and future trademarks, trade names, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, proprietary product names or descriptions, prints and labels on which any of the foregoing may appear, designs and general intangibles of like nature, all registrations and recordings thereof, and all applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state or territory thereof, or any other country, or any political subdivision thereof, including the trademarks listed in Schedule I; and (2) all proceeds of the foregoing, including license royalties and proceeds of infringement suits, the right to sue for past, present and future 194 119 infringements, all rights corresponding thereto throughout the world and all reissues, extensions and renewals thereof. 195 120 ARTICLE II SECURITY INTEREST AND COLLATERAL SECTION 2.1 Grant of Security Interest. As security for the due and punctual payment and performance of all Secured Obligations, the Assignor hereby grants Secured Party a security interest in all right, title and interest of the Assignor in, to, under or derived from the following property (collectively, the "Intellectual Property Collateral"), in each case whether now owned or hereafter acquired by the Assignor and wherever located: b. Each Patent/Patent Application; c. Each Patent License; d. Each Trademark/Trademark Application; e. Each Trademark License; f. Each Copyright/Copyright Application; g. Each Copyright License; h. The Goodwill associated with: (i) each Patent/Patent Application, Trademark/Trademark Application and Copyright/Copyright Application; and (ii) each Patent/Patent Application licensed under any Patent License, each Trademark/Trademark Application licensed under any Trademark License and each Copyright/Copyright Application licensed under any Copyright License; and i. All products and proceeds of the foregoing, including any claim of the Assignor against third parties for any (i) past, present or future infringement or dilution of any Patent/Patent Application, Trademark/Trademark Application or Copyright/Copyright Application or of any Patent License, Trademark License or Copyright License and (ii) injury to the Goodwill associated with the foregoing. Notwithstanding the foregoing provisions of this Section 2.1: A. Such grant of a security interest shall not extend to, and the term "Intellectual Property Collateral" shall not include, any right (other than a right to the payment of money) of the Assignor under any license agreement, whether the Assignor is the licensor or the licensee, if, to the extent that and for as long as the license agreement prohibits the creation of a security interest in such right or requires any consent for the assignment or grant of a security interest therein that has not been given; provided, however, that, whether or not any agreement 196 121 purports to restrict the assignment of any account or the creation of any security interest in any account, chattel paper or general intangible for money due or to become due or in any proceeds of such agreement or purports to require any consent thereto, such grant of a security interest shall in any event extend to, and the term "Intellectual Property Collateral" shall include, (i) all present and future accounts, chattel paper and general intangibles for money due or to become due, (ii) all proceeds thereof, (iii) all proceeds of or from the exercise, collection or enforcement of any right which is excluded under this Clause A, and (iv) any right which is excluded under this Clause A, automatically and without need of any further confirmation, act or deed, if, as and when the prohibition or consent requirement giving rise to such exclusion is eliminated or waived or the required consent is given. B. If any license agreement permits the creation of a security interest in any right (other than a right to the payment of money) of the Assignor thereunder but prohibits or restricts the foreclosure or other enforcement of such security interest, then such grant of a security interest shall extend to, and the term "Intellectual Property Collateral" shall include, such right but the foreclosure or enforcement of such security interest shall be limited as necessary to comply with such prohibition or restriction. C. Such grant of a security interest shall not extend to, and the term "Intellectual Property Collateral" shall not include, any governmental license or permit in which it is unlawful to grant a security interest. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1 Representations and Warranties. The Assignor hereby represents and warrants that: j. It does not own any Patents/Patent Applications, Trademarks/Trademark Applications or Copyrights/Copyright Applications that are registered with the United States Patent and Trademark Office or the United States Copyright Office other than the Patents/Patent Applications, Trademarks/Trademark Applications and Copyrights/Copyright Applications listed in Schedule I; k. It is not a party to, or an assignee of a party to, any Patent License, Trademark License or Copyright License which is material to the conduct of its business other than each of the Patent Licenses, Trademark Licenses and Copyright Licenses listed in Schedule I and such other Licenses granted to the Assignor in connection with joint venturing arrangements entered into with other Persons, in each case in the ordinary course of its business; 197 122 l It has not granted any license, rights or privileges in or to the Intellectual Property Collateral which is material to the conduct of its business to any party, except to Secured Party and as otherwise set forth in Schedule I and such other Licenses granted by the Assignor to its customers and joint venturing arrangements entered into with other Persons, in each case in the ordinary course of its business; m. The registrations of all Intellectual Property Collateral listed in Schedule I have been duly and properly issued and are valid and enforceable; n. None of the registrations of the Intellectual Property Collateral listed in Schedule I have been adjudged invalid or unenforceable, in whole or in part; o. It has the right to practice the inventions described and claimed in the Patents/Patent Applications listed in Schedule I, free and clear of the infringement of or interference with the rights of others; p. Except as otherwise disclosed in the schedules to the Credit Agreement or the Assignor's documents filed with the United States Securities and Exchange Commission, it has not received any written threats of action which if successful would materially adversely affect the business of the Assignor and has not commenced and is not about to commence any suit or action against others in connection with the violation or enforcement of its rights in any of the Intellectual Property Collateral; q. Except for Licenses granted by the Assignor to its customers and joint venturing arrangements entered into with other Persons, in each case in the ordinary course of the Assignor's business, it at all times is (or, as to any item of Intellectual Property Collateral acquired after the date hereof, will be (other than as otherwise required in its commercially reasonable judgment) the sole legal and beneficial owner of each of the Patents/Patent Applications, Trademark/Trademark Applications and Copyright/Copyright Applications listed in Schedule I and has exclusive possession and control thereof, free and clear of any Liens except those created by this Assignment or permitted under Section 5.3(a) of the Credit Agreement; and r. It has the right and power to enter into this Assignment and perform its terms. s. To the best of the Assignor's knowledge, all information supplied to Secured Party by or on behalf of the Assignor with respect to the Intellectual Property Collateral is accurate and complete in all material respects. 198 123 ARTICLE IV COVENANTS Section 4.1 Covenants. The Assignor covenants and agrees as follows: t. In no event shall the Assignor, either by itself or through any agent, employee, licensee or designee, file an application for the registration of any Intellectual Property Collateral with the United States Patent and Trademark Office or the United States Copyright Office unless it concurrently files with any such office or agency, (i) an amendment to this Assignment adding a description of such Intellectual Property Collateral to Schedule I and (ii) any other agreements, instruments, documents and papers as Secured Party may reasonably request to evidence Secured Party's Lien on such Intellectual Property Collateral. u. Subject to Section 4.1(a) hereof, and except to the extent that (i) Secured Party may otherwise agree or (ii) the Assignor reasonably determines that certain of the Intellectual Property Collateral is no longer of material value to the Assignor's business, the Assignor shall take all necessary actions to maintain and pursue each application, to obtain the relevant registration, and to maintain the registration of all of the Intellectual Property Collateral with the United States Patent and Trademark Office, the United States Copyright Office, or other appropriate filing office or agency in which registration is necessary to protect its rights therein, including the filing of applications for renewal, affidavits of use, affidavits of noncontestability and opposition and interference and cancellation proceedings; provided, however, that neither this Section 4.1(b) nor any other provision of this Assignment or any other Loan Document shall obligate Assignor to file any application for the registration or to obtain or maintain the registration of any Intellectual Property Collateral which it would not otherwise file, obtain or maintain in the exercise of its ordinary business practices or to take any actions to perfect any security interest with respect to any Intellectual Property Collateral outside the U.S.. v. In the event that any of the Assignor's rights under any Intellectual Property Collateral that is material to the conduct of its business are infringed, misappropriated or diluted by a third party, the Assignor (i) shall notify Secured Party promptly after it learns thereof and (ii) shall take such actions as the Assignor shall reasonably deem appropriate under the circumstances to protect such Intellectual Property Collateral. w. The Assignor shall promptly notify Secured Party, in writing, of any suit, action or proceeding brought against it relating to, concerned with or affecting the Intellectual Property Collateral that is material to the conduct of its business or infringement of or interference with another patent, trademark or copyright which, if determined adversely, is likely to cause a Material Adverse Change and shall, upon request by Secured Party, deliver to Secured Party a copy of all pleadings, papers, orders or decrees theretofore or thereafter filed in any such 199 124 suit, action or proceeding, and upon request by Secured Party shall keep Secured Party fully advised and informed of the progress of any such suit, action or proceeding. x. The Assignor shall promptly notify Secured Party if it knows (i) that any application or registration relating to any Intellectual Property Collateral that is material to the conduct of its business may become abandoned or dedicated, (ii) that there has been or likely may be an adverse determination or development (including the institution or any adverse determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court) regarding (A) its ownership of any Intellectual Property Collateral that is material to the conduct of its business, (B) its right to register such Intellectual Property Collateral that is material to the conduct of its business or (C) its right to keep and maintain such Intellectual Property Collateral that is material to the conduct of its business or (iii) of any other event that materially adversely affects the value of any Intellectual Property Collateral that is material to the conduct of its business. y. Subject to Section 4.1(b), upon the written request of Secured Party, the Assignor shall promptly and duly execute and deliver any and all additional documents, including UCC-1 financing statements, and take such further action as Secured Party may deem necessary to obtain the full benefit of this Assignment, all at the sole expense of the Assignor. z. Without Secured Party's prior written consent, which consent shall not be unreasonably withheld, the Assignor shall neither (i) enter into any agreement that would materially impair or conflict with the Assignor's obligations hereunder nor (ii) permit the inclusion in any material contract to which it becomes a party of any provisions that could or might in any way prevent the creation of a security interest in the Assignor's rights and interests in any property included within the definition of Intellectual Property Collateral that is material to the conduct of its business acquired under such contracts, except as otherwise provided under Section 5.3(1) of the Credit Agreement. ARTICLE V POWER OF ATTORNEY SECTION 5.1 Power of Attorney. Upon the occurrence and during the continuation of an Event of Default, the Assignor hereby authorizes and empowers Secured Party to make, constitute and appoint any officer or agent of Secured Party, as Secured Party may select in its exclusive discretion, as the Assignor's true and lawful attorney-in-fact, with the power to endorse its name on all applications, documents, papers and instruments necessary for Secured Party (a) to use the Intellectual Property Collateral, (b) to grant or issue to any, third party a license or, to the extent permitted by an applicable License, a sublicense, whether general, specific or otherwise and whether on an exclusive or non-exclusive basis, of any Intellectual Property Collateral throughout the world on such terms and conditions and in such manner as Secured Party shall, in its sole discretion, determine, or (c) to assign, pledge, convey or otherwise transfer title in or dispose of the Intellectual Property Collateral to any third person. The Assignor hereby ratifies 200 125 all that such attorney-in-fact shall lawfully do or cause to be done by virtue hereof. This power of attorney shall be irrevocable for the term of this Assignment. ARTICLE VI INTELLECTUAL PROPERTY COLLATERAL SECTION 6.1 Grant of License to Use Intellectual Property Collateral. For the purpose of enabling Secured Party to exercise rights and remedies hereunder or under Article VI of the Pledge and Security Agreement (including in order to take possession of, hold, preserve, process, assemble, prepare for sale, market for sale, sell or otherwise dispose of any Intellectual Property Collateral) during the continuance of an Event of Default, the Assignor hereby grants to Secured Party an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to the Assignor) (a) to use, license or sublicense any of the Intellectual Property Collateral now owned or hereafter acquired by the Assignor and wherever the same may be located and (b) to have access to all media in which any of the licensed items may be recorded or stored and all computer and automatic machinery software and programs used for the compilation or printout thereof SECTION 6.2 Use and Protection of Intellectual Property Collateral. Notwithstanding anything to the contrary contained herein, unless an Event of Default has occurred and is continuing, the Assignor may continue to use, exploit, license, enjoy and protect the Intellectual Property Collateral in the ordinary course of its business, and Secured Party shall from time to time, execute and deliver, upon the reasonable written request of the Assignor, any and all instruments, certificates or other documents, in the form so requested, that in the reasonable judgment of any the Assignor are necessary or appropriate to permit the Assignor to continue to do so. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.1 Termination and Release. On the date on which all Obligations shall have been indefeasibly paid in full (other than inchoate Obligations in the nature of indemnities and additional payments) or upon release of the Collateral as provided in the Credit Agreement, the rights of Secured Party hereunder shall terminate and Secured Party shall execute and deliver to the Assignor all releases, powers of attorney and other instruments as may be necessary or proper to terminate the Lien granted to Secured Party hereunder and to revest in the Assignor full title to the Intellectual Property Collateral, subject to any disposition thereof which may have been made pursuant hereto. SECTION 7.2 Incorporation of Pledge and Security Agreement. The parties hereto incorporate herein, as if fully set forth herein, the provisions set forth in Article VIII of the Pledge and Security Agreement. The Assignor hereby acknowledges and affirms that the rights and remedies of Secured Party with respect to the Lien upon the Intellectual Property Collateral 201 126 made and granted hereby are further described in the Pledge and Security Agreement, the terms and provisions of which are incorporated herein by this reference as if fully set forth herein. Upon and at any time after the occurrence and during the continuance of any Event of Default, Secured Party may exercise and enforce, in any order, each and all of the rights and remedies described in or available to it under Article VI of the Pledge and Security Agreement. 202 127 IN WITNESS WHEREOF, the Assignor has executed this Intellectual Property Assignment as of the date first set forth above. CADENCE DESIGN SYSTEMS, INC., By: --------------------------------- Name: Title: Agreed and consented to as of the date first above written: CREDIT LYONNAIS By: ------------------------------- Name: Title: 203 128 ACKNOWLEDGMENT OF INSTRUMENTS COUNTY OF ) ) STATE OF CALIFORNIA ) On before me, a Notary Public in and for said State, personally appeared , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signatures(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ------------------------------------------- (Signature) [Affix Notary Seal] 204 129 SCHEDULE I SCHEDULE OF COPYRIGHTS, PATENTS, TRADEMARKS AND RELATED LICENSES 205 130 EXHIBIT C-4 FORM OF NOTICE OF SECURITY INTEREST IN DEPOSIT ACCOUNTS [Credit Lyonnais Letterhead] [Date] [Name of Bank] [Address] Attention: Re: Cadence Design Systems, Inc. Dear : This notice is delivered pursuant to Section 9302(1)(g)(ii) of the California Commercial Code. You are hereby notified that Credit Lyonnais, acting through its New York Branch, as agent for a group of lenders, has been granted a security interest in the following deposit accounts (the "Deposit Accounts") of Cadence Design Systems, Inc. maintained at [Bank], and all funds and investments in such accounts and any interest accruing thereon: A/N A/N A/N CREDIT LYONNAIS CADENCE DESIGN SYSTEMS, INC. By: By: ------------------------------- -------------------------------- Name: Name: Title: Title: 206 131 Receipt of the foregoing Notice of Security Interest in Deposit Accounts (the "Notice") is hereby acknowledged. The undersigned has not received any notice from any other person with respect to the Deposit Accounts (as defined in the Notice). Dated as of: [Name of Bank] By: --------------------------------- Name: Title: 207 132 EXHIBIT C-5 FORM OF NOTICE OF SECURITY INTEREST IN FINANCIAL INTERMEDIARY ACCOUNT [Credit Lyonnais Letterhead] [Date] [Name of Financial Intermediary] [Address] Attention: Re: Cadence Design Systems, Inc. Ladies and Gentlemen: In accordance with Section 8313(1)(h) of the California Commercial Code, Cadence Design Systems, Inc., a Delaware corporation (the "Company"), hereby notifies you that it has granted a security interest to Credit Lyonnais, acting through its New York Branch, as agent for a group of lenders (collectively, the "Secured Party"), in and to all of the Company's right, title and interest of, in and to each of the securities accounts listed on Exhibit A hereto (the "Accounts") and all investments, securities, cash, money and other property now or hereafter credited thereto or deposited therein (collectively, the "Investments"), including but not limited to the property identified on Exhibit A as presently credited to or deposited in the Accounts, pursuant to that certain Pledge and Security Agreement among the Secured Party, the Company and certain of its subsidiaries dated as of April 11, 1996 (the "Security Agreement"), a copy of which is attached hereto as Exhibit B. CREDIT LYONNAIS CADENCE DESIGN SYSTEMS, INC. By: By: ------------------------------- --------------------------------- Name: Name: Title: Title: 208 133 it is a bank, broker or clearing corporation which in the ordinary course of its business maintains securities accounts for its customers, and that it is acting in that capacity with respect to the Company and the Accounts; (2) each Account is identified in the books of the undersigned in the name of "Cadence Design Systems, Inc., for the benefit of Credit Lyonnais, as secured party"; (3) Exhibit A to the Notice accurately describes all present Investments in the Accounts, and the undersigned (or another clearing corporation or custodian bank acting on its behalf) (a) has custody of all such Investments constituting certificated securities, and (b) is the registered owner of all such Investments constituting uncertificated securities; and (4) except for the interests of the Company as owner and of the Secured Party under the Security Agreement, the undersigned is not aware of any other interests or adverse claims in the Accounts or the Investments. Dated as of: [Name of Financial Intermediary] By: --------------------------- Name: Title: 209 134 EXHIBIT A Investments in the Accounts as of , 1996 [To be completed by the Company, each Account to be listed, with all investments in each Account identified.] 210 135 EXHIBIT B Copy of Security Agreement 211 136 EXHIBIT C-6 RECORDING REQUESTED BY AND WHEN RECORDED, MAIL TO: LATHAM & WATKINS 633 West Fifth Street Suite 4000 Los Angeles, California 90071-2007 Attention: Edith R. Perez, Esq. DEED OF TRUST, ASSIGNMENT, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING Dated as of April 11, 1996 from CADENCE DESIGN SYSTEMS, INC., a Delaware corporation, the Trustor to FIRST AMERICAN TITLE INSURANCE COMPANY, the Trustee and CREDIT LYONNAIS, New York Branch, the Beneficiary Property: San Jose, Santa Clara County, State of California 212 137 DEED OF TRUST, ASSIGNMENT, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING This DEED OF TRUST, ASSIGNMENT, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING (this "Deed of Trust"), dated as of April 11, 1996, is made by CADENCE DESIGN SYSTEMS, INC., a Delaware corporation, having its principal office at 2655 Seely Road, San Jose, California 95134, as trustor (the "Trustor"), to FIRST AMERICAN TITLE INSURANCE COMPANY, a California corporation, having an address at 114 East Fifth Street, Santa Ana, California 92701, as trustee (the "Trustee"), for the benefit of CREDIT LYONNAIS, New York Branch, having an address at 1301 Avenue of the Americas, New York, New York 10019 (the "Beneficiary"). Unless the context requires otherwise, capitalized terms are defined in, or by reference in, Section 1.01 hereof. RECITALS A. The Trustor is the owner of, and holds certain other interests in, the real property, as more particularly described in Exhibit A hereto. B. Concurrently herewith, a certain Revolving Credit Agreement of even date herewith (the "Credit Agreement") will be executed and delivered by Trustor, the financial institutions from time to time party thereto as Lenders, and the Beneficiary, as a Lender and as Agent for the Lenders. C. In order to induce the Lenders to enter into the Credit Agreement and to make the Advances, the Trustor has agreed to, among other things, execute and deliver this Deed of Trust. D. The Trustor has agreed that the obligations secured by this Deed of Trust are and subject to the proviso in this Recital D, shall be comprised of (i) all the obligations of the Trustor under the Credit Agreement, including repayment of the maximum aggregate principal amount of the Advances available under the Credit Agreement, which, as of the date hereof, is One Hundred Twenty Million Dollars ($120,000,000), (ii) all of the obligations of the Trustor under this Deed of Trust and the other Loan Documents, (iii) the Trustor's obligations in the nature of fees, charges, costs, expenses and other amounts, including indemnification and reimbursement obligations, and advances made to protect the Collateral and the Liens created by the Collateral Documents, and (iv) all amendments, supplements, consolidations, replacements, restatements, extensions, renewals and other modifications, in whole or in part, of all of the obligations identified in clauses (i), (ii) and (iii) of this Recital D, provided, however, that in no event shall the obligations of the Trustor with respect to the separate Unsecured Environmental 213 138 Indemnity Agreement be secured by this Deed of Trust (clauses (i) through (iv), subject to the proviso in this Recital D, are collectively referred to as the "Secured Obligations"). E. This Deed of Trust is one of the Real Estate Collateral Documents described in the Credit Agreement. F. The Trustor has agreed that the payment and performance of the Secured Obligations shall be secured by this Deed of Trust, all as further set forth below. GRANTING CLAUSES NOW, THEREFORE, in consideration of the premises, the Advances to be made to the Trustor under the Credit Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, for the purpose of securing the due and punctual payment, performance and observance of the Secured Obligations, and intending to be bound hereby, the Trustor does hereby GRANT, BARGAIN, SELL, CONVEY, MORTGAGE, ASSIGN, TRANSFER and WARRANT to the Trustee and its successors as Trustee hereunder IN TRUST for the benefit of the "Beneficiary" (not in its individual capacity but in its limited capacity as the Agent for its benefit and for the benefit of the other Lenders) and Beneficiary's successors as Agent and the other Lenders pursuant to the Credit Agreement, upon the provisions of this Deed of Trust, WITH POWER OF SALE and right of entry as hereinafter provided, and GRANT to the Beneficiary and its successors as Agent and the other Lenders A CONTINUING SECURITY INTEREST IN, all of the property and rights described in the following Granting Clauses (all of which property and rights are collectively referred to herein as the "Trust Property"), to wit: 214 139 GRANTING CLAUSE I Land. All estate, right, title and interest of the Trustor in, to, under or derived from the tracts or parcels of land located in Santa Clara County, California, more particularly described in Exhibit A hereto (the "Land"). GRANTING CLAUSE II. Improvements. All estate, right, title and interest of the Trustor in, to, under or derived from all buildings, structures and other improvements of every kind and description now or hereafter located on the Land, including all parking areas, roads, driveways, walks, fences, walls, docks, berms, landscaping, drainage facilities, lighting facilities and other site improvements, all water, sanitary and storm sewer, drainage, electricity, steam, gas, telephone and other utility equipment and facilities, all plumbing, lighting, heating, ventilating, air-conditioning, refrigerating, incinerating, compacting, fire protection and sprinkler, surveillance and security, vacuum cleaning, public address and communications equipment and systems, all kitchen and laundry appliances, screens, awnings, floor coverings, partitions, elevators, escalators, motors, machinery, pipes, fittings and other items of equipment and personal property of every kind and description (excluding any and all personal property constituting Collateral under the Pledge and Security Agreement), now or hereafter located on the Land or attached to any of the improvements which by the nature of their location thereon or attachment thereto are real property under applicable law; and including all materials intended for the construction, reconstruction, repair, replacement, alteration, addition or improvement of or to such buildings, equipment, fixtures, structures and improvements, all of which materials shall be deemed to be part of the Trust Property immediately upon delivery thereof on the Land and to be part of the improvements immediately upon their incorporation therein (the foregoing being collectively the "Improvements"); the Land and the Improvements now or hereafter located thereon are sometimes hereinafter collectively referred to as the "Property." GRANTING CLAUSE III. Appurtenant Rights. All estate, right, title and interest of the Trustor in, to, under or derived from all tenements, hereditaments and appurtenances relating to the Land and the Improvements now or hereafter located thereon; the streets, roads, sidewalks and alleys abutting the Land; all strips and gores within or adjoining the Land; all land in the bed of any body of water adjacent to the Land; all land adjoining the Land created by artificial means or by accretion; all air space and rights to use said air space above the Land; all development or similar rights appurtenant to the Land; all rights of ingress and egress now or hereafter appertaining to the Property; all easements now or hereafter appertaining to the Property; and all royalties and other rights appertaining to the use and enjoyment of the Property, including alley, drainage, oil, gas and other mineral, riparian and other water rights. 215 140 GRANTING CLAUSE IV. Agreements. All estate, right, title and interest of the Trustor in, to, under or derived from all contracts and agreements (other than the Assigned Leases) now or hereafter relating to the Property, including all insurance policies (including all unearned premiums and dividends thereunder), guarantees and warranties, management agreements, agreements relating to the development, construction, reconstruction, repair, replacement, alteration, addition or improvement of or to the Property, and all supply and service contracts for water, sanitary and storm sewer, drainage, electricity, steam, gas, telephone and other utilities, including any and all deposits for the same (all of the foregoing contracts, agreements and deposits, if and to the extent assignable as collateral, are hereinafter collectively referred to as the "Agreements"). GRANTING CLAUSE V. Rents, Issues and Profits. Subject to the rights of the Beneficiary in Section 6.01, all estate, right, title and interest of the Trustor in, to, under or derived from all rents, royalties, issues, profits, receipts, revenue, income and other benefits now or hereafter, including during any period of redemption, accruing with respect to the Property; all rents and other sums now or hereafter, including during any period of redemption, payable pursuant to any of the Assigned Leases or with respect to the management, operation or control of the Property or any portion thereof; and all other claims, rights and remedies now or hereafter, including during any period of redemption, belonging to or accruing with respect to the Property, including fixed, additional and percentage rents, occupancy charges, security deposits, parking, maintenance, common area, tax, insurance, utility and service charges and contributions (whether collected under any of the Assigned Leases or otherwise), proceeds of sale of electricity, gas, heating, air-conditioning and other utilities and services (whether collected under any of the Assigned Leases or otherwise), deficiency rents and liquidated damages following default or cancellation (the foregoing rents and other sums described in this Granting Clause being collectively the "Rents"), all of which the Trustor hereby irrevocably directs be paid to the Beneficiary to be held, applied and disbursed as provided in this Deed of Trust and the Credit Agreement. GRANTING CLAUSE VI. Assigned Leases. Subject to the rights of the Beneficiary in Section 6.01, all estate, right, title and interest of the Trustor in, to, under or derived from all Leases now or hereafter in effect, whether or not of record, for the use or occupancy of all or any part of the Property, together with all amendments, supplements, consolidations, replacements, restatements, extensions, renewals and other modifications of any thereof; and together with all guarantees of any of the obligations of the tenants under any of such Leases; and together with all Security Deposits given by any tenants under any of such Leases (the foregoing being collectively the "Assigned Leases"). 216 141 GRANTING CLAUSE VII. Permits. All estate, right, title and interest of the Trustor in, to, under or derived from all licenses, authorizations, certificates, variances, consents, approvals and permits now or hereafter appertaining to the Property (the foregoing being collectively the "Permits"), excluding from the grant under this Granting Clause (but not from the definition of the term "Permits" for the other purposes hereof) such Permits which cannot be transferred or encumbered by the Trustor without causing a default thereunder, a termination thereof, or a violation of any Legal Requirements. GRANTING CLAUSE VIII. Deposits. All estate, right, title and interest of the Trustor in, to, under or derived from all amounts deposited with the Beneficiary hereunder, including all Insurance Proceeds and Awards and including all notes, certificates of deposit, securities and other investments relating thereto and all interest, dividends and other income thereon, proceeds thereof and rights relating thereto (the foregoing being collectively the "Deposits"). GRANTING CLAUSE IX. Proceeds and Awards. Subject to Section 5.3(b)(iv) of the Credit Agreement, all estate, right, title and interest of the Trustor in, to, under or derived from all proceeds of any sale, transfer, financing, refinancing or conversion into cash or liquidated claims, whether voluntary or involuntary, of any of the Trust Property, including all Insurance Proceeds, all Awards, all title insurance proceeds under any title insurance policy now or hereafter held by the Trustor, and all rights, dividends and other claims of any kind whatsoever (including damage, secured, unsecured, priority and bankruptcy claims) now or hereafter relating to any of the Trust Property, all of which the Trustor hereby irrevocably directs be paid to the Beneficiary, to be held, applied and disbursed as provided in this Deed of Trust and the Credit Agreement. 217 142 GRANTING CLAUSE X. Further Property. All greater estate, right, title and interest of the Trustor in, to, under or derived from the Trust Property hereafter acquired by the Trustor, and all right, title and interest of the Trustor in, to, under or derived from all extensions, improvements, betterments, renewals, substitutions and replacements of, and additions and appurtenances to, any of the Trust Property hereafter acquired by or released to the Trustor or constructed or located on, or attached to, the Property, in each case, immediately upon such acquisition, release, construction, location or attachment, without any further conveyance, mortgage, assignment or other act by the Trustor; and all estate, right, title and interest of the Trustor in, to, under or derived from any other property and rights which are, by the provisions of the Loan Documents, required to be subjected to the Lien hereof; and all right, title and interest of the Trustor in, to, under or derived from all other property and rights which are by any instrument or otherwise subjected to the Lien hereof by the Trustor or by anyone acting on its behalf. TO HAVE AND TO HOLD the Trust Property, together with all estate, right, title and interest of the Trustor and anyone claiming by, through or under the Trustor in, to, under or derived from the Trust Property and all rights and appurtenances relating thereto, to the Trustee and its successors as Trustee hereunder for the benefit of the Beneficiary and its successors as Agent and the other Lenders pursuant to the Credit Agreement, forever, subject to the Permitted Property Liens (excluding item 4 on Exhibit C hereto); PROVIDED ALWAYS that this Deed of Trust is upon the express condition that the Trust Property shall be released from the Lien of this Deed of Trust in full in the manner and at the time provided in Section 7.04 hereof if, at such time, all of the Secured Obligations shall have been paid, performed and satisfied in full in accordance with the Credit Agreement and other Loan Documents. THE TRUSTOR ADDITIONALLY COVENANTS AND AGREES WITH THE TRUSTEE AND THE BENEFICIARY AS FOLLOWS: ARTICLE I DEFINITIONS AND INTERPRETATION SECTION 1.01. Definitions. (a) Capitalized terms used in this Deed of Trust, but not defined herein, are defined in, or by reference in, the Credit Agreement and have the same meanings herein as therein. (b) In addition, in this Deed of Trust, unless otherwise specified, the following terms have the following meanings: 218 143 "Advances" is defined in the Credit Agreement. "Affiliate" is defined in the Credit Agreement. "Agent" is defined in the Credit Agreement. "Agreements" is defined in Granting Clause IV. "Alteration" means the construction of any new Improvement on the Property or the alteration of, addition to or improvement of the Property, and "Alter" means to construct any new Improvement on the Property or to alter, add to or improve the Property, in each case including the demolition of any Improvement. "Assigned Leases" is defined in Granting Clause VI. "Award" means, at any time, any award or payment paid or payable by reason of any Condemnation, including all amounts paid or payable with respect to any Transfer in lieu or in anticipation of Condemnation or any agreement with any condemning authority which has been made in settlement of any proceeding relating to a Condemnation. "Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C. Section 101 et seq.) as amended from time to time, or any successor statute. "Beneficiary" is defined in the Preamble, the paragraph immediately preceding Granting Clause I, and Section 7.07. "Business Day" is defined in the Credit Agreement. "Casualty" means any damage to, or destruction of, the Property. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Sections 9601 et seq., as heretofore or hereafter amended. "Certificate" or "Certified" means a written certificate in which the Person signing the same shall certify to the correctness of the statements contained therein and, upon the request of the Person to whom the certificate is rendered, (i) specify the provision hereof to which such certificate relates; (ii) state that it is made to induce the Person to whom it is addressed or delivered to rely thereon and (if applicable) take action in reliance thereon; and (iii) (A) as to an original or copy of any document, state that such document is the original document or that such copy is a true copy of the original, as the case may be; and (B) as to other matters, (1) state briefly the nature and scope of the examination or investigation upon which the statements contained in the certificate are based; (2) state 219 144 that it is the opinion of such individual that he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such provision has been complied with; (3) state whether or not it is the opinion of such individual that such provision has been complied with; and (4) cover such other matters as the Person to whom the certificate is addressed may reasonably request. If a Certificate is required to be delivered by a corporation, unless otherwise provided herein, it shall be signed by a vice-president or higher ranking officer who shall also certify his authority to sign such Certificate. If a Certificate is required to be delivered by a partnership, unless otherwise provided herein, it shall be signed by a general partner thereof who shall also certify as to his authority to sign such Certificate. "Closing Date" is defined in the Credit Agreement. "Collateral" is defined in the Credit Agreement. "Collateral Documents" is defined in the Credit Agreement. "Condemnation" means any condemnation or other taking or temporary or permanent requisition of the Property, any interest therein or right appurtenant thereto, or any change of grade affecting the Property, as the result of the exercise of any right of condemnation or eminent domain. A Transfer in lieu or in anticipation of Condemnation shall be deemed to be a Condemnation. "Conditions" is defined in Section 2.07(a)(v)(1). "Credit Agreement" is defined in the Recitals. "Deed of Trust" is defined in the Preamble. "Default" means any failure on the part of the Trustor to comply with any provision hereof or of any other Loan Document or any other event or condition which, with the giving of notice or the passage of time or both would, unless waived or cured, become an Event of Default. "Default Interest Rate" means the fluctuating interest rate per annum described in Section 2.7(c) of the Credit Agreement. "Deposits" is defined in Granting Clause VIII. "Environmental Laws" is defined in the Credit Agreement. "Environmental Lien" means a Lien in favor of any Governmental Authority for (i) any liability under any Environmental Law, or (ii) damages arising from or costs 220 145 incurred by such Governmental Authority in response to a release or threatened release of a Hazardous Material into the environment. "Environmental Noncompliance" means with respect to the Trust Property (1) the release or threatened release of any Hazardous Materials into the environment, any storm drain, sewer, septic system or publicly owned treatment works, in violation of any effluent or emission limitations, standards or other criteria or guidelines established by any federal, state or local law, regulation, rule, ordinance, plan or order; (2) any noncompliance of any physical structure, equipment, process or facility with the requirements of building or fire codes, zoning or land use regulations or ordinances, conditional use permits and the like so as to constitute a violation thereof or of such codes, regulations, ordinances or permits; (3) any violation of federal, state or local requirements governing occupational safety and health; (4) any facility operations, procedures, designs, or other matters which violate the statutory or regulatory requirements of any Environmental Law; (5) the failure to have obtained permits, variances or other authorizations necessary for the legal operation of any equipment, process, facility or any other activity; or (6) the operation of any facility or equipment in violation of any permit condition, schedule of compliance, administrative or court order and the like. "Event of Default" is defined in Section 5.01. "Governmental Authority" is defined in the Credit Agreement. "Hazardous Materials" is defined in the Credit Agreement. "Impositions" means all taxes (including real estate taxes and sales and use taxes), assessments (including all assessments for public improvements or benefits, whether or not commenced or completed prior to the date hereof), water, sewer or other rents, rates and charges, excises, levies, license fees, permit fees, inspection fees and other authorization fees and other charges, in each case whether general or special, ordinary or extraordinary, foreseen or unforeseen, of every character (including all interest and penalties thereon), which at any time may be assessed, levied, confirmed or imposed on or in respect of, or be a Lien upon, (i) the Property, any other Trust Property or any interest therein, (ii) any occupancy, use or possession of, or activity conducted on, the Property, (iii) the Rents, revenues or receipts from the Property or the use or occupancy thereof, or (iv) the Secured Obligations or the Loan Documents, but excluding income, excess profits, franchise, capital stock, estate, inheritance, succession, gift or similar taxes of any of the Lenders, except to the extent that such taxes of any of the Lenders are imposed in whole or in part in lieu of, or as a substitute for, any taxes which are or would otherwise be Impositions. "Improvements" is defined in Granting Clause II. 221 146 "Indemnified Matters" is defined in Section 2.07(i)(B). "Indemnified Persons" is defined in the Credit Agreement. "Insurance Policies" means the insurance policies and coverages required to be maintained by the Trustor pursuant to Sections 3.01(a) and (e). "Insurance Premiums" means all premiums for the Insurance Policies. "Insurance Proceeds" means, at any time, all insurance proceeds or payments to which the Trustor may be or become entitled by reason of any Casualty under the Insurance Policies maintained by the Trustor pursuant to Section 3.01(a) (for property insurance) and pursuant to Section 3.01(e) (for property insurance), plus, (i) the amounts of any deductibles under such Insurance Policies; (ii) if the Trustor fails to maintain any of such Insurance Policies, the amount which would have been available with respect to such Casualty had the Trustor maintained such Insurance Policy; and (iii) all insurance proceeds and payments to which the Trustor may be or become entitled by reason of any Casualty under any other insurance policies or coverages maintained by the Trustor with respect to the Property. "Insurance Requirements" means all provisions of the Insurance Policies, all requirements of the issuer of any of the Insurance Policies and all orders, rules, regulations and any other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions) binding upon the Trustor or applicable to the Property, any adjoining vaults, sidewalks, parking areas or driveways or any use or condition thereof. "Land" is defined in Granting Clause I. "Lease" means any lease, tenancy, subtenancy, license, franchise, concession or other occupancy agreement relating to the Property, together with any guarantee of the obligations of the landlord or the tenant thereunder, or any occupancy or right to possession under Section 365 of the Bankruptcy Code in the event of the rejection of any lease by the landlord or its trustee pursuant to said Section; "landlord" means the landlord, sublandlord, lessor, sublessor, franchisor or other grantor of a right of occupancy under a Lease and any guarantor of its obligations thereunder; and "tenant" means the tenant, subtenant, lessee, sublessee, licensee, franchisee, concessionaire or other occupant under a Lease and any guarantor of its obligations thereunder. "Legal Requirements" means all provisions of the Permitted Property Liens, all provisions of the Permits and all applicable laws (including all Environmental Laws), statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, 222 147 regulations, directions and requirements of, and agreements with, governmental bodies, agencies or officials, now or hereafter applicable to the Property, any adjoining vaults, sidewalks, parking areas, driveways, streets or ways or any use or condition thereof. "Lender" is defined in the Credit Agreement. "Lien" means, with respect to any property or asset, (i) any mortgage, deed of trust, deed to secure debt, lien, pledge, charge, security interest, assignment of rents, or other encumbrance of any kind with respect to such property or asset (including any installment sale, conditional sale or other title retention agreement); and (ii) any easement, right of way, servitude, reservation, covenant, condition, restriction, possibility of reverter, occupancy, tenancy, lease, sublease, license, agreement, option, cloud, claim, defect or other title exception with respect to such property or asset. "Loan Documents" is defined in the Credit Agreement. "Major Alteration" or "Major Restoration" means, respectively, any Alteration or Restoration which (i) involves the construction of a new building, (ii) costs One Million Dollars ($1,000,000) or more (with respect to any item of work or series of, or related, items or work constituting a single project), or (iii) occurs while an Event of Default is continuing. "Material Adverse Change" is defined in the Credit Agreement. "New Seely Buildings" means one or more buildings and improvements, which the Trustor plans to develop and construct on the vacant land of the Property and as contemplated in Section 5.3(d)(v) of the Credit Agreement. "Non-Major Alteration" or "Non-Major Restoration" means, respectively, any Alteration or Restoration which is not a Major Alteration or Major Restoration. "Permits" is defined in Granting Clause VII. "Permitted Property Liens" means the Liens being contested as permitted under Section 2.13 and the other Liens described in Exhibit C hereto. "Person" is defined in the Credit Agreement. "Pledge and Security Agreement" is defined in the Credit Agreement. "Proceeds" is defined in Section 3.06. 223 148 "Proforma Title Policy" means with respect to the Property that certain proforma title insurance policy, number 511035, issued by First American Title Guaranty Company. "Property" is defined in Granting Clause II. "Real Estate Collateral Documents" is defined in the Credit Agreement. "Receiver" is defined in Section 5.05. "Remedial Work" means any investigation, site monitoring, containment, clean-up, removal, disposal, restoration, closure activities or other remedial work of any kind or nature relating to Hazardous Materials. "Rents" is defined in Granting Clause V. "Restoration" means the restoration, repair, replacement or rebuilding of the Property after a Casualty or Condemnation, and "Restore" means to restore, repair, replace or rebuild the Property after a Casualty or Condemnation, in each case as nearly as reasonably possible to its value immediately prior to such Casualty or Condemnation. "Secured Obligations" is defined in the Recitals. "Security Deposit" means any payment, note or other security or deposit made or given by or on behalf of a tenant under an Assigned Lease as security for the performance of its obligations thereunder. "Transfer" means, when used as a noun, any sale, conveyance, assignment or other transfer and, when used as a verb, to sell, convey, assign or otherwise transfer, in each case (i) whether voluntary or involuntary, (ii) whether direct or indirect and (iii) including any agreement providing for a Transfer or granting any right or option providing for a Transfer. "Trust Property" is defined in the first paragraph of the Granting Clauses. "Trustee" is defined in the Preamble and Section 7.07 hereof. "Trustor" is defined in the Preamble and Section 7.07 hereof. "Unsecured Environmental Indemnity Agreement" means that certain Unsecured Environmental Indemnity Agreement, of even date herewith, executed by the Trustor in favor of the Beneficiary. 224 149 SECTION 1.02. Interpretation. (a) In this Deed of Trust, unless otherwise specified, (i) singular words include the plural and plural words include the singular; (ii) words which include a number of constituent parts, things or elements, including the terms Improvements, Secured Obligations and Trust Property, shall be construed as referring separately to each constituent part, thing or element thereof, as well as to all of such constituent parts, things or elements as a whole; (iii) words importing any gender include the other genders; (iv) references to any Person include such Person's successors and assigns and in the case of an individual, the word "successors" includes such Person's heirs, devisees, legatees, executors, administrators and personal representatives; (v) references to any statute or other law include all applicable rules, regulations and orders adopted or made thereunder and all statutes or other laws amending, supplementing, consolidating, replacing or otherwise modifying the statute or law referred to; (vi) references to any agreement or other document include all subsequent amendments, supplements, consolidations, replacements, extensions, renewals or other modifications thereof to the extent that such amendments, supplements, consolidations, replacements, extensions, renewals and modifications are not prohibited by the terms of any Loan Documents; (vii) the words "include" and "including," and words of similar import, shall be deemed to be followed by the words "without limitation"; (viii) the words "hereto," "herein," "hereof" and "hereunder," and words of similar import, refer to this Deed of Trust in its entirety; (ix) references to Articles, Sections, Schedules, Exhibits, subsections, paragraphs and clauses are to the Articles, Sections, Schedules, Exhibits, subsections, paragraphs and clauses of this Deed of Trust; (x) the Schedules and Exhibits to this Deed of Trust are incorporated herein by reference; (xi) the titles and headings of Articles, Sections, Schedules, Exhibits, subsections, paragraphs and clauses are inserted as a matter of convenience and shall not affect the construction of this Deed of Trust; (xii) no inference in favor of or against any Person shall be drawn from the fact that such Person or its attorneys drafted any portion hereof; (xiii) all obligations of the Trustor hereunder shall be satisfied by the Trustor at the Trustor's sole cost and expense; and (xiv) all rights and powers granted to the Beneficiary or the Trustee hereunder shall be deemed to be coupled with an interest and be irrevocable. (b) In this Deed of Trust, unless otherwise specified, (i) the words "consent," "approve" and "agree," and derivations thereof or words of similar import, mean the prior written consent, approval or agreement of the Person in question in such Person's discretion; (ii) the words "satisfy," "require" and "judgment," and derivations thereof or words of similar import, mean the satisfaction, judgment or requirement in the discretion of the Person in question; (iii) whenever it is specified that a consent, approval or agreement shall not be unreasonably withheld, or that the satisfaction, judgment or requirement shall be in the reasonable discretion of such Person in question, such action shall also not be unreasonably delayed; and (iv) whenever it is alleged that such action has been unreasonable, unreasonably withheld or unreasonably delayed, the sole remedy with respect to such allegation shall be a suit, action or proceeding for specific performance against the Person in question, and such Person shall not be subject to damages or other liability with respect thereto. 225 150 ARTICLE II CERTAIN WARRANTIES AND COVENANTS OF THE TRUSTOR SECTION 2.01. Authority and Effectiveness. (a) The Trustor represents and warrants that (i) the Trustor is a corporation duly formed, validly existing and in good standing under the laws of the State of California, and has all material governmental licenses, authorizations, consents, approvals and other qualifications required to carry on its business as now conducted, to own the Property and to execute, deliver and perform this Deed of Trust; (ii) the execution, delivery and performance by the Trustor of this Deed of Trust are within the Trustor's corporate power, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official, do not contravene, or constitute a Default under, any provision of applicable law, the articles of incorporation or bylaws of the Trustor or any agreement, judgment, injunction, order, decree or other instrument binding upon the Trustor or relating to the Property and will not result in the creation or imposition of any Lien on any asset of the Trustor (other than the Lien of this Deed of Trust); and (iii) this Deed of Trust constitutes a legal, valid and binding agreement of the Trustor. The Trustor shall cause the representations and warranties in this subsection (a) to continue to be true in each and every respect. (b) The Trustor further represents and warrants that, except as set forth in Section 4.1(j) of the Credit Agreement, there are no actions, suits or proceedings pending or overtly threatened against or affecting the Trustor, or involving the validity of this Deed of Trust, the priority of the lien thereof, at law or in equity, or before any Governmental Authority which would, if adversely determined, result in a Material Adverse Change. The Trustor is not in default with respect to any order, writ, injunction, decree or demand of any court or other Governmental Authority. SECTION 2.02. Title and Further Assurances. (a) The Trustor represents and warrants that (i) the Trustor is the owner of the fee simple interest in the Property, free and clear of all Liens other than the Permitted Property Liens; (ii) the Trustor is the owner of the other items constituting the Trust Property, in each case free and clear of all Liens other than the Permitted Property Liens; and (iii) this Deed of Trust constitutes a valid, binding and enforceable first Lien on the Trust Property, subject only to the Permitted Property Liens (excluding item 4 on Exhibit C hereto). (b) The Trustor shall (i) cause the representations and warranties in subsection (a) of this Section 2.02 to continue to be true and correct in each and every respect and (ii) forever preserve, protect, warrant and defend (A) its estate, right, title and interest in and to the Trust Property, (B) the validity, enforceability and priority of the Lien of this Deed of Trust on the Trust Property, and (C) the right, title and interest of the Beneficiary, the Trustee 226 151 and any purchaser at any sale of the Trust Property hereunder or relating hereto, in each case against all other Liens and claims whatsoever, subject only to the Permitted Property Liens. (c) At the request of the Beneficiary, the Trustor shall (i) promptly correct any defect or error which may be discovered in this Deed of Trust or any financing statement or other document relating hereto; and (ii) promptly execute, acknowledge, deliver, record and re-record, register and re-register, and file and re-file this Deed of Trust and any financing statements or other documents which the Beneficiary may require from time to time (all in form and substance reasonably satisfactory to the Beneficiary) in order (A) to effectuate, complete, perfect, continue or preserve the Lien of this Deed of Trust as a first Lien on the Trust Property, subject only to the Permitted Property Liens (excluding item 4 on Exhibit C hereto), or (B) to effectuate, complete, perfect, continue or preserve any right, power or privilege granted or intended to be granted to the Beneficiary or the Trustee hereunder. SECTION 2.03. Secured Obligations. The Trustor shall duly and punctually pay, perform and observe the Secured Obligations. SECTION 2.04. Impositions. The Trustor shall (i) subject to Section 2.13, duly and punctually pay all Impositions prior to the date on which any fine, penalty, interest or other charge may be added thereto or discount thereon be forfeited; (ii) subject to Section 2.13, duly and punctually file all returns and other statements required to be filed with respect to any Imposition; (iii) promptly notify the Beneficiary of the receipt by the Trustor of any notice of Default in the payment of any Imposition or the filing of any return or other statement relating to any Imposition and simultaneously furnish to the Beneficiary a Certified copy of such notice of Default; and (iv) upon request, promptly deliver to the Beneficiary (A) a Certificate of the Trustor evidencing that the Trustor has complied with the provisions of this Section 2.04, accompanied by Certified copies of official receipts evidencing the payment of the Impositions, and (B) such other information and documents with respect to the matters referred to in this Section 2.04 as the Beneficiary shall reasonably request. SECTION 2.05. Deposits for Impositions or Insurance Premiums. (a) At any time after the occurrence of an Event of Default, upon request by the Beneficiary, the Trustor shall deposit with the Beneficiary (i) on the first day of each month following such request a sum equal to 1/12 of the annual Impositions or Insurance Premiums (as required by the Beneficiary) reasonably estimated by the Beneficiary to become due with respect to the Property for the ensuing year and (ii) thirty (30) days prior to the next due date of any Impositions or Insurance Premiums, an additional sum equal to the aggregate of the payments of such Impositions or Insurance Premiums less the aggregate of the amounts on deposit and the amounts to be deposited pursuant to clause (i) of this subsection (a). If the amounts on deposit under this Section 2.05 shall exceed the amounts required, the excess shall be credited to the subsequent deposits to be made by the Trustor. If the amounts on deposit under this Section 2.05 shall be insufficient, upon request, the Trustor shall immediately deposit the deficiency with the Beneficiary. Except as required under applicable law, the Deposits under this Section 2.05 shall 227 152 be for the exclusive benefit of the Lenders and all right, title and interest in and to such Deposits shall be subject to the exclusive dominion and control of the Beneficiary. At any time after the Beneficiary has requested that the Trustor make Deposits under this Section 2.05, the Beneficiary may notify the Trustor that it need no longer do so, whereupon the Trustor shall cease making such Deposits, provided that any such notice shall be without prejudice to the Beneficiary's right to require thereafter that the Trustor make Deposits under this Section 2.05. (b) If Deposits are made under this Section 2.05, the Beneficiary shall make payments of the Impositions or Insurance Premiums for which such Deposits are made as the same become due, but only following actual receipt by the Beneficiary of the bills therefor, which the Trustor shall furnish to the Beneficiary not later than ten (10) Business Days prior to the due date thereof, and only to the extent that the amounts on deposit with the Beneficiary at the time are sufficient to make such payments. Notwithstanding the foregoing or the fact any amounts deposited under this Section 2.05 may be deposited with respect to certain Impositions or Insurance Premiums, the Beneficiary may use any amounts on deposit under this Section 2.05 to pay any Impositions or Insurance Premiums as the same become due. (c) If an Event of Default is continuing, the Deposits under this Section 2.05 shall be applied and disbursed as provided in the Credit Agreement. SECTION 2.06. Legal and Insurance Requirements. (a) The Trustor represents and warrants that (i) as of the date hereof, the Property and the use and operation thereof comply in all material respects with all Legal Requirements and Insurance Requirements; (ii) there is no default under any Legal Requirement or Insurance Requirement; and (iii) the execution, delivery and performance of this Deed of Trust do not require any consent under, and will not contravene any provision of or constitute a default under, any Legal Requirement or Insurance Requirement. (b) The Trustor shall (i) subject to Section 2.13, duly and punctually comply with all Legal Requirements and Insurance Requirements; (ii) procure, maintain and, subject to Section 2.13, duly and punctually comply with all Permits required for any construction, reconstruction, repair, alteration, addition, improvement, maintenance, management, use and operation of the Property; (iii) promptly notify the Beneficiary of the receipt by the Trustor of any notice of default under any Legal Requirement, Insurance Requirement or Permit or any threatened or actual termination of any Permit or Insurance Policy and furnish to the Beneficiary a copy of such notice of default or termination; (iv) promptly notify the Beneficiary (A) upon learning of any condition which, with or without the giving of notice or the passage of time or both, would result in a default under any Legal Requirement, Insurance Requirement or Permit or a termination of any Permit or Insurance Policy, which Default would have a Material Adverse Effect, and (B) the action taken to remedy such condition; (v) upon request by the Beneficiary on a case by case basis, promptly furnish to the Beneficiary a Certified copy of any Permit (A) obtained by the Trustor with respect to the Property and (B) the revocation or termination of which would have a Material Adverse Effect; and (vi) upon request by the Beneficiary, promptly 228 153 deliver to the Beneficiary (A) a Certificate of the Trustor evidencing that the Trustor has complied with the provisions of this Section 2.06, and (B) such other information and documents with respect to the matters referred to in this Section 2.06 as the Beneficiary shall reasonably request. SECTION 2.07. Status and Care of the Properties. (a) The Trustor represents and warrants as follows: (i) the Property is served by all necessary water, sanitary and storm sewer, drainage, electric, steam, gas, telephone and other utilities and utility facilities, which utility facilities have capacities which are sufficient to serve the current and reasonably anticipated future use and occupancy of the Property, and such utility facilities enter the Property over or under properly-dedicated or granted, perpetual, public or private rights of way or easements therefor; (ii) all streets, roads or alleys adjacent to the Property have been completed and properly dedicated, accepted or otherwise legally constituted as public streets, roads or alleys by the governmental entities having jurisdiction; (iii) the Property has legal access to the adjacent streets, roads and alleys (including, as appropriate, access over properly-granted, perpetual, private rights of way or easements) sufficient to serve the current and reasonably anticipated future use and operation of the Property; (iv) the Alterations, and the use and occupancy of the Property comply in all material respects with all Legal Requirements; Trustor has complied with all other Legal Requirements related thereto, including but not limited to the applicable zoning and building code requirements, and all approvals, licenses, permits, certifications, including certificates of occupancy, filings and other actions normally accepted as proof of compliance with all Legal Requirements have been duly given or taken by the Trustor; (v) the Property is located in an area designated as "flood prone" under the National Flood Insurance Act of 1968 or the Flood Disaster Protection Act of 1973 (42 U.S.C. Section 4001 et seq.); and 229 154 (vi) except as may be disclosed to Trustor in writing: (1) the Trustor (A) has not received notice or otherwise learned of any claim, demand, action, event, condition, information, report, inquiry, proceeding or investigation (or threat of any of the foregoing) (collectively, "Conditions") (including, third party claims and Conditions under CERCLA or any analogous or similar state law) indicating or concerning any potential or actual liability of Trustor (including for contribution, damage, cost recovery, loss, injury, assessment, containment, remediation, response or removal) arising in connection with: (i) any Environmental Noncompliance; or (ii) the use, generation, manufacture, production, storage, discharge, disposal, transport, presence, handling, release or threatened release of any Hazardous Materials into the environment, including migration thereof to or from the Property and including any matter which the Trustor would have a duty to report to a Governmental Authority under CERCLA or any analogous state law or any other Environmental Law and (B) has no threatened or actual liability in connection with the release or threatened release of any Hazardous Material into the environment; and (iii) has not received notice or otherwise learned of any federal, state or other investigation evaluating whether any remedial action is needed to respond to any release of any Hazardous Materials into the environment for which the Trustor may be liable. (2) the Trustor is not subject to any financial assurance requirements of any applicable Environmental Laws, including those contained in 40 C.F.R. Parts 264 and 265, Subps. H, or any state law equivalents, or those promulgated pursuant to 42 U.S.C. 6991b(c)(6) or state law equivalents; (3) the Trustor has not filed any notice under any Legal Requirements (i) indicating past or present treatment, storage or disposal of a hazardous waste, as that term is defined under 40 C.F.R. Part 261 or any state law equivalent thereof, or (ii) reporting a release of any Hazardous Materials into the environment; and (4) the Trustor has not received notice or otherwise learned of any occurrence or condition on any real property adjoining or in the vicinity of the Property that is likely to cause the Property or any part thereof to be subject to any material restrictions on the ownership, occupancy, transferability or use of the Property under any applicable Environmental Law. (b) The Trustor (i) shall not cause or permit the Property to be misused, wasted, disfigured or (subject to Section 3.02) damaged or to deteriorate (except for reasonable wear and tear); (ii) shall use and operate the Property, or cause the same to be used and operated, for substantially the same uses and purposes and in substantially the same manner and under the 230 155 same name as it is used and operated or intended to be used or operated as of the date hereof; (iii) except to the extent permitted under Section 2.08 or as required under the following clauses (iv) through (vi), shall not construct any new Improvement on or otherwise Alter the Property or permit any of the foregoing; (iv) shall operate and maintain the Property, or cause the same to be operated and maintained, in good order, repair and condition; (v) subject to compliance with Section 2.08, shall promptly make, or cause to be made, all repairs, replacements, renewals, Restorations and Alterations of and to the Property, whether interior or exterior, structural or nonstructural or foreseen or unforeseen, necessary or appropriate to keep the Property in good order, repair and condition, all of which repairs, replacements, renewals, Restorations and Alterations shall be equal in quality to or better than the condition of the Property as of the date hereof; (vi) shall do or cause others to do all shoring of the Property or any properties adjacent thereto, including the foundations and walls of either thereof, and to take all other actions necessary or appropriate for the preservation and safety thereof by reason of or in connection with any excavation or other construction-related operation on the Property or any properties adjacent thereto, whether or not the Trustor or any adjacent-property owner shall be required by any Legal Requirement to take such action or be liable for failure to do so; (vii) shall not, without the consent of the Beneficiary, which consent shall not be unreasonably withheld, initiate, seek or affirmatively support any material change in the applicable zoning affecting the Property, seek any material variance or any change in any variance to the zoning affecting the Property, execute or file any subdivision or other plat or map affecting the Property or permit or consent to any of the foregoing; (viii) shall, promptly after receiving notice or obtaining knowledge of any proposed or threatened change in the zoning affecting the Property which would result in the current use of the Property being a non-conforming use, notify the Beneficiary thereof and diligently contest the same by any action or proceeding deemed appropriate by the Trustor in its reasonable judgment or reasonably requested by the Beneficiary; (ix) shall not amend or otherwise modify any Permitted Property Lien, except for amendments to utility easements which do not adversely affect the value, use or operation of the Property or affect the first priority of the Lien of this Deed of Trust; and (x) upon request of the Beneficiary, shall promptly deliver to the Beneficiary (A) a Certificate of the Trustor evidencing that the Trustor has complied with the provisions of this Section 2.07 and (B) such other information and documents with respect to the matters referred to in this Section 2.07 as the Beneficiary shall reasonably request. (c) The Trustor will not use, generate, manufacture, produce, store, discharge, dispose of, place, handle or release (collectively, "manage") on, under, from or about the Property or transport to or from the Property any Hazardous Material, or allow or suffer any other Person to do so other than such Hazardous Materials which are managed in the ordinary course of operating the business of the Trustor as it is operated on the Closing Date and which are managed in accordance with applicable Environmental Laws. (d) The Trustor shall keep and maintain the Property in compliance with all applicable Environmental Laws, and shall not cause, permit or suffer the Property to be in violation of any Environmental Laws in any material respect. 231 156 (e) The Beneficiary shall have the right, but not the obligation, to join and participate in as a party, if it so elects, any legal proceeding or action concerning the Property initiated in connection with any Environmental Law which, in the Beneficiary's reasonable judgment, is likely to result in an Environmental Noncompliance and have its reasonable attorneys' fees in connection therewith paid by or be defended by the Trustor from and against any such proceeding or action with counsel chosen by the Beneficiary, and shall have the right to make inquiry of and disclose all information to appropriate Governmental Authorities when advised by counsel with appropriate expertise that such disclosure may be required under applicable law. (f) Without the Beneficiary's prior written consent, which consent shall not be unreasonably withheld, the Trustor shall not undertake any Remedial Work in response to the presence or release of any Hazardous Material on, under, from or about the Property, or enter into any settlement, consent or compromise which, in the Beneficiary's reasonable judgment, individually or in the aggregate, is likely to result in an Environmental Noncompliance; provided, however, that the Beneficiary's prior consent shall not be necessary if: (i) the presence or release of Hazardous Material on, under, from or about the Property either poses an immediate threat to the health, safety or welfare of any individual or is of such a nature that an immediate remedial response is necessary and it is not possible to obtain the Beneficiary's written consent before taking such action; provided, that in such event the Trustor shall notify the Beneficiary as soon as practicable of any action so taken; (ii) particular Remedial Work is ordered by a court or regulatory agency of competent jurisdiction, or (iii) the Trustor establishes to the reasonable satisfaction of the Beneficiary that there is no reasonable alternative to such Remedial Work which would result in less impairment of the Property. (g) In the event that (i) an Event of Default has occurred and is continuing, or (ii) the Beneficiary reasonably believes that there may be a violation or threatened violation by the Trustor of any applicable Environmental Law regarding the Property or a violation or threatened violation by the Trustor of any provision of this Section 2.07 which, in the Beneficiary's reasonable judgment, would individually or in the aggregate likely result in an Environmental Noncompliance, the Beneficiary is authorized, but not obligated, by itself, its agents, employees or workmen to enter at any reasonable time, after reasonable notice to the Trustor, upon any part of the Property for the purposes of inspecting the same for Hazardous Material and confirming compliance with this Section 2.07, and such inspections may include soil borings and groundwater testing; provided, however, that such inspection by the Beneficiary shall not unreasonably interfere with the Trustor's business operations. The Trustor agrees to pay to the Beneficiary, upon demand, all reasonable expenses, costs or other amounts incurred by the Beneficiary in performing any inspection for the purposes set forth in this Section 2.07. (h) The Trustor shall notify the Beneficiary, in writing, promptly upon receipt of a notice or otherwise learning of any Condition which is likely to result in liability to the Trustor in connection with: (i) any Environmental Noncompliance; (ii) the use, generation, manufacture, production, storage, discharge, disposal, transport, presence, handling, release or 232 157 threatened release of any Hazardous Material into the environment, including migration thereof to or from the Property and including any matter which the Trustor would have a duty to report to a Governmental Authority under CERCLA or any analogous state law or any other Environmental Law; or (iii) the existence of any material Environmental Lien on the Property. The Trustor shall notify the Beneficiary in writing promptly upon receipt of a notice or otherwise learning of any occurrence or condition on any real property adjoining or in the vicinity of the Property that is likely to cause the Property or any part thereof to be subject to any material restrictions on the ownership, occupancy, transferability or use of the Property under any Environmental Law. (i) The Trustor's indemnification and defense obligations under this Deed of Trust or any other Loan Document with respect to Hazardous Materials and environmental matters shall be governed solely by this paragraph (i) of Section 2.07, notwithstanding any other provision in the Deed of Trust (including Section 4.04 of this Deed of Trust) or in any other Loan Document; provided, however, that the foregoing limitation shall not have any effect on, or apply to, the obligations of the Trustor as set forth in Section 8.6 of the Credit Agreement as applicable to the representation and warranty of the Trustor set forth in Section 4.1(p) of the Credit Agreement, and provided further that the foregoing limitation shall not have any effect on, or apply to, the Unsecured Environmental Indemnity Agreement. The Trustor shall indemnify, defend (with counsel approved by the Indemnified Persons, which approval shall not be unreasonably withheld), and hold harmless the Indemnified Persons from and against any and all liabilities, obligations, losses, damages, penalties, actions, fines, judgments, suits, demands, investigations, proceedings, claims, costs, expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for such Indemnified Persons in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnified Persons shall be designated a party thereto), remedial action requirements and enforcement actions of any kind, imposed on, incurred by, or asserted against any such Indemnified Persons (whether direct or indirect and whether based on any federal or state laws or other statutory regulations, including Environmental Laws, under common law or at equitable cause, or in contract or otherwise) in any manner relating to or arising out of the breach of any of the covenants, representations and warranties of this Section 2.07 relating to environmental matters or the use, generation, manufacture, production, storage, discharge, disposal, presence, transport, handling, release or threatened release of any Hazardous Material on, under, from or about the Property, including any other activity carried on or undertaken on or off the Property, whether prior to or after the Closing Date, and whether by the Trustor or any predecessor in title or any employee, agent, contractor or subcontractor of the Trustor or of any predecessor in title, or any third Person at any time occupying or present on the Property, in connection with the use, generation, manufacture, production, discharge, presence, release, threatened release, handling, storage, decontamination, clean up, transport or disposal of any Hazardous Material at any time located or present on, under, from or about the Property, including: 233 158 (A) the costs of any Remedial Work, including costs incurred by the United States government or the State, or any other Person, or damages from injury to, destruction of, or loss of natural resources; and (B) liability for personal injury or property damage arising under any statutory or common-law tort theory, including damages assessed for the maintenance of a public or private nuisance, response costs or for the carrying on of an abnormally dangerous activity (collectively, including the other matters described in subsection (i) of this Section 2.07, the "Indemnified Matters"); provided that the Trustor shall have no obligation to an Indemnified Person hereunder with respect to Indemnified Matters resulting directly from the gross negligence or willful misconduct of that Indemnified Person, as finally determined by a court of competent jurisdiction. To the extent that the undertaking to indemnify, pay, defend and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Trustor shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Matters incurred by the Indemnified Persons. This indemnity is intended to be operable under 42 U.S.C. Section 9607(e)(1). This indemnity shall not survive the reconveyance of the Lien of this Deed of Trust, the extinguishment of the Lien by foreclosure or action in lieu thereof, or any Transfer of the Property by the Trustor. The foregoing indemnity shall in no manner be construed to limit or adversely affect the Beneficiary's rights under this Section 2.07, including the Beneficiary's rights to approve any Remedial Work and the contractors and consulting engineers retained in connection therewith. (j) If any Remedial Work is reasonably necessary or required under any applicable local, state or federal law or regulation, any judicial order, or by any Governmental Authority, because of, or in connection with, the current or future presence, suspected presence, release or suspected release of a Hazardous Material in or into the air, soil, groundwater, surface water or soil vapor at, on, about, under or within the Property (or any portion thereof) which, in the Beneficiary's reasonable judgment, is likely to result in liability to the Trustor respecting Hazardous Materials, then the Trustor shall diligently prosecute to completion such Remedial Work on or before the later of (i) the date that is ninety (90) days after written demand for performance thereof by the Beneficiary, or (ii) the date by which completion of such Remedial Work is required by a Governmental Authority. All such Remedial Work shall be at the Trustor's sole expense in accordance with the requirements of any applicable Governmental Authority or Environmental Law. All Remedial Work shall be performed by one or more contractors, approved in advance in writing by the Beneficiary, and under the supervision of a consulting engineer approved in advance in writing by the Beneficiary (which approvals shall not be unreasonably withheld). While such Remedial Work is continuing, the Trustor shall, at least once every thirty (30) days, provide the Beneficiary with a written report, in reasonable detail, of the progress of such Remedial Work. All costs and expenses of such Remedial Work shall be 234 159 paid by the Trustor, including the charges of such contractor(s) and/or the consulting engineer, and the Beneficiary's reasonable attorneys' fees and costs incurred in connection with monitoring or review of such Remedial Work. In the event that the Trustor shall fail timely to commence, or cause to be commenced, or fail to complete the Remedial Work expeditiously, the Beneficiary may, but shall not be required to, cause such Remedial Work to be performed and all reasonable costs and expenses thereof, or incurred in connection therewith, shall become part of the obligations secured by this Deed of Trust. SECTION 2.08. Alterations. (a) If no Event of Default is continuing, the Trustor may construct any new Improvement, including the New Seely Buildings, otherwise Alter or Restore the Property and, in connection therewith, demolish any Improvement which is being replaced by a new Improvement, provided that (i) prior to commencing any Alteration or Restoration the Trustor shall give notice thereof to the Beneficiary, describing in reasonable detail satisfactory to the Beneficiary the Alteration or Restoration in question, the work required therefor and the Trustor's best estimate of the cost thereof; (ii) any Alteration or Restoration shall not result in a reduction of the value of the Trust Property below the value thereof immediately preceding the commencement of such Alteration or Restoration; (iii) any Improvement demolished pursuant to this Section 2.08 shall be replaced promptly by a new Improvement of equivalent or greater value; (iv) any Alteration or Restoration shall be effected with due diligence, in a good and workmanlike manner, in compliance with all applicable Legal Requirements and Insurance Requirements and all applicable requirements of the Agreements; (v) any Alteration or Restoration shall be equal in quality to, or better than, the Improvements located on the Property as of the Closing Date; (vi) prior to commencing any phase of any Alteration or Restoration, the Trustor shall obtain all Permits and other consents or approvals required therefor and, in the case of any Major Alteration or Major Restoration, deliver Certified copies thereof to the Beneficiary; (vii) the Trustor shall promptly and fully pay the cost of any Alteration or Restoration; (viii) the Beneficiary shall be named as an additional named insured on each insurance policy of any contractor, subcontractor or other Person performing the Alterations or Restorations; 235 160 (ix) any Alteration or Restoration shall be located entirely on the Land; and, if any Alteration or Restoration encroaches upon any property adjacent to the Land or interferes with any right of way or easement affecting the Property, the Trustor shall promptly obtain an agreement reasonably satisfactory to the Beneficiary permitting such encroachment or interference, or an affirmative title insurance policy or endorsement to any title insurance policy insuring Beneficiary in connection with its Lien of this Deed of Trust reasonably satisfactory to the Beneficiary insuring against loss by reason thereof; or, if the Trustor does not obtain such an agreement or such a policy or such an endorsement within thirty (30) days after discovering such encroachment or interference, the Trustor shall promptly remove such encroachment or interference and return the Property to its prior condition and value; (x) upon completion of any Major Alteration or Major Restoration the Trustor shall promptly give notice thereof to the Beneficiary, accompanied by (A) a Certificate of the Trustor evidencing such completion, that such Alteration or Restoration complies with the provisions hereof, and that the Trustor has complied with its obligations hereunder relating thereto, (B) a Certified copy of any permanent certificate of occupancy required to permit the use and occupancy thereof, and (C) if reasonably required by the Beneficiary in the case of any such Alteration or Restoration affecting the exterior of any Improvement, an as-built survey of the Property reasonably satisfactory to the Beneficiary showing the existing Improvements and such Alteration or Restoration; and (xi) the Trustor shall promptly furnish to the Beneficiary such other information and documents relating to any Alteration or Restoration and the matters referred to in this Section 2.08 as the Beneficiary shall reasonably request. (b) Without limiting the provisions of subsection (a) of this Section 2.08, the Trustor shall not commence or construct, or permit the commencement or construction of, any Major Alteration or Major Restoration (excluding the New Seely Buildings) without the consent of the Beneficiary, which consent shall not be unreasonably withheld. (c) Without limiting the provisions of subsections (a) and (b) of this Section 2.08, in connection with any Major Alteration or Major Restoration, (i) any such Alteration or Restoration shall be conducted under the supervision of a licensed architect or engineer; (ii) prior to commencement of any such Alteration or Restoration, the Trustor shall submit the plans and specifications therefor to the Beneficiary (including a plot plan showing the location thereof on the Land) and obtain the Beneficiary's approval thereof; (iii) any such Alteration or Restoration shall be constructed substantially in accordance with such plans and specifications approved by the Beneficiary; and (iv) upon completion of any such Alteration or Restoration, in addition to the documents referred to in subsection (a) of this Section 2.08, the Trustor shall promptly furnish to the Beneficiary (A) Certificates of the Trustor and the supervising architect or engineer to the effect that (1) such Alteration or Restoration has been completed substantially in 236 161 accordance with the applicable plans and specifications and with all applicable Legal Requirements and Insurance Requirements and all applicable requirements of the Agreements; and (2) all contractors, subcontractors, materialmen and other persons who could claim Liens in connection with such Alteration or Restoration have been paid in full or have effectively waived or released their rights to such Liens or that such Liens are being contested pursuant to Section 2.13; (B) if required by the Beneficiary, a title insurance policy satisfactory to the Beneficiary insuring against Liens relating to such Alteration or Restoration; and (C) such other information and documents as the Beneficiary shall reasonably request. SECTION 2.09. Agreements. (a) The Trustor represents and warrants that, as of the date hereof, (i) there have been no amendments, other modifications to or assignments of any of the Agreements, except such amendments, modifications or assignments which would not have a Material Adverse Effect; (ii) the Agreements are in full force and effect and there is no material Default under any of the Agreements; (iii) all Agreements with any Affiliate of the Trustor comply with the applicable requirements of the Credit Agreement relating to affiliate transactions and on the Closing Date, such Agreements will be subordinate to this Deed of Trust; and (iv) the execution, delivery and performance of this Deed of Trust do not require any consent under, and will not contravene any provision of or cause a Default under, any of the Agreements or the Permitted Property Liens. (b) The Trustor (i) shall duly and punctually pay, perform and observe all of its obligations under the Agreements; (ii) shall do all things reasonably necessary or appropriate to enforce, preserve and keep unimpaired each Agreement, the rights of the Trustor thereunder and the obligations of any other party thereunder; (iii) shall not, without the consent of the Beneficiary, enter into any Agreement or take any other action amending, terminating or otherwise materially modifying any Agreement, any right of the Trustor thereunder or any obligation of any other party thereunder, or consent to any assignment of the interest of any other party thereunder; (iv) shall notify the Beneficiary (A) promptly of the receipt or giving by the Trustor, as the case may be, of any notice of default under any Agreement or any notice of the threatened or actual termination of any Agreement, any right of the Trustor thereunder or any obligation of any other party thereunder, accompanied by a Certified copy of such notice of default or termination; (B) promptly upon learning of any condition which, with or without the giving of notice or the passage of time or both, would result in any material default or termination referred to in the preceding clause (A); and (C) promptly upon learning of any assignment of the interest of any other party to any Agreement; (v) shall promptly deliver to the Beneficiary a counterpart original or Certified copy of any amendment or other modification of any Agreement entered into or consented to by the Trustor; (vi) shall cause any and all Agreements entered into by the Trustor with one or more of its Affiliates to comply with the applicable requirements of the Credit Agreement relating to affiliate transactions; (vii) shall subordinate any and all Agreements to this Deed of Trust to the extent not otherwise subordinate; and (viii) upon request, shall promptly deliver to the Beneficiary (A) a Certificate of the Trustor evidencing that the Trustor has complied with the provisions of this Section 2.09 and (B) such other information 237 162 and documents with respect to the Agreements and the matters referred to in this Section 2.09 as the Beneficiary shall reasonably request. SECTION 2.10. Management and Leasing. (a) The Trustor represents and warrants that, as of the date hereof, (i) there are no Agreements in existence relating to the operation or management of the Property, except for such Agreements that may be terminated upon sixty (60) days' prior written notice; (ii) the right, power or obligation to operate or manage the Property has not been delegated to, any Person, except pursuant to an Agreement which may be terminated upon sixty (60) days' prior written notice; (iii) there are no agreements in existence relating to the leasing of the Property or any portion thereof; and (iv) the right or power to lease the Property has not been delegated to any Person. (b) Without the consent of the Beneficiary, the Trustor shall not enter into any Agreement relating to or otherwise delegate to any Person, or permit such delegation to any Person of, the operation, leasing or management of the Property; provided, however, that with respect to the leasing of the Property or any portion thereof, Beneficiary shall not unreasonably withhold or delay its consent. (c) The Trustor represents and warrants that, as of the date hereof there are no Leases in effect. (d) The Trustor: (i) shall not grant any Lien upon any Assigned Lease or the Rents thereunder, other than the Lien of this Deed of Trust; (ii) shall include in each Lease entered into after the date hereof the subordination and nondisturbance provisions set forth in Exhibit B hereto; (iii) shall not enter into any Assigned Lease which grants to the tenant thereunder any right or option to purchase or otherwise acquire the Property or any interest therein; (iv) shall not enter into any Lease or Transfer any Lease without the consent of the Beneficiary, which consent shall not be unreasonably withheld; (v) shall not receive or collect (whether in cash, by promissory note or otherwise) any Rents for a period of more than thirty (30) days before the due date thereof, except for any Security Deposits held by the Trustor; (vi) shall duly and punctually pay, perform and observe in all material respects (subject to Section 2.13) all of its obligations under the Leases; 238 163 (vii) shall do all things reasonably necessary or appropriate to enforce, preserve and keep unimpaired each Lease, the rights of the Trustor thereunder and the obligations of the tenant thereunder, except (subject to the following clause (ix)) for any default by the tenant thereunder; (viii) shall not enter into any agreement or take any other action terminating, extending or materially modifying (including consenting to the assignment or subletting of the tenant's interest under) any Lease, without the consent of the Beneficiary, which consent shall not be unreasonably withheld; (ix) may terminate, in the Trustor's reasonable and good faith exercise of its business judgment, any Assigned Lease in connection with the bona fide enforcement proceedings against the tenant thereunder upon the occurrence of a material default by the tenant thereunder; (x) shall notify the Beneficiary (A) promptly after receipt or contemporaneously when given, as the case may be, of the receipt or giving by the Trustor of any notice of default under any Lease or any notice of the threatened or actual termination of any Lease, any right of the Trustor thereunder or any obligation of the tenant thereunder, accompanied by a Certified copy of such notice of Default or termination; (B) promptly upon learning of any condition which, with or without the giving of notice or the passage of time or both, would constitute a material Default or cause a termination referred to in the preceding clause (A); and (C) promptly upon learning of any assignment or subletting of the interest of the tenant under any Lease; (xi) shall promptly deliver to the Beneficiary a counterpart original or Certified copy of (A) any Lease entered into after the date hereof; (B) any agreement entered into after the date hereof terminating, extending or otherwise materially modifying any Lease; and (C) any notice exercising any right or option under any Lease; and (xii) upon request, shall promptly deliver to the Beneficiary (A) counterpart originals or Certified copies of any Assigned Lease entered into after the date hereof, any agreement entered into after the date hereof terminating, extending or otherwise modifying any Assigned Lease and any notice exercising any right or option under any Assigned Lease not theretofore delivered to the Beneficiary pursuant to clause (xi) of this subsection (d); (B) a Certificate of the Trustor evidencing that the Trustor has complied with the provisions of this Section 2.10; and (C) such other information and comments with respect to the Assigned Leases and the matters referred to in this Section 2.10 as the Beneficiary shall reasonably request. 239 164 SECTION 2.11. Transfer. (a) Except items of equipment or personal property which have been removed pursuant to Section 2.08 and except as provided in Sections 5.3(b)(iv) and (vi) of the Credit Agreement, the Trustor shall not, without the consent of the Beneficiary, Transfer the Trust Property or any interest therein. (b) The provisions of this Section 2.11 shall apply to each and every Transfer of the Trust Property or any interest therein, regardless of whether or not the Beneficiary has consented to or waived its right to consent to any prior Transfer thereof. SECTION 2.12. Liens. (a) Without the consent of the Beneficiary, the Trustor shall not create or permit to be created or to remain, and shall promptly discharge or cause to be discharged, any Lien on the Trust Property or any interest therein (except Liens being contested pursuant to Section 2.13, the other Permitted Property Liens and Liens permitted under the Credit Agreement), in each case (i) whether voluntarily or involuntarily created, (ii) whether directly or indirectly a Lien thereon and (iii) whether or not subordinate hereto. (b) Nothing herein shall be construed to be a consent by the Beneficiary or the Trustee to any mechanic's, materialman's, supplier's, repairman's or similar Lien on the Trust Property or any interest therein. 240 165 SECTION 2.13. Permitted Contests. After prior notice to the Beneficiary, the Trustor may contest, in good faith by appropriate proceedings promptly instituted and diligently conducted, any Legal Requirement, Insurance Requirement, any Imposition or Lien therefor on the Trust Property or any interest therein or any Lien of any laborer, mechanic, materialman, supplier or vendor on the Trust Property or any interest therein, or any matter under any Assigned Lease, Agreement or other Permitted Property Lien, provided that (i) no Event of Default is continuing; (ii) no Trust Property or any interest therein is in danger of being sold, forfeited or lost while such proceedings are pending; (iii) none of the Lenders are in danger of any criminal or material civil penalty or any other liability for failure to comply with any such Legal Requirement, and no Trust Property or interest therein is subject to the imposition of any Lien as a result of such failure which is not properly contested pursuant to this Section 2.13; (iv) in the case of any Insurance Requirement, no Insurance Policy or coverage is in danger of being forfeited or lost while such proceedings are pending; (v) in the case of (A) Liens of laborers, mechanics, materialmen, suppliers or vendors, or (B) the Impositions or Liens therefor, such proceedings suspend the foreclosure of any such Lien or any other collection thereof from the Trust Property and all interests therein; (vi) the Trustor establishes adequate reserves or other appropriate provisions required with respect to such contest in accordance with generally accepted accounting principles; and (vii) if required by the Beneficiary, the Trustor furnishes to the Beneficiary a bond or other security reasonably satisfactory to the Beneficiary. Upon request of the Beneficiary, the Trustor shall promptly deliver to the Beneficiary (x) a Certificate of the Trustor describing in detail reasonably satisfactory to the Beneficiary the contests pending as of the date thereof and evidencing that the Trustor has complied with the provisions of this Section 2.13 with respect thereto and (y) such other information and documents with respect to the contests conducted pursuant to this Section 2.13 as the Beneficiary shall reasonably request. ARTICLE III INSURANCE, CASUALTY AND CONDEMNATION SECTION 3.01. Insurance. (a) Policies. Trustor shall maintain in full force and effect, with financially sound and reputable insurers reasonably satisfactory to the Beneficiary, insurance with respect to the Property against loss or damage of the kinds customarily insured against by companies engaged in the same or similar business as that of, and similarly situated to the Trustor and of such types and in such amounts as are customarily carried under similar circumstances by such other companies, and shall otherwise comply with the insurance coverage requirements of the Credit Agreement. Notwithstanding the foregoing, such property insurance shall at all times at least equal the full replacement value of the Improvements. Without limiting the generality of the foregoing, such insurance policies of Trustor shall provide the following coverages: 241 166 (i) "All Risk" property insurance, including sprinkler leakage, flood, earthquake and, when any Alteration or Restoration of any Property is in progress, builder's risk insurance on a completed value (non-reporting) form and including soft cost expense coverage, in an amount sufficient to prevent the Trustor from becoming a co-insurer in any loss under the policy, but in no event less than the full replacement value of the Improvements. Such coverage shall include endorsements for an agreed amount for demolition and increased cost of construction due to enforcement of laws and ordinances regulating construction. Further, Trustor shall obtain business interruption or time element insurance coverage on an actual loss sustained basis in an amount not less than one year's insurable values and extended to include a one hundred eighty (180) day extended period of indemnity; (ii) flood and earthquake insurance covering the Trust Property in amounts of not less than One Million Dollars ($1,000,000) per occurrence and in the aggregate for the peril of flood, and for the peril of earthquake insurance coverage in an amount not less than the then outstanding balance of Advances or replacement cost of the Improvements, whichever is less; (iii) to the extent not covered under clauses (i) and (ii) of this subsection (a), difference-in-conditions coverage in an amount satisfactory to the Beneficiary; (iv) comprehensive steam boiler and machinery insurance covering all mechanical, electrical and pressure vessels situated at the Property and endorsed to cover direct damage and business interruption; (v) commercial General Liability insurance in an amount not less than One Million Dollars ($1,000,000) per occurrence and Two Million Dollars ($2,000,000) in the aggregate per location, for bodily injury and property damage and personal injury resulting from Trustor's operations or premises liability. Such insurance shall include premises liability insurance, blanket contractual liability insurance, products liability insurance and personal injury liability insurance; (vi) commercial Automobile Liability insurance in an amount not less than One Million Dollars ($1,000,000) per accident covering all owned, hired and nonowned automobiles; (vii) worker's compensation and employer's liability insurance, or state-approved self-insurance for the same risks, subject to the statutory limits of the State of California in respect of any work or other operations on, about, or in connection with the Trust Property; 242 167 (viii) in addition to the liability insurance coverage in subsections 3.01(a)(v) and (vi), the Trustor shall provide Forty Million Dollars ($40,000,000) in umbrella liability in excess of General Liability and Automobile Liability insurance; and (ix) such other insurance with respect to the Trust Property and in such amounts as the Beneficiary from time to time may require against such other insurable hazards which at the time are commonly insured against in respect of properties similar to the Trust Property. (b) Blanket Insurance. The Trustor may effect such coverage under subsection (a) of this Section 3.01 under a blanket insurance policy satisfactory to the Beneficiary, provided that (i) any such policy of blanket insurance shall specify therein, or the insurer under such policy shall certify to the Beneficiary, (A) the maximum amount of the total insurance afforded by the blanket policy allocated to the Property and (B) any sublimits in such blanket policy applicable to the Property, which amounts shall not be less than the amounts required pursuant to this Section 3.01; (ii) any such policy of blanket insurance shall comply in all respects with the other provisions of this Section 3.01; and (iii) the protection afforded under any policy of blanket insurance hereunder shall be no less than that which would have been afforded under separate policies relating only to the Property. (c) Policies. (i) The property insurance maintained under subsection (a) of this Section 3.01 shall (A) bear a standard non-contributory first mortgagee endorsement in favor of the Beneficiary as Agent for the Lenders (B) contain an endorsement providing for payment to the Agent of all monies due or to become due under such property insurance policies, and (C) provide that the insurers waive any and all rights to be subrogated to the rights of the Lenders. (ii) The liability insurance maintained under clauses (v), (vi) and (viii) of subsection (a) of this Section 3.01 shall name the Beneficiary, the Trustee, and the Lenders as additional insureds. (iii) All insurance maintained by the Trustor hereunder shall provide that (A) no cancellation, material change or reduction thereof shall be effective until at least thirty (30) days after receipt by the Beneficiary of written notice thereof, and (B) all losses shall be payable notwithstanding (1) any act or negligence of the Trustor or its agents or employees which might, absent such agreement, result in a forfeiture of all or part of such insurance payment, (2) the occupation or use of the Property for purposes more hazardous than permitted by the terms of such policy, (3) any foreclosure or the exercise of any other right or remedy under or with respect to this Deed of Trust, or (4) any change in the ownership of the Property. (d) Policies or Certificates. The Trustor shall furnish to the Beneficiary from time to time, without notice or demand by the Beneficiary, not later than ten (10) Business Days prior to the expiration date of each Insurance Policy, (i) either a copy of such Insurance Policy, Certified to be a true copy by the insurer, or an insurance certificate evidencing the insurance 243 168 maintained under such Insurance Policy, whichever the Beneficiary requests (and until further notice the Beneficiary hereby requests an insurance certificate evidencing the insurance maintained under such Insurance Policy), and (ii) evidence satisfactory to the Beneficiary of payment of the premium therefor. (e) Additional or Separate Insurance. The Trustor shall not maintain additional or separate insurance concurrent in form or contributing in the event of loss with the insurance required under this Section 3.01, unless (i) the policies providing such additional or separate insurance are submitted to the Beneficiary for its approval; (ii) the insurers under such policies and the terms thereof are approved by the Beneficiary; and (iii) the Beneficiary and the Lenders are included in such policies as loss payees or additional named insureds in the same manner as provided in subsection (c) of this Section 3.01 for the insurance required to be maintained hereunder and such policies comply with the other provisions of said subsection. If the Trustor desires to maintain such additional or separate insurance, not later than ten (10) Business Days prior to obtaining such additional or separate insurance, the Trustor shall notify the Beneficiary of the Trustor's intention to do so and furnish to the Beneficiary a copy of the proposed policy or policies. In the event that the Trustor maintains any such additional or separate insurance, the Trustor shall furnish to the Beneficiary Certified copies of the policies providing such insurance or certificates of insurance with respect thereto, in the same manner as provided in subsection (d) of this Section 3.01 for Insurance Policies required to be maintained hereunder. (f) Payment of Premiums by the Beneficiary. If the Trustor fails to maintain the Insurance Policies required to be maintained under this Section 3.01 or fails to deliver evidence thereof to the Beneficiary, the Beneficiary shall have the right, but not the obligation, to obtain such Insurance Policies and pay the premiums therefor. If the Beneficiary obtains such Insurance Policies or pays the premiums therefor, upon demand the Trustor shall reimburse the Beneficiary for its expenses in connection therewith, together with interest thereon, pursuant to Section 4.03. SECTION 3.02. Casualty. (a) The Trustor represents and warrants that, as of the date hereof, there is no Casualty affecting the Property. 244 169 (b) In the event of any Casualty, the Trustor shall promptly provide to the Beneficiary written notification (or telephonic notice promptly confirmed in writing) containing a description of the Casualty. Within ten (10) Business Days after any such notification, the Trustor shall provide the Beneficiary with a written notice specifying whether the Trustor intends to Restore the Property damaged, and if so, the Trustor shall include a description of its preliminary plans to Restore the Property. If, in the sole discretion of the Requisite Lenders, the Restoration of the Property in accordance with the preliminary plans of the Trustor is reasonably assured through the use of the Insurance Proceeds and if necessary, any other funds of the Trustor permitted for such use under the terms of the Credit Agreement, then the Beneficiary shall release to the Trustor over the course of such Restoration the Insurance Proceeds held by the Beneficiary in connection with the Casualty, subject to Section 3.06 hereof. If, however, the Requisite Lenders are not so assured, or if the Trustor shall state that it does not intend to Restore the Property, then the Beneficiary will retain all Insurance Proceeds held by it as Trust Property as security for the Secured Obligations and the Trustor shall deliver to the Beneficiary all Insurance Proceeds received, if any, by it in connection with the Casualty. Further, the Trustor shall immediately take such action as may be necessary or appropriate to preserve the undamaged portion of the Property and to protect against personal injury or property damage. SECTION 3.03. Insurance Claims and Proceeds. In the event of any Casualty, (i) the Trustor shall promptly make proof of loss under the applicable Insurance Policies and diligently pursue to conclusion its claim for the Insurance Proceeds payable thereunder and any suit, action or other proceeding necessary or appropriate to obtain payment of such Insurance Proceeds, in each case subject to the provisions of Section 5.12; (ii) if an Event of Default is continuing, the Insurance Proceeds with respect to such Casualty shall be paid to the Beneficiary to be held, applied and disbursed as provided in the Credit Agreement; and (iii) if, pursuant to clause (ii) of this Section 3.03, the Insurance Proceeds are to be paid to the Beneficiary, the Trustor shall promptly pay all amounts described in clauses (i) through (iii) of the definition of "Insurance Proceeds" to the Beneficiary pursuant to said clause (ii). SECTION 3.04. Condemnation. (a) The Trustor represents and warrants that, as of the date hereof, (i) there is no Condemnation affecting the Property, (ii) there are no negotiations or proceedings which might result in such a Condemnation, and (iii) no Condemnation is proposed or threatened. (b) In the event of any Condemnation or any proposed or threatened Condemnation, the Trustor shall promptly provide to the Beneficiary written notification (or telephonic notice promptly confirmed in writing) containing a description of the Condemnation. Within ten (10) Business Days of any such notification, the Trustor shall provide the Beneficiary with a written notice specifying whether the Trustor intends to Alter or Restore the portion of the Property not directly affected by the Condemnation. If the Trustor does intend to Alter or Restore such portion of the Property, such written notice shall include a description of its 245 170 preliminary plans to Alter or Restore such portion of the Property. If, in the sole discretion of the Requisite Lenders, the Alteration or Restoration of such portion of the Property in accordance with the preliminary plans of the Trustor is reasonably assured through the use of the Award and, if necessary, any other funds of the Trustor permitted for such use under the terms of the Credit Agreement, then the Beneficiary shall release to the Trustor over the course of such Alteration or Restoration the Award held by the Beneficiary in connection with the Condemnation, subject to Section 3.06 hereof. If, however, the Requisite Lenders are not so assured, or if the Trustor shall state that it does not intend to Alter or Restore the Property, then the Beneficiary will retain the Award held by it as Trust Property as security for the Secured Obligations and the Trustor shall deliver to the Beneficiary the Award received, if any, by it in connection with the Condemnation. SECTION 3.05. Condemnation Proceedings and Awards. In the event of any commencement of any negotiation or proceeding which might result in a Condemnation, the Trustor shall, immediately, upon learning of the institution of any such proceeding for Condemnation, notify the Beneficiary of the pendency of such proceeding and agrees that the Beneficiary at its discretion may participate in any such proceeding, and the Trustor from time to time shall deliver to the Beneficiary all instruments reasonably requested by the Beneficiary to permit such participation. Further, (i) the Trustor shall, promptly after receiving notice or obtaining knowledge of any such proceeding, do all things deemed necessary or appropriate by the Trustor in its reasonable judgment or reasonably requested by the Beneficiary to preserve the Trustor's interest in the Property and, in the event of any Condemnation, promptly make claim for the Awards payable with respect thereto and diligently pursue to conclusion such claim for such Awards and any suit, action or other proceeding necessary or appropriate to obtain payment thereof, in each case subject to the provisions of Section 5.10; (ii) the Trustor shall have no right to settle, and shall not settle, any claim without the consent of the Beneficiary; and (iii) if an Event of Default is continuing, the Awards with respect to such Condemnation shall be paid to the Beneficiary to be held, applied and disbursed as provided in the Credit Agreement. SECTION 3.06. Conditions to Using Proceeds. (a) If no Event of Default or other Default is continuing and Beneficiary has agreed to release the Insurance Proceeds pursuant to Section 3.02 or the Awards pursuant to Section 3.04 (collectively, the "Proceeds"), such release shall be subject to the following conditions: (i) the Trustor shall furnish to the Beneficiary (A) the plans, specifications and Permits required to be furnished pursuant to Section 2.08 prior to commencement of any Alteration or Restoration that is a Major Alteration or Major Restoration; and (B) if such Proceeds are Insurance Proceeds, a waiver reasonably satisfactory to the Beneficiary by each insurer who paid or will pay such Insurance Proceeds of any and all rights which such insurer may have to be subrogated to the rights of the Lenders (and, if this condition is not satisfied, such Insurance Proceeds shall be retained by the Beneficiary and not made available for the Alteration or Restoration until the condition is satisfied); and 246 171 (ii) disbursements of any such Proceeds for the cost of such Alteration or Restoration shall be made by the Beneficiary to the Trustor from time to time (not more often than once in any month) within ten (10) Business Days after receipt by the Beneficiary of (A) a request of the Trustor for such disbursement; (B) a Certificate of the Trustor and any supervising architect or engineer that the portion of the work for which the disbursement is requested has been completed and is in place in compliance with any approved plans and specifications; (C) a Certificate of the Trustor that the disbursement is needed to pay the cost of such work and that such Proceeds remaining after such disbursement are sufficient to pay all costs of completing such Alteration or Restoration; (D) waivers of Lien satisfactory to the Beneficiary covering that part of the work for which the disbursement is requested (except for Liens being contested pursuant to Section 2.13); (E) if required by the Beneficiary, a title insurance policy or an endorsement to the Beneficiary's title insurance policy satisfactory to the Beneficiary insuring against Liens relating to such work; (F) with respect to the final disbursement of such Proceeds, the documents and other items required pursuant to Section 2.08; and (G) such other Certificates, information and documents as the Beneficiary may reasonably require, provided that no disbursement shall be made unless the Beneficiary shall be satisfied that the Certificates and other documents furnished with respect thereto are true and correct. (b) If any of such Proceeds shall remain after the completion and payment of the cost of such Alteration or Restoration and the application, disbursement or transfer of such Proceeds pursuant to subsection (a) of this Section 3.06, such surplus shall be held, applied and disbursed as provided in the Credit Agreement. ARTICLE IV ADDITIONAL ADVANCES, EXPENSES AND INDEMNIFICATION SECTION 4.01. Additional Advances. All Advances made by the Lenders from time to time under the Credit Agreement are obligatory, subject to the provisions of the Credit Agreement. SECTION 4.02. Interest After Default. If any Secured Obligation (including, to the extent permitted under applicable law, any interest obligation) shall not be paid when due, such Secured Obligation shall bear interest at the Default Interest Rate from such due date through the date paid. Such interest shall be part of the Secured Obligations and shall be secured by this Deed of Trust. SECTION 4.03. Expenses. The Trustor shall on demand, pay or reimburse the Beneficiary, the Trustee or any of the other Indemnified Persons for all reasonable out-of-pocket costs and expenses incurred by the Beneficiary or the Trustee in accordance with Section 8.4 of the Credit Agreement, which Section is hereby incorporated by reference. All such funds 247 172 advanced that, in the reasonable judgment of the Beneficiary or other Lender, are needed to protect their security are to be deemed obligatory advances hereunder. The obligations of the Trustor under this Section 4.03 shall be part of the Secured Obligations and shall be secured by this Deed of Trust. SECTION 4.04. Indemnification. The Trustor shall indemnify and hold harmless each of the Beneficiary, the Trustee, and the other Indemnified Persons in accordance with Section 8.6 of the Credit Agreement, which Section is hereby incorporated by reference. The obligations of the Trustor under this Section 4.04 shall be part of the Secured Obligations, shall be secured by this Deed of Trust and shall survive the release of this Deed of Trust or the foreclosure or transfer in lieu of foreclosure of the Trust Property to the extent that any Claim (as defined in Section 8.6 of the Credit Agreement) relates to an act or event which occurred prior to such release, foreclosure or transfer. SECTION 4.05. Increased Costs. In the event of the enactment after the date hereof of any applicable law deducting from the value of the Property for the purpose of taxation of any Lien thereon or changing in any way the applicable law for the taxation of mortgages, deeds of trust or other Liens or obligations secured thereby, or the manner of collection of such taxes, so as to affect this Deed of Trust, the Secured Obligations, the Beneficiary or any other Lender, upon demand by the Beneficiary (subject to Section 7.01), to the extent permitted under applicable law, the Trustor shall pay or reimburse the Beneficiary or such other Lender for all taxes, assessments or other charges which the Beneficiary or such other Lender is obligated to pay as a result thereof. SECTION 4.06. Notice Limiting Amount. The Trustor shall not, without the consent of the Beneficiary, record, register or file any notice limiting the maximum principal amount of the Secured Obligations secured by this Deed of Trust. ARTICLE V DEFAULTS, REMEDIES AND RIGHTS SECTION 5.01. Event of Default. (a) In this Deed of Trust, the term "Event of Default" means any event which constitutes an Event of Default under and as defined in the Credit Agreement. (b) All notice and cure periods provided in this Deed of Trust, the Credit Agreement, and the other Loan Documents shall run concurrently with any notice or cure periods provided under applicable law. Without limiting the foregoing and notwithstanding anything in this Deed of Trust, the Credit Agreement, or any other Loan Document to the contrary, if a Default is continuing, the Beneficiary or the Trustee shall be entitled to cause a notice of breach, 248 173 or notice of Default, and election to sell to be recorded and mailed, concurrently with the giving of notice under, the Credit Agreement and the other Loan Documents. SECTION 5.02. Remedies. (a) If an Event of Default is continuing, the Beneficiary (subject to Section 7.01) may with the consent, or shall at the request, of the Requisite Lenders, or the Trustee (acting at the direction of the Beneficiary subject to Section 7.02), shall have the right and power to exercise any of the remedies and rights in this Section 5.02. FOR PURPOSES OF ARTICLE V AND ALL OTHER PROVISIONS IN THIS DEED OF TRUST GRANTING THE BENEFICIARY THE RIGHT TO EXERCISE ITS REMEDIES, IT IS UNDERSTOOD AND AGREED THAT IN EACH SUCH INSTANCE, BENEFICIARY MAY DO SO WITH THE CONSENT, OR SHALL DO SO AT THE REQUEST, OF THE REQUISITE LENDERS. The Beneficiary may declare all sums secured hereby, and the same shall thereupon become, immediately due and payable without any presentment, demand, protest or notice of any kind. Thereafter, the Beneficiary at its option may: (i) Terminate the Trustor's right and license to collect the Rents and either in person or by agent, with or without bringing any action or proceeding, or by a Receiver appointed by a court, and without regard to the adequacy of its security, enter upon and take possession of the Property, or any part thereof, and do any acts which it deems necessary or desirable to preserve the value, marketability or rentability of the Trust Property, or any part thereof or interest therein, make, modify, enforce, cancel or accept the surrender of any Lease, take actions which may affect the income therefrom or protect the security hereof, and with or without taking possession of the Property, sue for or otherwise collect the Rents, including, without limitation, those past due and unpaid, and apply the same, less costs and expenses of operation and collection, including reasonable attorneys' fees and costs, upon any indebtedness secured hereby, all in such order as the Beneficiary may determine; (ii) Subject to the provisions and restrictions of any applicable law, enter upon the Property, and exclude the Trustor and its agents and servants wholly therefrom, without liability for trespass, damages or otherwise, and take possession of all books, records and accounts relating thereto and all other Trust Property, and the Trustor agrees to surrender possession of the Trust Property and of such books, records and accounts to the Beneficiary on demand after the occurrence of any Event of Default; and having and holding the same may use, operate, manage, preserve, control and otherwise deal therewith and conduct the business thereof, either personally or by its superintendents, managers, agents, servants, attorneys or Receivers, without interference from the Trustor; and upon each such entry and from time to time thereafter may, at the expense of the Trustor and the Trust Property, without interference by the Trustor and as the Beneficiary may deem reasonably advisable, (A) either by purchase, repair or construction, maintain and restore the Trust Property, (B) insure or reinsure the same, (C) make all necessary or proper repairs, renewals, replacements, alterations, additions, 249 174 betterments and improvements thereto and thereon, (D) initiate, continue or complete, as applicable, the construction of the Improvements and, in the course of such completion, make such changes in the contemplated or completed Improvements as it may deem advisable, (E) in every such case in connection with the foregoing have the right to exercise all rights and powers of the Trustor with respect to the Property, including the right to make, terminate, cancel, enforce or modify Leases, obtain and evict tenants and subtenants on such terms as the Beneficiary shall deem advisable; (iii) Commence an action to foreclose this Deed of Trust as a mortgage, appoint a Receiver, or specifically enforce any of the covenants of this Deed of Trust; (iv) Deliver to the Trustee a written declaration of default and demand for sale, and a written notice of default to cause the Trustor's interest in the Trust Property or any portion thereof to be sold, which notice the Trustee or Beneficiary shall cause to be duly filed for recording in the Official Records of the County in which the Property is located; and/or (v) Exercise all other rights and remedies provided herein, in any other Loan Document, or at law or in equity. (b) Upon request by the Beneficiary, the Trustor shall assemble and make available to the Beneficiary at the Property any of the Trust Property which is not located on the Property or which has been improperly removed therefrom. SECTION 5.03. Foreclosure by Power of Sale. Should the Beneficiary elect to foreclose by exercise of the power of sale contained herein, the Beneficiary shall notify the Trustee and shall, if required, deposit with the Trustee the original or a certified copy of this Deed of Trust, and such other documents, receipts and evidences of expenditures made and secured hereby as the Trustee may require. (a) Upon receipt of such notice from the Beneficiary, the Trustee shall cause to be recorded and delivered to the Trustor such notice as may then be required by law and by this Deed of Trust. The Trustee shall, without demand on the Trustor, after lapse of such time as may then be required by law and after recordation of such notice of default and after notice of sale has been given as required by law, sell the Trust Property at the time and place of sale fixed by it in said notice of sale, either as a whole or in separate lots or parcels or items as the Trustee shall deem expedient, and in such order as it may determine, at public auction to the highest bidder for cash in lawful money of the United States payable at the time of sale. The Trustee shall deliver to the purchaser or purchasers at such sale its good and sufficient deed or deeds conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any Person, including the Trustor, Trustee, Beneficiary or any other Lender, may purchase at such sale. 250 175 (b) After deducting all costs, fees and expenses of the Trustee and of this Deed of Trust, including, without limitation, costs of evidence of title and reasonable attorneys' fees of the Trustee or Beneficiary in connection with a sale as provided in subsection (a) above of this Section 5.03, the Trustee shall apply the proceeds of such sale (i) first, to the payment of all sums expended by the Beneficiary under the terms of any of the Loan Documents and not yet repaid, together with interest on such sums at the Default Interest Rate, (ii) second, to the payment of all sums expended under the terms hereof not then repaid, with accrued interest at the rate of interest equal to the rate then in effect pursuant to the Credit Agreement, or if all Advances thereunder have been repaid, the rate that would have been in effect under the Credit Agreement, (iii) third, to the payment of all other sums then secured hereby, and (iv) fourth, the remainder, if any, to the Person or Persons legally entitled thereto. (c) The Trustee may postpone the sale of all or any portion of the Trust Property by public announcement at the time and place of the scheduled sale, and from time to time thereafter may postpone such sale by public announcement at the time fixed by the preceding postponement or subsequent notice of sale, and without further notice may make such sale at the time fixed by the last postponement, or may, in its discretion, give a new notice of sale. (d) To the fullest extent allowed by law, the Trustor hereby expressly waives any right which it may have to direct the order in which any of the Trust Property shall be sold in the event of any sale or sales pursuant to this Deed of Trust. SECTION 5.04. Rescission of Notice of Default. Unless otherwise provided by applicable law, the Beneficiary may from time to time rescind any notice of default or notice of sale before any Trustee's sale as provided above, by executing and delivering to the Trustee a written notice of such rescission, which such notice, when recorded, shall also constitute a cancellation of any prior declaration of default and demand for sale. The exercise by the Beneficiary of such right of rescission shall not constitute a waiver of any breach or default then existing or subsequently occurring, or impair the right of the Beneficiary to execute and deliver to the Trustee, as above provided, other declarations or notices of default to satisfy the obligations of this Deed of Trust or secured hereby, nor otherwise affect any provision, covenant or condition of any Loan Document or any of the rights, obligations or remedies of the Trustee or Beneficiary hereunder or thereunder. SECTION 5.05. Appointment of Receiver. If an Event of Default shall have occurred and be continuing, the Beneficiary, as a matter of right and without notice to the Trustor or to anyone claiming under the Trustor, and without regard to the then value of the Trust Property or any other security in favor of the Beneficiary or the interest of the Trustor therein, shall have the right to apply to any court having jurisdiction to appoint a receiver or receivers ("Receivers") of the Trust Property, or any portion thereof. Any such Receiver or Receivers shall have the usual powers and duties of receivers in like or similar cases and all the powers and 251 176 duties of the Beneficiary in case of entry as provided in subsection 5.02(a)(ii) above, and shall continue as such and exercise all such powers until the date of confirmation of the sale of the Trust Property, unless such receivership is sooner terminated. SECTION 5.06. Remedies Not Exclusive; Waiver. The Trustee and Beneficiary, and each of them as applicable, shall be entitled to enforce the payment and performance of any indebtedness or obligations secured hereby and to exercise all rights and powers under this Deed of Trust or under any other Loan Document or other agreement or any laws now or hereafter in force, notwithstanding the fact that some or all of the indebtedness and obligations secured hereby may now or hereafter be otherwise secured, whether by mortgage, deed of trust, pledge, lien, assignment or otherwise. Neither the acceptance of this Deed of Trust nor its enforcement, whether by court action or pursuant to the power of sale or other powers contained herein, shall prejudice or in any manner affect the Trustee's or Beneficiary's right to realize upon or enforce any other rights or security now or hereafter held by the Trustee or Beneficiary. The Trustee and Beneficiary, and each of them, shall be entitled to enforce this Deed of Trust and any other rights or security now or hereafter held by the Beneficiary or Trustee in such order and manner as they or either of them may in their absolute discretion determine. No remedy herein conferred upon or reserved to the Trustee or Beneficiary is intended to be exclusive of any other remedy contained herein or by law provided or permitted, but each shall be cumulative and in addition to every other remedy given hereunder or now or hereafter existing at law or in equity. Every power or remedy given by any of the Loan Documents to the Trustee or Beneficiary, or to which either of them may be otherwise entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by the Trustee or Beneficiary, and either of them may pursue inconsistent remedies. By exercising or by failing to exercise any right, option or election hereunder, the Beneficiary shall not be deemed to have waived any provision hereof or to have released the Trustor from any of the obligations secured hereby unless such waiver or release is in writing and signed by Beneficiary. The waiver by the Beneficiary of the Trustor's failure to perform or observe any term, covenant, or condition referred to or contained herein to be performed or observed by the Trustor shall not be deemed to be a waiver of such term, covenant or condition or of any subsequent failure of the Trustor to perform or observe the same or any other such term, covenant or condition referred to or contained herein, and no custom or practice which may develop between the Trustor and Beneficiary during the term hereof shall be deemed a waiver of or in any way affect the right of the Beneficiary to insist upon the performance by the Trustor of the obligations secured hereby in strict accordance with the terms hereof or of any other Loan Document. SECTION 5.07. Request for Notice. The Trustor hereby requests a copy of any notice of default and requests that any notice of sale hereunder be mailed to it at the address set forth in Section 7.03 hereof. Otherwise, neither the Trustee nor Beneficiary is under any obligation to notify any person or entity of any action or proceeding of any kind in which the Trustor, Beneficiary and/or Trustee shall be a party, unless brought by the Trustee, except as may otherwise be required by law. 252 177 SECTION 5.08. Inspection Fee. If an Event of Default has occurred and continues to remain uncured for a period of thirty (30) days then, in addition to all other obligations of the Trustor to the Beneficiary which may arise in connection therewith, the Trustor shall reimburse the Beneficiary for the reasonable cost of causing an inspection of the Property to be performed if the Beneficiary reasonably determines that an inspection should be made of the Property. The Trustor agrees to cooperate fully in causing any such inspection to be made by the Beneficiary or its agents. SECTION 5.09. Rent from the Trustor. Following foreclosure of the Lien of this Deed of Trust, the Trustor shall pay monthly in advance to the Beneficiary or to a Receiver appointed pursuant to Section 5.05 the fair and reasonable rental value for the use and occupancy of the Property, provided that the Beneficiary has consented to the Trustor's occupancy and possession of the Property following such foreclosure; and, upon the failure of the Trustor to make any such payment, upon demand by the Beneficiary or such Receiver, the Trustor shall vacate and surrender possession of the Property to the Beneficiary or such Receiver and, upon the failure of the Trustor to do so, the Beneficiary or such Receiver shall have the right to evict the Trustor by any summary action or proceeding available under applicable law for the recovery of possession of premises for non-payment of rent. SECTION 5.10. Right of Entry. The Beneficiary or the Trustee (as the case may be, as the Person exercising the rights under this Section 5.10) and the representatives of such Person shall have the right, but not the obligation, (i) without prior notice if an Event of Default is continuing, or (ii) after reasonable notice if no Event of Default is continuing, to enter upon the Property at all reasonable times, as often as such Person may reasonably require, to inspect the Trust Property, to examine and copy the books, accounts and other records and files of the Trustor, to make copies thereof, to discuss the accounts, business and other affairs of the Trustor with the Trustor's officers, employees and other representatives (whom the Trustor shall make available for that purpose) or to exercise any right, power or remedy of such Person hereunder, provided that no such entry on the Property for the purpose of performing obligations under Section 5.11 or any other purpose shall be construed to be possession of the Property by such Person or to constitute such Person as a beneficiary, trustee or mortgagee in possession, (unless such Person exercises its right to take possession of the Property under Section 5.02(a)(ii)), or to be a cure of any Default or Event of Default or waiver of any Default, Event of Default or Secured Obligation, and provided further that such Person shall not interfere with the conduct of Trustor's business at the Property. SECTION 5.11. Right to Perform Obligations. If the Trustor fails to pay or perform any obligation of the Trustor hereunder or under any other Loan Document, the Beneficiary or the Trustee (as the case may be, as the Person exercising the rights under this Section 5.11) and the representatives of such Person shall have the right, but not the obligation, (i) without notice if an Event of Default is continuing, or (ii) after reasonable notice if no Event of Default is continuing, to pay or perform such obligation of the Trustor, provided that no such 253 178 payment or performance shall be construed to be a cure of any Default or Event of Default or waiver of any Default, Event of Default or Secured Obligation. SECTION 5.12. Right to Make Claims. (a) In the event that the Trustor hereafter has (i) any material claim (as described in Section 5.12(b)) or right to make any material claim relating to the Trust Property or the proceeds thereof against any Person, including any claim for Insurance Proceeds, for Awards, or against any tenant under any Lease, or (ii) any right to bring any suit, action or other proceeding (including any arbitration proceeding) to enforce any other material right, power or remedy relating to the Trust Property, then (A) the Trustor shall promptly give notice thereof to the Beneficiary, describing in reasonable detail satisfactory to the Beneficiary the claim or right in question and the action which the Trustor intends to take with respect thereto; (B) the Trustor shall promptly do all things reasonably necessary or appropriate to preserve and enforce such claim or right and shall promptly commence and diligently prosecute to conclusion any suit, action or other proceeding reasonably necessary or appropriate to do so; (C) the Trustor shall keep the Beneficiary informed of the status and progress of such claim, right or proceeding and, upon request, shall promptly furnish to the Beneficiary such information and documents relating thereto as the Beneficiary shall reasonably request; (D) the Trustor shall have no right to waive, compromise or settle, and shall not waive, compromise or settle, such claim, right or proceeding without the consent of the Beneficiary, subject to Section 7.01; (E)(1) if the Trustor fails to commence promptly or to pursue diligently to completion any such claim, right or proceeding, or if an Event of Default is continuing, the Beneficiary shall have the right, but not the obligation, (aa) without notice if an Event of Default is continuing, and (bb) after reasonable notice to the Trustor if no Event of Default is continuing, to enforce any such claim or right, to commence or take over any such proceeding, to prosecute any such proceeding to conclusion and to settle any such claim, right or proceeding, in each case (AA) without the consent of the Trustor if an Event of Default is continuing, and (BB) with the consent of the Trustor (which shall not be unreasonably withheld) if no Event of Default is continuing; and (2) if an Event of Default is continuing, the Trustor hereby irrevocably appoints the Beneficiary as the attorney-in-fact of the Trustor (with full power to substitute any other Person in its place as such attorney-in-fact), to act in the name of the Trustor or, at the option of the Beneficiary, in the Beneficiary's own name, to take any action described in the preceding clause (1), and to execute, acknowledge and deliver any document in connection therewith or take any other action incidental thereto as the Beneficiary shall deem appropriate in its discretion; and (3) the Trustor hereby irrevocably authorizes and directs any Person to act upon the foregoing appointment and a Certificate of the Beneficiary that the Beneficiary is entitled to act under this clause (E); and (F) the proceeds of such claim or right shall be paid to the Beneficiary, to be held, applied and disbursed as provided in this Deed of Trust and the Credit Agreement. (b) Under this Section 5.12, a material claim or right shall be (i) any claim or right involving, individually or in the aggregate with any related claims or rights, the Trust Property or an amount in controversy having a value or amounting to One Million Dollars ($1,000,000) or more or (ii) if an Event of Default is continuing, any claim or right involving the Trust Property or amount in controversy. 254 179 ARTICLE VI ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE FILING SECTION 6.01. Assignment of Rents. (a) To facilitate the payment and performance of the Secured Obligations, the Trustor hereby absolutely assigns and transfers to the Beneficiary all right, title and interest of the Trustor in and to the Assigned Leases and Rents. This assignment is and shall be a present, absolute and irrevocable assignment by the Trustor to the Beneficiary and, subject to the license to the Trustor under subsection (b) of this Section 6.01, the Trustee, the Beneficiary or a Receiver appointed pursuant to Section 5.05 (as the case may be as the Person exercising the rights under this Section 6.01) shall have the absolute, immediate and continuing right, power and authority, but not the obligation, to collect and receive all Rents now or hereafter, including during any period of redemption, accruing with respect to the Property, and the absolute, immediate and continuing right, power and authority, but not the obligation to alter, modify or change the terms of any and all of the Assigned Leases or to surrender, cancel or terminate the same. The Trustor irrevocably appoints the Trustee, the Beneficiary or a Receiver appointed pursuant to Section 5.05 (as the case may be as the Person exercising the rights under this Section 6.01) as its true and lawful attorney-in-fact, at the option of the Beneficiary at any time and from time to time, to demand, receive and enforce payment, to give receipts, releases and satisfactions, and to sue, in the name of the Trustor, or, at the option of the Beneficiary, in its own name, for any Rents, and apply the same to the satisfaction of the Secured Obligations. At the request of the Beneficiary or such Receiver, the Trustor shall promptly execute, acknowledge, deliver, record, register and file any additional general assignment of the Assigned Leases or specific assignment of any Assigned Lease which the Beneficiary or such Receiver may require from time to time (all in form and substance reasonably satisfactory to the Beneficiary or such Receiver) to effectuate, complete, perfect, continue or preserve this assignment of the Rents and Assigned Leases. This assignment of the Rents and Assigned Leases is, and is intended to be, an absolute and present assignment from the Trustor to the Beneficiary and not merely the passing of a security interest. (b) As long as no Event of Default is continuing, the Trustor shall have (i) the right under a license granted hereby, subject to subsection (c) of this Section 6.01, and the obligation to collect all Rents as permitted under Section 2.10(d)(v) hereof and shall collect the Rents and hold and use the same in trust to be applied first to the payment of the Secured Obligations, the Impositions, the Insurance Premiums and the other costs and expenses of operating the Property, as the same become due and payable, before using any part thereof for any other purpose; and (ii) the rights under Section 2.10(d) hereof relating to the Assigned Leases. (c) If an Event of Default is continuing, the Beneficiary (subject to Section 7.01) or the Trustee (acting at the direction of the Beneficiary, subject to Section 7.02) or a 255 180 Receiver appointed pursuant to Section 5.05 (as the case may be as the Person exercising the rights under this Section 6.01) shall have the right to terminate the license granted under subsection (b) of this Section 6.01 and exercise the rights and remedies provided under subsection (a) of this Section 6.01, under subsections 5.02(a)(i) and (ii) or under applicable law. If an Event of Default is continuing, upon demand by the Person exercising the rights under this Section 6.01, the Trustor shall promptly pay to such Person all Security Deposits under the Assigned Leases and all Rents allocable to any period after the occurrence of such Event of Default. Subject to subsections 5.02(a)(i) and (ii) and any applicable requirement of law, any Rents received hereunder by the Person exercising the rights under this Section 6.01 shall be promptly paid to the Beneficiary, and any Rents received hereunder by the Beneficiary shall be held, applied and disbursed as provided in the Credit Agreement; provided that, subject to subsections 5.02(a)(i) and (ii) and any applicable requirement of law, any Security Deposits actually received by such Person shall be promptly paid to the Beneficiary, and any Security Deposits actually received by the Beneficiary shall be held, applied and disbursed as provided in the applicable Assigned Leases. (d) The rights and powers of the Person exercising the rights under this Section 6.01 shall continue until the expiration of the redemption period from any foreclosure sale, whether or not any deficiency remains after a foreclosure sale. (e) Nothing herein shall be construed to be an assumption by the Person exercising the rights under this Section 6.01 of, or to otherwise make such Person liable for the performance of, any of the obligations of the Trustor under the Assigned Leases, provided that such Person shall be accountable as provided in subsection (c) of this Section 6.01 for any Rents or Security Deposits actually received by such Person. (f) The acceptance by the Beneficiary of the assignment in this Section 6.01 with all of the rights, powers, privileges and authority created hereby shall not, prior to entry upon and taking possession of the Property by the Beneficiary, be deemed or construed to make the Beneficiary a "mortgagee in possession" nor thereafter or at any time or in any event obligate the Beneficiary to appear in or defend any action or proceeding relating to the Assigned Leases, the Rents or the Property, or to take any action hereunder or to expend any money or to incur any expenses or perform or discharge any obligation, duty or liability under any Assigned Lease or to assume any obligation or responsibility for any Security Deposits or other deposits until actually delivered to the Beneficiary, or make the Beneficiary be liable in any way for any injury or damage to any Persons or property in or about the Property. (g) Neither the collection of the Rents and the application thereof as provided for herein nor the entry upon or taking of possession of the Property by the Beneficiary shall be deemed to cure or waive any Default or waive, modify or affect any notice of Default under any of the Loan Documents or invalidate any act done pursuant to any such notice, and, notwithstanding the continuance in possession of the Property or the collection, receipt and application of the Rents, the Beneficiary shall be entitled to exercise every right provided for in 256 181 any of the Loan Documents or by law upon the occurrence of any Event of Default, including, without limitation, the right to exercise the power of sale provided herein, except to the extent that such collection and application effect a cure of the Trustor's Default or Event of Default hereunder. The enforcement of any such right or remedy by the Beneficiary, once exercised, shall continue for so long as the Beneficiary shall elect. If the Beneficiary shall thereafter elect to discontinue the exercise of any such right or remedy, the same or any other right or remedy hereunder may be reasserted at any time and from time to time following any subsequent Default or Event of Default. SECTION 6.02. Security Agreement. To the extent that the Trust Property includes personal property or items of personal property which are or are to become fixtures under applicable law, this Deed of Trust shall also be construed as a security agreement under the California Uniform Commercial Code and the Trustor hereby grants to the Beneficiary a continuing security interest in such Trust Property; and, if an Event of Default is continuing, the Trustee and the Beneficiary shall be entitled with respect to such personal property to all remedies available under such Uniform Commercial Code and all other remedies available under applicable law. To the extent that the Trust Property includes items of personal property which are covered by the Security Agreement, the provisions of the Security Agreement shall govern, and if an Event of Default is continuing, the Beneficiary shall be entitled with respect to such personal property to all remedies available under the Security Agreement and available under applicable law. Without limiting the foregoing, any personal property may, at Beneficiary's option, (i) be sold hereunder, (ii) be sold pursuant to the California Uniform Commercial Code, or (iii) be dealt with by the Beneficiary in any other manner permitted under applicable law. The Beneficiary may require the Trustor to assemble the personal property and make it available to the Beneficiary at a place to be designated by the Beneficiary. If an Event of Default is continuing, the Beneficiary shall be the attorney-in-fact of the Trustor with respect to any and all matters pertaining to the personal property with full power and authority to give instructions with respect to the collection and remittance of payments, to endorse checks, to enforce the rights and remedies of the Trustor and to execute on behalf of the Trustor and in the Trustor's name any instruction, agreement or other writing required therefor. The Beneficiary may, at its option, appoint the Trustee as the agent of the Beneficiary for the purpose of disposition of the personal property in accordance with the California Uniform Commercial Code, subject to Section 7.01. The Trustor acknowledges and agrees that a disposition of the personal property in accordance with the Beneficiary's rights and remedies in respect to the Property as heretofore provided is a commercially reasonable disposition thereof. SECTION 6.03. Fixture Filing. To the extent that the Trust Property includes items of personal property which are or are to become fixtures under applicable law, and to the extent permitted under applicable law, the filing of this Deed of Trust in the real estate records of the county in which such Trust Property is located shall also operate from the time of filing as a fixture filing with respect to such Trust Property, and the following information is applicable for the purpose of such fixture filing, to wit: 257 182 (a) Name and address of the debtor: The Trustor: Cadence Design Systems, Inc. 2655 Seely Road San Jose, California 95134 (b) Name and address of the secured party: The Beneficiary: CREDIT LYONNAIS, New York Branch 1301 Avenue of the Americas New York, New York 10019 (c) This document covers goods or items of personal property which are or are to become fixtures upon the Property. (d) The Trustor is the record owner of the Property on which such fixtures are or are to be located. 258 183 ARTICLE VII MISCELLANEOUS SECTION 7.01. Beneficiary as the Agent. (a) The Agent has been appointed as the Beneficiary hereunder pursuant to the Credit Agreement and shall be entitled to the benefits of the Credit Agreement. The Beneficiary shall have the right hereunder to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking action (including the release or substitution of Collateral) in accordance with the terms of this Deed of Trust and the Credit Agreement; provided that in the event of a conflict between the provisions of this Deed of Trust and the Credit Agreement, the Credit Agreement shall control to the extent it resolves such conflict. The Beneficiary may resign as Agent and a successor to the Beneficiary may be appointed in the manner provided in the Credit Agreement. Upon the acceptance of any appointment as Agent by a successor Agent, that successor Agent shall thereupon become the Beneficiary hereunder and succeed to and become vested with all the rights, powers, privileges and duties of the retiring Beneficiary under this Deed of Trust, and the retiring Beneficiary shall thereupon be discharged from its duties and obligations under this Deed of Trust and shall deliver any Trust Property in its possession to the successor Beneficiary. After any retiring Beneficiary's resignation, the provisions of this Deed of Trust shall inure to its benefit as to any actions taken or omitted to be taken by it under this Deed of Trust while it was the Beneficiary. (b) Without limiting the generality of subsection (a) of this Section 7.01, notwithstanding anything herein to the contrary, if an Event of Default is continuing, (i) the Beneficiary shall not exercise or waive the exercise of any of its rights, powers or remedies hereunder or otherwise act or refrain from acting hereunder unless directed to do so pursuant to the Credit Agreement; and (ii) the Beneficiary shall exercise or waive the exercise of any of its rights, powers or remedies hereunder and otherwise act or refrain from acting when and in the manner directed pursuant to the Credit Agreement, provided that any exercise or waiver by the Beneficiary of any of its rights, powers or remedies hereunder or any other act by the Beneficiary hereunder shall be conclusive evidence of the Beneficiary's authority pursuant to the Credit Agreement against all Persons other than the Agent and the Lenders. SECTION 7.02. Trustee. (a) The Trustor hereby irrevocably appoints the Trustee to act in that capacity hereunder and the Trustee hereby accepts such appointment. The Trustor hereby irrevocably ratifies and confirms all acts which the Trustee shall lawfully take in accordance with the provisions hereof. (b) The Trustee may, at its option, resign as trustee hereunder by notice given to the Beneficiary, and such resignation shall be effective on the earlier to occur of (i) the date which is thirty (30) days after the date on which the Trustee gives such notice to the Beneficiary 259 184 or (ii) the date on which a successor trustee is appointed by the Beneficiary and accepts such appointment. (c) Subject to Section 7.01, the Beneficiary may, at its option, with or without cause or notice, remove the Trustee, appoint a successor trustee or appoint an additional trustee or trustees hereunder by an instrument in writing executed and acknowledged by the Beneficiary and executed and accepted by such successor or additional trustee and recorded, registered or filed in the real estate records of the jurisdiction in which the Trust Property is located; and, thereupon, without further act, deed or conveyance, such substitute or additional trustee shall be fully vested with all estate, right, title and interest of its predecessor or co-trustee in, to, under or derived from the Trust Property and all rights, powers, privileges and obligations of such predecessor or co-trustee, with the same effect as if such successor or additional trustee had originally been named as trustee or co-trustee hereunder. The execution, acknowledgement and recording, registration or filing of such an instrument shall be conclusive evidence against the Trustor and all other Persons of the proper removal of the Trustee and substitution or addition of the successor or additional trustee; and, if the Trustee or such successor or additional trustee is a corporation, the execution and acknowledgement by an officer of such corporation shall be conclusive evidence against all other Persons of the due authorization, execution and delivery thereof by such corporation. By accepting its appointment as successor or additional trustee, such successor or additional trustee shall be a trustee as of the date of such acceptance as if it were the Trustee on the date hereof. (d) Notwithstanding anything herein to the contrary, the Trustee shall not exercise or waive the exercise of any of its rights, powers or remedies hereunder or otherwise act or refrain from acting hereunder unless directed to do so by the Beneficiary, and the Trustee shall exercise or waive the exercise of any of its rights, powers or remedies hereunder and otherwise act or refrain from acting when and in the manner directed by the Beneficiary, provided that the Trustee (i) shall not be required to follow any direction of the Beneficiary if the Trustee has been advised by counsel that such action would violate applicable law, (ii) shall not be required to expend or risk its own funds or otherwise incur any financial liability in connection with such action if it has reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it, and (iii) shall be entitled to exercise its rights under subsection (e) of this Section 7.02 without such direction by the Beneficiary. (e) The Trustee shall be entitled to receive, and the Trustor shall pay, reasonable compensation to the Trustee for its services rendered hereunder and reimbursement to the Trustee for its expenses (including reasonable attorneys' fees and expenses) in connection herewith or the exercise of any right, power or remedy hereunder. (f) The Trustee shall not be liable with respect to any act taken or omitted by it in good faith in accordance with any direction of the Beneficiary. Except for willful misconduct or gross negligence, the Trustee shall not be liable (i) in acting upon any direction, demand, 260 185 request, notice, statement or other document reasonably believed by it in good faith to be genuine and delivered by the Person empowered to do so, (ii) for any error in judgment or mistake of fact or law in good faith, or (iii) for any action taken or omitted by it in accordance with the provisions of this Deed of Trust. No co-trustee hereunder shall be liable for any act or omission of any other co-trustee. (g) All monies received by the Trustee hereunder shall be held by the Trustee in trust for the purposes for which such monies are received; and, except as provided herein or under mandatory provisions of applicable law, shall be immediately paid over to the Beneficiary. SECTION 7.03. Notices. Unless otherwise specifically provided herein, all notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered, as follows: (i) To the Trustor at: Cadence Design Systems, Inc. 2655 Seely Road San Jose, California 95134 Attention: Treasurer Telecopy No.: (408) 894-2794 With a copy to: Gray Cary Ware Freidenrich 400 Hamilton Avenue Palo Alto, California 94301-1825 Attention: Jeffery A. Trant, Esq. Telecopy No.: (415) 328-3029 (ii) To the Beneficiary at: CREDIT LYONNAIS, New York Branch 1301 Avenue of the Americas New York, New York 10019 Attention: Syndications Group Telecopy No.: (212) 459-3176 261 186 With a copy to: Latham & Watkins 633 West Fifth Street, Suite 4000 Los Angeles, California 90071 Attention: Hendrik de Jong, Esq. Telecopy No.: (213) 891-8763 (iii) To the Trustee at: First American Title Insurance Company 114 East Fifth Street Santa Ana, California 92701 Attention: Legal Department Telecopy No.: (714) 541-4702 With a copy to the Beneficiary, or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall be effective when received. SECTION 7.04. Release of Trust Property. The Trust Property shall be released from the Lien of this Deed of Trust in full subject to the satisfaction of the conditions in the manner and at the time provided under Sections 5.3(d)(iv) and 7.7 of the Credit Agreement and, when such release is effective pursuant thereto, at the request of the Trustor and upon the payment by the Trustor of the fees and expenses of the Beneficiary, the Beneficiary shall execute and deliver to the Trustor such documents as shall be reasonably required to release the Trust Property from the Lien of this Deed of Trust and to reconvey, or cause the Trustee to reconvey, the same to the Trustor without warranty; and, at the request of the Beneficiary and upon payment by the Trustor of the fees and expenses of the Trustee, the Trustee shall reconvey such Trust Property to the Trustor without warranty. Except as specifically provided herein and in any such release and reconveyance, this Deed of Trust and the Lien hereof shall remain in full force and effect. SECTION 7.05. Modification and Waiver. No provision of this Deed of Trust shall be modified, waived or terminated, and no consent to any departure by the Trustor from any provision of this Deed of Trust shall be effective, unless the same shall be by an instrument in writing, signed by the party against whom such modification, waiver, termination or consent is to be enforced. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 262 187 SECTION 7.06. Severability. All rights, powers and remedies provided in this Deed of Trust may be exercised only to the extent that the exercise thereof does not violate applicable law, and all the provisions of this Deed of Trust are intended to be subject to all mandatory provisions of applicable law and to be limited to the extent necessary so that they will not render this Deed of Trust illegal, invalid, unenforceable or not entitled to be recorded, registered or filed under applicable law. If any provision of this Deed of Trust or the application thereof to any Person or circumstance shall, to any extent, be illegal, invalid or unenforceable, or cause this Deed of Trust not to be entitled to be recorded, registered or filed, the remaining provisions of this Deed of Trust or the application of such provision to other Persons or circumstances shall not be affected thereby, and each provision of this Deed of Trust shall be valid and be enforced to the fullest extent permitted under applicable law. SECTION 7.07. Binding Effect. (a) The Trustor hereby confirms the accuracy of the Recitals and their binding effect upon the Trustor. The provisions of this Deed of Trust shall be binding upon and inure to the benefit of each of the parties hereto, the successors and assigns of the Trustor, the successors of the Beneficiary in its capacity as Agent and the successors of the Trustee in that capacity and shall inure to the benefit of the Lenders and their respective successors and assigns; and all references herein to the "Trustor," the "Beneficiary," the "Trustee" or the "Lenders" shall include the respective successors and assigns of such parties. (b) To the fullest extent permitted under applicable law, the provisions of this Deed of Trust binding upon the Trustor shall be deemed to be covenants which run with the Land. (c) Nothing in this Section 7.07 shall be construed to permit the Trustor to Transfer or grant a Lien upon the Trust Property contrary to the provisions of Sections 2.11 and 2.12. SECTION 7.08. Not Assignable. Neither this Deed of Trust nor any rights of the Trustor to receive any sums, proceeds or disbursements hereunder or under the Credit Agreement may be assigned, pledged, hypothecated or otherwise encumbered by the Trustor without the prior written consent of the Beneficiary or except as may be permitted under the Credit Agreement. SECTION 7.09. GOVERNING LAW. THIS DEED OF TRUST SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS DEED OF TRUST MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OR THE CENTRAL DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS DEED OF TRUST, THE TRUSTOR CONSENTS, FOR ITSELF AND IN RESPECT OF THE TRUST PROPERTY, TO THE JURISDICTION OF THOSE COURTS. THE TRUSTOR, IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION 263 188 TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THE DEED OF TRUST. THE TRUSTOR WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW. SECTION 7.10. Waiver of Jury Trial. The Trustor WAIVES ITS RIGHTS TO A TRIAL BY JURY of any claim or cause of action based upon or arising out of or related to this Deed of Trust or the transactions contemplated hereby in any action, proceeding or other litigation of any type brought by any of the parties against any other party or parties, whether based on contract, tort, statutory liability or otherwise. The Trustor agrees that any such claim or cause of action shall be tried by the court WITHOUT A JURY. This waiver shall apply to each future amendment, renewal, supplement or modification of this Deed of Trust. SECTION 7.11. Inconsistencies; Counterparts. This Deed of Trust and the Credit Agreement shall be construed to the extent reasonable to be consistent one with the other, but to the extent that the terms and conditions of this Deed of Trust are actually inconsistent with the terms and conditions of the Credit Agreement, the Credit Agreement shall govern. This Deed of Trust may be executed in any number of counterparts, each of which shall be deemed to be an original with the same effect as if the signatures hereto and thereto were upon the same instrument, and it shall not be necessary in making proof hereof to produce or account for more than one such counterpart. 264 189 IN WITNESS WHEREOF, the Trustor has executed this Deed of Trust as of the date first set forth above. TRUSTOR: CADENCE DESIGN SYSTEMS, INC., a Delaware corporation By: Name: Title: 265 190 STATE OF CALIFORNIA ) ) ss.: COUNTY OF ) On , 1996, before me, , personally appeared , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature (seal) ------------------------------------ EXHIBIT A Legal Description of the Land REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: PARCEL ONE: Parcel 1, as shown on that Parcel Map filed for record in the Office of the Recorder of the County of Santa Clara, State of California on June 18, 1991 in Book 626 of Maps, pages 42, 43, 44 and 45. PARCEL TWO: Private Storm Drainage Easements over Parcels 2 and 3, for the benefit of Parcel 1, as shown on the Parcel Map filed in Book 626 of Maps, pages 42, 43, 44 and 45. PARCEL THREE: A Private Sanitary Sewer Easement over Parcel 4, for the benefit of Parcel 1, as shown on the Parcel Map filed in Book 626 of Maps, pages 42, 43, 44 and 45. 266 191 PARCEL FOUR: Private Ingress and Egress Easements over Parcels 2 and 4, for the benefit of Parcel 1, as shown on the Parcel Map filed in Book 626 of Maps, pages 42, 43, 44 and 45. PARCEL FIVE: Parcel 2, as shown on that Parcel Map filed in the Office of the Recorder of the County of Santa Clara, State of California on June 18, 1991 in Book 626 of Maps, pages 42, 43, 44 and 45. PARCEL SIX: Private Storm Drainage Easements over Parcel 1, for the benefit of Parcel 2, as shown on the Parcel Map filed in Book 626 of Maps, pages 42, 43, 44 and 45. PARCEL SEVEN: Private Sanitary Sewer Easements over Parcels 1, 3 and 4, for the benefit of Parcel 2, as shown on the Parcel Map filed in Book 626 of Maps, pages 42, 43, 44 and 45. 267 192 PARCEL EIGHT: Private Ingress and Egress Easements over Parcel 1, for the benefit of Parcel 2, as shown on the Parcel Map filed in Book 626 of Maps, pages 42, 43, 44 and 45. PARCEL NINE: Parcel 3, as shown on that Parcel Map filed for record in the Office of the Recorder of the County of Santa Clara, State of California on June 18, 1991 in Book 626 of Maps, pages 42, 43, 44 and 45. PARCEL TEN: Private Storm Drainage Easements over Parcels 1 and 2, for the benefit of Parcel 3, as shown on the Parcel Map filed in Book 626 of Maps, pages 42, 43, 44 and 45. PARCEL ELEVEN: A Private Sanitary Sewer Easement over Parcels 1 and 4, for the benefit of Parcel 3, as shown on the Parcel Map filed in Book 626 of Maps, pages 42, 43, 44 and 45. PARCEL TWELVE: Private Ingress and Egress Easements over Parcels 1 and 2, for the benefit of Parcel 3, as shown on the Parcel Map filed in Book 626 of Maps, pages 42, 43, 44 and 45. PARCEL THIRTEEN: Parcel 4, as shown on that Parcel Map filed in the Office of the Recorder of the County of Santa Clara, State of California on June 18, 1991 in Book 626 of Maps, pages 42, 43, 44 and 45. PARCEL FOURTEEN: Private Storm Drainage Easements over Parcels 1, 2 and 3 for the benefit of Parcel 4, as shown on the Parcel Map filed in Book 626 of Maps, pages 42, 43, 44 and 45. PARCEL FIFTEEN: Private Ingress and Egress Easement over Parcels 1 and 2, for the benefit of Parcel 4, as shown on the Parcel Map filed in Book 626 of Maps, pages 42, 43, 44 and 45. APN: 097-67-001, 002, 003 & 097-66-001 268 193 ARB: 097-15-011.02, 011.03, 011.04, 011.05 EXHIBIT B Lease Subordination and Nondisturbance Provisions Subordination and Nondisturbance. This Lease and Tenant's rights hereunder are and shall be subject and subordinate to any and all deeds of trust or mortgages affecting the Property in which the demised premises are located, whether made prior to, on or after the date of this Lease (each a "Deed of Trust"), including that certain Deed of Trust, Assignment, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of April 11, 1996, from Cadence Design Systems, Inc., as the Trustor, to First American Title Insurance Company, as the Trustee, for the benefit of Credit Lyonnais, New York Branch, as the Beneficiary, recorded ______________________________ [insert recording data as recorded in the Office of the County Recorder of Santa Clara County] (the "Existing Deed of Trust"), any and all advances thereunder made prior to, on or after the date of this Lease, and all amendments, modifications, supplements, extensions, renewals or replacements of the Existing Deed of Trust executed and delivered prior to, on or after the date of this Lease. Notwithstanding the foregoing, the holder of any Deed of Trust (including without limitation the Beneficiary (as defined in the Existing Deed of Trust)) may at any time elect to make the Deed of Trust held by such holder subordinate to this Lease by giving Tenant written notice of such subordination and, upon the giving of such notice to Tenant by such holder, the Deed of Trust held by such holder shall be deemed to be subordinate to this Lease. The provisions of this Section shall be self-operative and no further instrument of subordination under this Section shall be required. In confirmation of any subordination provided herein, Tenant shall promptly execute, acknowledge and deliver any instrument that the holder of any Deed of Trust may reasonably request in writing to evidence such subordination. So long as there is no uncured Event of Default by Tenant under this Lease, the holder of any Deed of Trust (including, without limitation, the Beneficiary under the Existing Deed of Trust) shall not disturb the possession of Tenant and/or its use, occupancy and enjoyment of the Premises pursuant to and in accordance with the terms and provisions of this Lease, and if such holder succeeds to the interest of Landlord, such holder shall be bound by all of the obligations imposed on Landlord by this Lease. At the request of Tenant, any such holder shall promptly execute, acknowledge and deliver an instrument that Tenant may reasonably request in writing to evidence such nondisturbance. Notwithstanding anything herein to the contrary, the provisions of this Section may not be amended with respect to any Deed of Trust without the consent in writing of the holder of such Deed of Trust. EXHIBIT C Permitted Property Liens 1. The Lien of this Deed of Trust; 269 194 2. The exceptions set forth as items 1 through 12 of Schedule B - Part I of the Proforma Title Policy; 3. The Liens being contested as permitted under Section 2.13 of this Deed of Trust; and 4. Any and all Assigned Leases. TABLE OF CONTENTS Section Page RECITALS .............................................................. 1 GRANTING CLAUSES ...................................................... 2 GRANTING CLAUSE I ............................................ 2 Land ................................................. 2 GRANTING CLAUSE II ........................................... 2 Improvements ......................................... 2 GRANTING CLAUSE III .......................................... 3 Appurtenant Rights ................................... 3 GRANTING CLAUSE IV ........................................... 3 Agreements ........................................... 3 GRANTING CLAUSE V ............................................ 3 Rents, Issues and Profits ............................ 3 GRANTING CLAUSE VI ........................................... 4 Assigned Leases ...................................... 4 GRANTING CLAUSE VII .......................................... 4 Permits .............................................. 4 GRANTING CLAUSE VIII ......................................... 4 Deposits ............................................. 4 GRANTING CLAUSE IX ........................................... 5 Proceeds and Awards .................................. 5 GRANTING CLAUSE X ............................................ 5 Further Property ..................................... 5 ARTICLE I DEFINITIONS AND INTERPRETATION ....................... 6 SECTION 1.01. Definitions ................................... 6 SECTION 1.02. Interpretation ................................ 12 ARTICLE II CERTAIN WARRANTIES AND COVENANTS OF THE TRUSTOR ...... 13 SECTION 2.01. Authority and Effectiveness ................... 13 SECTION 2.02. Title and Further Assurances .................. 13 270 195 SECTION 2.03. Secured Obligations ........................... 14 SECTION 2.04. Impositions ................................... 14 SECTION 2.05. Deposits for Impositions or Insurance Premiums 14 SECTION 2.06. Legal and Insurance Requirements .............. 15 SECTION 2.07. Status and Care of the Properties ............. 16 SECTION 2.08. Alterations ................................... 21 SECTION 2.09. Agreements .................................... 23 SECTION 2.10. Management and Leasing ........................ 24 SECTION 2.11. Transfer ...................................... 26 SECTION 2.12. Liens ......................................... 26 SECTION 2.13. Permitted Contests ............................ 27 ARTICLE III INSURANCE, CASUALTY AND CONDEMNATION ................. 27 SECTION 3.01. Insurance ..................................... 27 SECTION 3.02. Casualty ...................................... 30 SECTION 3.03. Insurance Claims and Proceeds ................. 31 SECTION 3.04. Condemnation .................................. 31 SECTION 3.05. Condemnation Proceedings and Awards ........... 31 SECTION 3.06. Conditions to Using Proceeds .................. 32 ARTICLE IV ADDITIONAL ADVANCES, EXPENSES AND INDEMNIFICATION .... 33 SECTION 4.01. Additional Advances ........................... 33 SECTION 4.02. Interest After Default ........................ 33 SECTION 4.03. Expenses ...................................... 33 SECTION 4.04. Indemnification ............................... 33 SECTION 4.05. Increased Costs ............................... 33 SECTION 4.06. Notice Limiting Amount ........................ 34 ARTICLE V DEFAULTS, REMEDIES AND RIGHTS ........................ 34 SECTION 5.01. Event of Default .............................. 34 SECTION 5.02. Remedies ...................................... 34 SECTION 5.03. Foreclosure by Power of Sale .................. 36 SECTION 5.04. Rescission of Notice of Default ............... 37 SECTION 5.05. Appointment of Receiver ....................... 37 SECTION 5.06. Remedies Not Exclusive; Waiver ................ 37 SECTION 5.07. Request for Notice ............................ 38 SECTION 5.08. Inspection Fee ................................ 38 SECTION 5.09. Rent from the Trustor ......................... 38 SECTION 5.10. Right of Entry ................................ 38 SECTION 5.11. Right to Perform Obligations .................. 39 SECTION 5.12. Right to Make Claims .......................... 39 271 196 ARTICLE VI ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE FILING................................................ 40 SECTION 6.01. Assignment of Rents ........................... 40 SECTION 6.02. Security Agreement ............................ 42 SECTION 6.03. Fixture Filing ................................ 43 ARTICLE VII MISCELLANEOUS ........................................ 44 SECTION 7.01. Beneficiary as the Agent ...................... 44 SECTION 7.02. Trustee ....................................... 44 SECTION 7.03. Notices ....................................... 46 SECTION 7.04. Release of Trust Property ..................... 47 SECTION 7.05. Modification and Waiver ....................... 47 SECTION 7.06. Severability .................................. 48 SECTION 7.07. Binding Effect ................................ 48 SECTION 7.08. Not Assignable ................................ 48 SECTION 7.09. GOVERNING LAW ................................. 48 SECTION 7.10. Waiver of Jury Trial .......................... 49 SECTION 7.11. Inconsistencies; Counterparts ................. 49 272 197 LIST OF EXHIBITS EXHIBIT A - Description of the Land .................................... A-1 EXHIBIT B - Material Lease Subordination and Nondisturbance Provisions.. B-1 EXHIBIT C - Permitted Property Liens ................................... C-1 273 198 EXHIBIT C-7 UNSECURED ENVIRONMENTAL INDEMNITY AGREEMENT THIS UNSECURED ENVIRONMENTAL INDEMNITY AGREEMENT ("Agreement") is made as of April 11, 1996, by CADENCE DESIGN SYSTEMS, INC., a Delaware corporation (the "Indemnitor"), in favor of CREDIT LYONNAIS, New York Branch ("Credit Lyonnais"), not in its individual capacity but in its limited capacity as Agent for the benefit of the Lenders. Unless the context requires otherwise, capitalized terms are defined in, or by reference in, Section 1 hereof. RECITALS A. Concurrently herewith, a certain Revolving Credit Agreement of even date herewith (the "Credit Agreement") will be executed and delivered by the Indemnitor, the financial institutions from time to time party thereto as Lenders, and Credit Lyonnais, as a Lender and as Agent for the Lenders. B. Pursuant to the Credit Agreement, the Indemnitor has agreed to, among other things, execute and deliver this Agreement. C. The Indemnitor and certain of its subsidiaries have executed certain other Loan Documents in order to evidence and secure the Advances, including a Deed of Trust, Assignment, Assignment of Leases and Rents, Security Agreement and Fixture Filing, of even date herewith, executed by the Indemnitor, as trustor, to First American Title Insurance Company, as trustee, in favor of Agent, as beneficiary, encumbering all of the Indemnitor's right, title and interest in and to the Property located in San Jose, Santa Clara County, California (the "Deed of Trust"). D. The Deed of Trust contains covenants of the Indemnitor regarding Hazardous Materials affecting the Property and the Other Property on or before the Lien Termination Date, none of which covenants is effective after the Lien Termination Date. E. Except with respect to certain representations and warranties of the Indemnitor, which shall be effective as of the date hereof as specified in Section 2 hereof, this Agreement shall become effective on and after the Lien Termination Date and is not secured by the Deed of Trust or any other Loan Document. 274 199 AGREEMENT FOR VALUABLE CONSIDERATION, the receipt and adequacy of which are hereby acknowledged, the Indemnitor hereby agrees as follows: 1. (a) DEFINITIONS. The following terms have the meanings ascribed to them below for purposes of this Agreement: "ADVANCES" is defined in the Credit Agreement. "AGENT" is defined in the Credit Agreement. "AGREEMENT" is defined in the Preamble. "CERCLA" is defined in the Deed of Trust. "CONDITIONS" is defined in Section 2(a) hereof. "CREDIT AGREEMENT" is defined in the Recitals. "DEED OF TRUST" is defined in the Recitals. "DEFAULT INTEREST RATE" means the fluctuating interest rate per annum described in Section 2.7(c) of the Credit Agreement. "ENVIRONMENTAL LAWS" is defined in the Credit Agreement. "ENVIRONMENTAL LIEN" is defined in the Deed of Trust. "ENVIRONMENTAL NONCOMPLIANCE" is defined in the Deed of Trust. "GOVERNMENTAL AUTHORITY" is defined in the Credit Agreement. "HAZARDOUS MATERIALS" is defined in the Credit Agreement. "INDEMNIFIED MATTERS" is defined in Section 3(a) hereof. "INDEMNIFIED PARTIES" means and includes the Lenders and the Agent, their respective parent, subsidiary and affiliated companies, assignees of any interest of a Lender in any of the Advances or the Loan Documents, owners of participation or other interests in the Advances or the Loan Documents, any purchasers of the Property at any foreclosure sale or from the Agent, or any Lender or any of their respective affiliates, and 275 200 the officers, directors, employees, attorneys, advisors, agents, successors and assigns of each of them. "INDEMNITOR" is defined in the Preamble. "LEGAL REQUIREMENTS" is defined in the Deed of Trust. "LENDER" is defined in the Credit Agreement. "LIEN TERMINATION DATE" means the date of the earliest to occur of: (i) the reconveyance of the Deed of Trust; (ii) the acceptance by the Agent (or its successor in interest) of a deed in lieu of foreclosure with respect to the Deed of Trust; or (iii) the foreclosure of the Deed of Trust, whether by judicial or non-judicial foreclosure. "LOAN DOCUMENTS" is defined in the Credit Agreement. "OTHER PROPERTY" means any property, other than the Property, to which Hazardous Materials originating on the Property have migrated. "PROPERTY" means all real property that is or was at any time encumbered by the Deed of Trust, which may at a future date include any and all real property released from the lien of the Deed of Trust. "REMEDIAL WORK" is defined in the Deed of Trust. (b) INTERPRETATION. In this Agreement, unless otherwise specified, (i) singular words include the plural and plural words include the singular; (ii) words which include a number of constituent parts, things or elements, such as the terms Indemnified Parties and Property, shall be construed as referring separately to each constituent part, thing or element thereof, as well as to all of such constituent parts, things or elements as a whole; (iii) references to any person or entity include such person's or entity's successors and assigns; (iv) references to any statute or other law include all applicable rules, regulations and orders adopted or made thereunder and all statutes or other laws amending, supplementing, consolidating, replacing or otherwise modifying the statute or law referred to; (v) references to any agreement or other document include all subsequent amendments, supplements, consolidations, replacements, extensions, renewals or other modifications thereof to the extent that such amendments, supplements, consolidations, replacements, extensions, renewals and modifications are not prohibited by any of the Loan Documents; (vi) the words "include" and "including," and words of similar import, shall be deemed to be followed by the words "without limitation"; (vii) the words "hereto," "herein," "hereof" and "hereunder," and words of similar import, refer to this Agreement in its entirety; (viii) the titles and headings of Sections and paragraphs are inserted as a matter of convenience and shall not affect the construction of this Agreement; and (ix) no 276 201 inference in favor of or against any person or entity shall be drawn from the fact that such person or entity, or its attorneys, drafted any portion hereof. (c) PURPOSE. The purpose of this Agreement is to protect the Indemnified Parties following the Lien Termination Date from the costs and obligations related to Hazardous Materials on, under, or about the Property and/or Other Property (including liability as an "owner or operator" under CERCLA) to the same extent as the protections provided under the analogous provisions of the Credit Agreement and Deed of Trust. The obligations of the Indemnitor hereunder are not related to any principal amount of the credit facility under the Credit Agreement or to any covenants and obligations set forth in the Loan Documents but only to the liability and costs of Remedial Work or other costs related to or arising from Hazardous Materials on, under, about or affecting the Property and/or Other Property to which the Indemnified Parties might become subject following the Lien Termination Date. 2. REPRESENTATIONS AND WARRANTIES. The Indemnitor represents, warrants, acknowledges and agrees that, except as disclosed in the Credit Agreement, Deed of Trust, and Schedule 1 attached hereto, (x) as of the date hereof with respect to subsections (a), (b), (c) and (d) of this Section 2, and (y) as of the Lien Termination Date with respect to subsections (e) and (f) of this Section 2: (a) The Indemnitor (i) has not received notice or otherwise learned of any claim, demand, action, event, condition, information, report, inquiry, proceeding or investigation (or threat of any of the foregoing) (collectively, "Conditions") (including third party claims and Conditions under CERCLA or any analogous or similar state law) indicating or concerning any potential or actual liability of the Indemnitor (including for contribution, damage, cost recovery, loss, injury, assessment, containment, remediation, response or removal) arising in connection with (A) any Environmental Noncompliance or (B) the use, generation, manufacture, production, storage, discharge, disposal, transport, presence, handling, release or threatened release of any Hazardous Materials into the environment, including migration thereof to or from the Property and including any matter which the Indemnitor would have a duty to report to a Governmental Authority under CERCLA or any analogous state law or any other Environmental Law, and (ii) has no threatened or actual liability in connection with the release or threatened release of any Hazardous Material into the environment; and (iii) has not received notice or otherwise learned of any federal, state or other investigation evaluating whether any remedial action is needed to respond to any release or threatened release of any Hazardous Material into the environment for which the Indemnitor may be liable. (b) The Indemnitor is not subject to any financial assurance requirements of any applicable Environmental Law, including those contained in 40 C.F.R. Parts 264 and 265, Subps. H, or any state law equivalents or those promulgated pursuant to 42 U.S.C. 6991b(c)(6) or any state law equivalents. 277 202 (c) The Indemnitor has not filed any notice under any Legal Requirements (i) indicating past or present treatment, storage or disposal of a hazardous waste, as that term is defined under 40 C.F.R. Part 261 or any state law equivalent thereof, or (ii) reporting a release of any Hazardous Material into the environment. (d) The Indemnitor has not received notice or otherwise learned of any occurrence or condition on any real property adjoining or in the vicinity of the Property that is likely to cause the Property or any part thereof to be subject to any material restrictions on the ownership, occupancy, transferability or use of the Property under any applicable Environmental Law. (e) The Indemnitor has not undertaken, permitted or authorized the use, generation, manufacture, production, storage, release, discharge, disposal, placement or handling of any Hazardous Material (collectively, "managed") on, under, from or about the Property or the transportation to or from the Property of any Hazardous Material, nor allowed or suffered any other person or entity to do so, other than such Hazardous Materials which were managed in the ordinary course of operating the Indemnitor's business and which were managed in accordance with applicable Environmental Laws. (f) The Indemnitor has kept and maintained the Property in compliance with all applicable Environmental Laws, and has not caused, permitted or suffered the Property to be in Environmental Noncompliance. 3. INDEMNITY. (a) The Indemnitor agrees to indemnify, defend (with counsel approved by the Indemnified Parties ("Defense Counsel"), which approval shall not be unreasonably withheld) and hold harmless the Indemnified Parties from and against any and all liabilities, obligations, losses, damages, penalties, actions, fines, judgments, suits, demands, investigations, proceedings, claims, costs, expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of Defense Counsel for such Indemnified Parties in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnified Parties shall be designated a party thereto), remedial action requirements and enforcement actions of any kind (collectively, "Environmental Liabilities"), imposed on, incurred by, or asserted against any such Indemnified Parties on or after the Lien Termination Date (whether direct, indirect or consequential and whether based on any federal or state laws or other statutory regulations, or arising under common law or at equitable cause, or in contract or otherwise) in any manner relating to or arising out of the use, generation, manufacture, production, storage, discharge, treatment, removal, decontamination, clean up, transport, disposal, release, threatened release, presence or handling of any Hazardous Material on, under, from or about the Property, any other activity carried on or undertaken on or off the Property, whether prior to or after the Lien Termination Date, and whether by the Indemnitor or any predecessor in title or any employee, agent, contractor or subcontractor of the Indemnitor or any predecessor in title, or any third person at any time occupying or present on the Property, in connection with the handling, use, generation, manufacture, production, discharge, release, 278 203 threatened release, presence, treatment, removal, storage, decontamination, clean up, transport or disposal of any Hazardous Material at any time located or present on, under, from or about the Property (collectively, "Hazardous Material Activities"), including: (i) the costs of any Remedial Work, including costs incurred by the United States government or any state, or response costs incurred by any other person or entity, or damages from injury to, destruction of, or loss of natural resources, and (ii) liability for personal injury or property damage arising under any statutory or common-law tort theory, including damages assessed for the maintenance of a public or private nuisance, response costs or for the carrying on of an abnormally dangerous activity (collectively, the "Indemnified Matters"); provided that the Indemnitor shall have no obligation to an Indemnified Party hereunder with respect to Indemnified Matters resulting directly from the gross negligence or willful misconduct of that Indemnified Party, as finally determined by a court of competent jurisdiction. To the extent that the undertaking to indemnify, pay, defend and hold harmless set forth in the preceding sentence may be unenforceable because it violates any law or public policy, the Indemnitor shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Matters incurred by the Indemnified Parties. (b) The foregoing indemnity shall further apply to any residual contamination resulting from Hazardous Materials Activities which remains on, under, from or about the Property or Other Property, or affecting any natural resources and irrespective of whether any of such Hazardous Materials Activities were or will be undertaken in accordance with applicable Environmental Laws or other applicable laws, regulations, codes and ordinances. This indemnity is intended to be operable under 42 U.S.C. Section 9607(e)(1). (c) The foregoing indemnity shall in no manner be construed to limit or adversely affect the Agent's rights under this Agreement, including the Agent's right to approve any Remedial Work and the contractors and consulting engineers retained in connection therewith. 4. OBLIGATIONS OF THE INDEMNITOR. Following the Lien Termination Date: (a) The Indemnitor shall notify the Agent, in writing, promptly upon receiving notice or otherwise learning of any Conditions (including third party claims and Conditions under CERCLA or any analogous or similar state law) indicating any potential or actual liability arising in connection with: (i) any Environmental Noncompliance, (ii) the use, generation, manufacture, production, storage, discharge, disposal, transport, presence, handling, release or threatened release of any Hazardous Material into the environment, including migration thereof to or from the Property and including any matter which Indemnitor would have a duty to report to a Governmental Authority under CERCLA or any analogous state law or any other Environmental Law, or (iii) the existence of any Environmental Lien on the Property. The Indemnitor shall notify the Agent, in writing, promptly upon receiving notice or otherwise learning of any occurrence or condition on any real property adjoining or in the vicinity of the Property that could cause the Property or any part thereof to be subject to any material 279 204 restrictions on the ownership, occupancy, transferability or use of the Property under any Environmental Law, or to be otherwise subject to any material restrictions on the ownership, occupancy, transferability or use of the Property under any Environmental Law. (b) In the event that any Remedial Work is reasonably necessary or required to be performed under any applicable local, state or federal law or regulation, any judicial order, or by any Governmental Authority with respect to any of the Indemnified Matters, the Indemnitor shall diligently prosecute to completion such Remedial Work on or before the later of (i) the date that is ninety (90) days after written demand for performance thereof by the Agent, or (ii) the date by which completion of such Remedial Work is required by a Governmental Authority. All such Remedial Work shall be at the Indemnitor's sole expense in accordance with the requirements of any applicable Governmental Authority. All Remedial Work shall be performed by one or more contractors, approved in advance in writing by the Agent, and under the supervision of a consulting engineer approved in advance in writing by the Agent (which approvals shall not be unreasonably withheld). While such Remedial Work is continuing, the Indemnitor shall, at least once every thirty (30) days (as applicable), provide the Agent with a written report, in reasonable detail, of the progress of such Remedial Work. All costs and expenses of such Remedial Work shall be paid by the Indemnitor, including the charges of such contractor(s) and/or the consulting engineer and the Agent's reasonable attorneys' fees and costs incurred in connection with monitoring or the review of such Remedial Work. 5. AGENT'S RIGHTS (a) In the event that the Indemnitor does not perform all of its obligations hereunder in a timely fashion, or in the event that the Agent reasonably believes that there may have been a violation by the Indemnitor of any applicable Environmental Law regarding the Property or that there may be a violation or threatened violation by the Indemnitor of any provision of this Agreement, which in the Agent's reasonable judgment, would individually or in the aggregate likely result in an Environmental Noncompliance, the Agent is authorized, but not obligated, by itself, its agents, employees or workmen to enter at any reasonable time after reasonable notice to the Indemnitor upon any part of the Property for the purposes of inspecting the same for Hazardous Material and confirming the Indemnitor's compliance with this Agreement, and such inspections may include soil borings and groundwater testing; provided, however, that such inspection by the Agent shall not unreasonably interfere with the Indemnitor's business operations. The Indemnitor agrees to pay to the Agent, upon demand, all reasonable expenses, costs or other amounts incurred by the Agent in performing any inspection for the purposes set forth in this Section 5(a). (b) The Agent shall have the right, but not the obligation, to join and participate in, as a party if it so elects, any legal proceeding or action concerning the Property initiated in connection with any Environmental Law and to have its reasonable attorneys' fees in connection therewith paid by the Indemnitor or to be defended by the Indemnitor from and against any such proceeding or action with counsel chosen by it, and shall have the right to make 280 205 inquiry of and disclose all information to appropriate Governmental Authorities when advised by counsel with appropriate expertise that such disclosure may be required under applicable law. (c) In the event that the Indemnitor shall fail to timely commence, or cause to be commenced, or fail to complete expeditiously the Remedial Work described in Section 4 hereof, the Agent may, but shall not be required to, cause such Remedial Work to be performed. Any action taken by the Agent pursuant to this subsection (c), and all reasonable costs and expenses thereof or incurred in connection therewith, shall be covered by the indemnity given by the Indemnitor to the Agent in Section 3 hereof. The Agent shall have no liability to the Indemnitor for any actions taken in good faith pursuant to this subsection (c), except that the Agent shall not be indemnified against and shall be liable for the Agent's gross negligence or willful misconduct. In the event that any amount due from the Indemnitor to the Agent pursuant to this subsection (c) is not paid when due and actually expended by the Agent, provided the Agent has given Indemnitor reasonable advance notice of the due date and amount due together with copies of pertinent invoices and supporting documentation, the Indemnitor shall pay the Agent interest thereon from the date of demand until paid at the Default Interest Rate. (d) Prior to commencing any Remedial Work described in Section 4 hereof, or prior to entering into any settlement, consent or compromise with regard to any Hazardous Material on, under, from or about the Property, the Indemnitor shall obtain the Agent's written approval, which shall not be unreasonably withheld, provided, however, that such prior approval shall not be necessary if: (i) the presence or release of any Hazardous Material on, under, from or about the Property either poses an immediate threat to the health, safety or welfare of any individual or is of such a nature that an immediate remedial response is necessary and it is not possible to obtain the Agent's written approval before taking such action, provided, that in such event, the Indemnitor shall notify the Agent as soon as practicable of any action so taken; (ii) a particular Remedial Work is ordered by a court or regulatory agency of competent jurisdiction, or (iii) the Indemnitor establishes to the reasonable satisfaction of the Agent that there is no reasonable alternative to such Remedial Work. (e) In the event that any amount due from the Indemnitor to the Agent hereunder is not paid when due and actually expended by the Agent, provided the Agent has given Indemnitor reasonable advance notice of the due date and amount due together with copies of pertinent invoices and supporting documentation, the Indemnitor shall pay the Agent interest thereon from the date of demand until paid at the Default Interest Rate. (f) Any action taken by the Agent pursuant to subsections (a), (b) and (c) of this Section 5, and all costs and expenses thereof or incurred in connection therewith, shall be covered by the indemnity given by the Indemnitor to the Agent in Section 3 hereof. The Agent shall have no liability to the Indemnitor for any actions taken in good faith pursuant to subsections (a), (b) and (c) of this Section 5, except that the Agent shall not be indemnified against and shall be liable for the Agent's gross negligence or willful misconduct. 281 206 (g) The rights of the Agent specified in this Section 5 are intended to be cumulative with all other rights which the Agent may have at law or in equity. The election of the Agent to pursue a right granted in this Section 5 shall not be deemed an election to waive or forego any such rights at law or in equity. 6. MISCELLANEOUS. (a) This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and may be amended solely by an agreement in writing executed by the parties hereto. (b) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, EXCLUDING PRINCIPLES OF CONFLICT OF LAWS. (c) In the event of any controversy, claim or dispute arising from this Agreement or the interpretation hereof, the prevailing party shall be entitled to recover from the non-prevailing party the costs and expenses of the prevailing party in such controversy, claim or dispute, including its actual expenses for attorneys, accountants, experts and others. (d) This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto. No transfer of an interest in the Property or this Agreement by the Indemnitor shall operate to relieve the Indemnitor of its obligations hereunder. (e) This Agreement may be executed in any number of counterparts, all of which when fully executed shall constitute one and the same agreement. It shall be necessary to account for only one such fully executed counterpart in proving this Agreement. (f) Neither this Agreement nor any of the provisions hereof may be changed, waived, discharged or terminated except by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge, or termination is sought. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. (g) If any term, covenant, condition or provision of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions shall remain in full force and effect and shall in no way be affected, impaired or invalidated. (h) Unless otherwise specifically provided herein, all notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered, as follows: 282 207 (i) To Indemnitor at: Cadence Design Systems, Inc. 2655 Seely Road San Jose, California 95134 Attention: Treasurer Telecopy No.: (408) 894-2794 With a copy to: Gray Cary Ware Freidenrich 400 Hamilton Avenue Palo Alto, California 94301-1825 Attention: Lawrence A. Cogan, Esq. Telecopy No.: (415) 328-3029 (ii) To Agent at: CREDIT LYONNAIS, New York Branch 1301 Avenue of the Americas New York, New York 10019 Attention: Syndications Group Telecopy No.: (212) 459-3176 With a copy to: LATHAM & WATKINS 633 West Fifth Street, Suite 4000 Los Angeles, California 90071 Attention: Hendrik de Jong, Esq. Telecopy No.: (213) 891-8763 or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall be effective when received. 283 208 IN WITNESS WHEREOF, the Indemnitor has executed this Agreement as of the date first above written. INDEMNITOR: CADENCE DESIGN SYSTEMS, INC., a Delaware corporation By: --------------------------------- Name: ------------------------------- Title: ------------------------------ 284 209 SCHEDULE 1 ENVIRONMENTAL MATTERS 285 210 EXHIBIT D-1 April 11, 1996 1030633-900300 Credit Lyonnais, New York Branch, as Lender and as Agent 1301 Avenue of the Americas, 18th Floor New York, New York 10019 and Each of the other Lenders listed on Exhibit A hereto Re: Cadence Design Systems, Inc. Ladies and Gentlemen: We have acted as special counsel for Cadence Design Systems, Inc., a Delaware corporation ("Borrower"), in connection with that certain Revolving Credit Agreement dated as of even date herewith, including all exhibits and schedules thereto (the "Credit Agreement") among Borrower, the lenders named therein ("Lenders") and Credit Lyonnais, a bank organized under the laws of the Republic of France, acting through its New York Branch as Agent for the Lenders ("Agent"). We have also acted as special counsel to each of Seeley Properties, Inc., a California corporation ("Seeley") and River Oaks Place Associates, L.P., a California limited partnership ("ROPA", and together with Seeley, "Guarantors"), each of which is a direct wholly-owned Subsidiary of Borrower, in connection with that certain Guaranty among the Guarantors and the Agent (the "Guaranty"). We are rendering this opinion pursuant to Section 3.1(f) of the Credit Agreement. Except as otherwise defined herein, capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement. In connection with this opinion, we have examined the following documents (the items referred to in clauses 1 through 6 below are referenced to herein as the "Loan Documents"): 1. The Credit Agreement; 2. The Pledge and Security Agreement; 3. The Guaranty; 286 211 4. The Intellectual Property Assignment; 5. The Deed of Trust, Assignment, Assignment of Leases and Rents, Security Agreement and Fixture Filing naming Borrower as Trustor and Agent as Beneficiary regarding the Seeley Campus (the "Deed of Trust"); 6. The Unsecured Environmental Indemnity Agreement executed by Borrower in favor of the Agent (the "Environmental Indemnity"); 7. UCC-1 financing statements for filing with the Secretary of State of California naming Borrower as debtor and Agent as secured party, and naming each Guarantor as debtor and Agent as secured party (the "Financing Statements"); 8. UCC-1 financing statement for filing with the Santa Clara, California County Recorder, naming Borrower as debtor and Agent as secured party regarding the Fixtures (the "Fixture Filing"); 9. Certificate of Incorporation and Bylaws of Borrower, certified by the secretary of Borrower; 10. Articles of Incorporation and Bylaws of Seeley, certified by the secretary of Seeley; 11. Agreement of Limited Partnership of ROPA, certified by the general partner of ROPA; 12. An officer's certificate of Borrower, a copy of which is attached as Exhibit B hereto (the "Borrower's Certificate"), and an officer's certificate of the Guarantors, a copy of which is attached as Exhibit C hereto (the "Guarantors' Certificate"). In addition, we have examined and relied upon originals or copies certified to our satisfaction of such records, documents, certificates, opinions, memoranda and other instruments as in our judgment are necessary or appropriate to enable us to render the opinions expressed below, including the Borrower's Certificate and the Guarantors' Certificate. We are admitted to practice law only in the State of California, and we express no opinion concerning any law other than the law of the State of California, the Delaware General Corporation Law, and the law of the United States of America. In rendering this opinion, we have assumed the genuineness and authenticity of all signatures (other than that of Borrower and each Guarantor) on original documents; that all natural persons who are signatories are legally competent to execute and deliver such documents; the authenticity and completeness of all documents submitted to us as originals; the conformity of originals to all documents submitted to us as copies; the accuracy, completeness and authenticity of certificates of public officials; the due authorization, execution and delivery of all documents (except the due authorization, execution and delivery by Borrower and the Guarantors of the Loan Documents to which they are respectively parties) where authorization, execution and delivery are prerequisites to the effectiveness of such documents; the power and authority of the Agent and the Lenders to enter into and perform their obligations under the Loan Documents; that each of the Loan Documents has been duly executed by the Agent and the Lenders and delivered to Borrower and is the legal, valid and binding obligation of the Agent and the Lenders, enforceable against those parties in accordance with their terms; that the Agent and the Lenders 287 212 are duly qualified in the State of California to do business of the type contemplated by the Loan Documents; that each Lender qualifies for an exemption from the otherwise applicable interest rate limitations of California law for loans or forbearances contained in Article XV, Section 1 of the California Constitution; that all loans under the Loan Documents will be made by the Lenders for their own account or for the account of another person or entity that qualifies for an exemption from the interest rate limitations of California law, and there is no present agreement or plan, express or implied, on the part of any Lender to sell participations or any other interest in the loans to be made under the Loan Documents to any person or entity other than a person or entity that also qualifies for an exemption from the interest rate limitations of California law; that except for the Loan Documents, there are no documents or agreements between the parties which would expand or otherwise modify the respective rights and obligations of the parties set forth in the Loan Documents; and with respect to matters of fact (as distinguished from matters of law), with your permission and without verification by us, we also have relied upon and assumed that the representations of Borrower, each Guarantor and the other parties set forth in the Loan Documents, the Borrower's Certificate, the Guarantors' Certificate and any other certificates, instruments or agreements executed in connection therewith or delivered to us are true, correct, complete and not misleading. We have made no independent investigation of any such facts stated in any such certificate or representation. Where we render an opinion "to the best of our knowledge" or concerning an item "known to us" or our opinion otherwise refers to our knowledge, it is intended to indicate that during the course of our representation of Borrower and the Guarantors in connection with the Loan Documents, no information that would give us current actual knowledge of the inaccuracy of such statement has come to the attention of those attorneys in this firm who have rendered or are rendering legal services to Borrower and Guarantors in connection with the Loan Documents. However, except as otherwise expressly indicated, we have not undertaken any independent investigation to determine the accuracy of such statement and any limited inquiry undertaken by us during the preparation of this opinion letter should not be regarded as such an investigation; no inference as to our knowledge of any matters bearing on the accuracy of any such statement should be drawn from the fact of our representation of Borrower and Guarantors. With respect to our opinion in paragraph 4 below, we have relied solely upon copies, supplied to us by Borrower, of those undertakings, contracts, indentures, mortgages, deeds of trust or other instruments, documents or agreements which have been identified to us by Borrower in the Borrower's Certificate as all certificates, instruments, agreements and documents listed on the Index to Form 10-K Exhibits to the Borrower's Annual Report on Form 10-K for the fiscal year ending December 31, 1995 (the "Borrower Material Contracts"). We have not undertaken any independent investigation of such matters, other than the inquiries we have made of the officers of Borrower and the review we have made of the corporate records of Borrower described above. With respect to our opinion in paragraph 5 below, we have relied solely upon copies, supplied to us by Guarantors, of those undertakings, contracts, indentures, mortgages, deeds of trust or other instruments, documents or agreements which have been identified to us by the 288 213 Guarantors in the Guarantors' Certificate as all material undertakings, contracts, indentures, mortgages, deeds of trust or other instruments, documents or agreements to which each Guarantor is a party or by which it is bound (the "Guarantor Material Contracts"). We have not undertaken any independent investigation of such matters, other than the inquiries we have made of the officers of the Guarantors and the review we have made of the corporate records of each Guarantor described above. In rendering our opinion in the second and last sentences of paragraph 1, we have relied solely on a certificate of good standing from each of the Secretary of State's office of each of the states specified in that paragraph. On the basis of the foregoing, and subject to the qualifications stated below, we are of the opinion that: 1. Borrower is a corporation, duly incorporated and validly existing under the laws of Delaware and has the requisite corporate power and authority to own its property and to conduct the business in which it is currently engaged. Borrower is duly qualified and in good standing as a foreign corporation authorized to transact business in California and in each of the states listed below its name on Exhibit D. Seeley is a corporation, duly incorporated and validly existing under the laws of California and has the requisite corporate powers and authority to its business and to conduct the business in which it is currently engaged. ROPA is a limited partnership, duly organized and validly existing in California. Each Guarantor is duly qualified and in good standing as a foreign corporation in each of the states listed below its name on Exhibit D. 2. Borrower and each Guarantor has taken all necessary and appropriate corporate or partnership action to authorize the execution, delivery and performance of the Loan Documents to which it is respectively a party and has the corporate or partnership power and authority to execute, deliver and perform the Loan Documents to which it is respectively a party. 3. The Credit Agreement, the Pledge and Security Agreement and the Intellectual Property Assignment have been duly executed and delivered by Borrower. The Guaranty and the Pledge and Security Agreement have been duly executed and delivered by each Guarantor. The Credit Agreement, the Pledge and Security Agreement, and the Intellectual Property Assignment each constitutes a legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its respective terms. The Guaranty and the Pledge and Security Agreement each constitute a legal, valid and binding obligation of each Guarantor, enforceable against each Guarantor in accordance with its respective terms. 4. The execution, delivery and performance by Borrower of the Loan Documents to which it is a party do not (a) to the best of our knowledge, violate or contravene any order of any court or United States or California governmental agency as presently in effect applicable to Borrower; (b) violate or contravene any United States or California law presently in effect and applicable to 289 214 Borrower; (c) conflict with or result in a breach of or constitute a default under the Certificate of Incorporation or Bylaws of Borrower; (d) to the best of our knowledge, violate or result in a breach of or constitute any default under any of the Borrower Material Contracts; and (e) result in or require the creation or imposition of any lien on any of Borrower's properties pursuant to any order of any court or United States or California governmental agency as presently in effect applicable to Borrower or any of the Borrower Material Contracts, other than the liens created pursuant to the Loan Documents. 5. The execution, delivery and performance by each Guarantor of the Loan Documents to which it is a party do not (a) to the best of our knowledge, violate or contravene any order of any court or United States or California governmental agency as presently in effect applicable to either Guarantor; (b) violate or contravene any United States or California law presently in effect and applicable to either Guarantor; (c) conflict with, or result in a breach of, or constitute a default under (i) the Articles of Incorporation or Bylaws of Seeley or (ii) Agreement of Limited Partnership of ROPA; (d) to the best of our knowledge, violate or result in a breach of, or constitute any default under, any of the Guarantor Material Contracts; and (e) result in, or require the creation or imposition of, any lien on any of either Guarantor's properties pursuant to any order of any court or United States or California governmental agency as presently in effect applicable to either Guarantor or any of the Guarantor Material Contracts, other than the liens created pursuant to the Loan Documents. 6. No authorization, consent, approval, license, qualification or formal exemption from, nor notice to, nor any filing, recordation, declaration or registration with, any United States or California governmental authority is necessary or required on the part of Borrower or any Guarantor in connection with the execution, delivery, or performance by Borrower or any Guarantor of the Loan Documents to which they respectively are parties, except for such filings or recordations as may be necessary to perfect the security interests or liens granted by the Loan Documents. 7. To the best of our knowledge, there is no action, suit or proceeding at law or in equity by or before any court or governmental agency now pending against Borrower with respect to the Loan Documents to which it is a party. 8. To the best of our knowledge, there is no action, suit or proceeding at law or in equity by or before any court or governmental agency threatened against any Guarantor with respect to the Loan Documents to which it is a party. 9. Upon the due execution by Borrower and each Guarantor, and the proper filing of the Financing Statements in the Office of the Secretary of State of California (assuming that the representations made by Borrower and by each Guarantor with respect to the location of the Collateral, its place of business and chief executive office are and remain true and correct) the security interests granted by Borrower and by each Guarantor under the Pledge and Security Agreement in and to such Collateral will constitute perfected security interests therein to the extent that security interests in such Collateral may be perfected by filing a financing statement 290 215 under Division 9 of the California Uniform Commercial Code ("CUCC"). Except for the filing of periodic continuation statements, it is not necessary under the CUCC to re-record, re-register or refile a UCC-1 financing statement, or to record, register or file any other or additional documents, instruments or statements in order to maintain perfection of the security interests in any such Collateral granted in favor of the Agent, except that additional financing statements may be required to be filed if Borrower changes its name, identity or corporate structure so as to make a financing statement seriously misleading (unless new appropriate financing statements indicating the new name, identity or corporate structure are duly filed), or if there is any change in the location of its chief executive office or chief place of business or the state in which any of the Collateral is located. 10. Neither Borrower nor either Guarantor is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. 11. To the best of our knowledge, neither Borrower nor either Guarantor is generally engaged in the business of purchasing or selling Margin Stock (within the meaning of Regulation G of the Board of Governors of the Federal Reserve System) or extending credit for the purpose of purchasing or carrying Margin Stock. To the best of our knowledge, no proceeds of any Advance will be used for any purpose that requires any Lender to deliver or obtain any certification under, or to comply with any margin requirements or other provision of, Regulations G, T, V or X of the Board of Governors of the Federal Reserve System. 12. The Deed of Trust and the Environmental Indemnity have been duly executed and delivered by Borrower. The Deed of Trust and the Environmental Indemnity each constitutes the legal, valid and binding obligation of Borrower and is enforceable against Borrower in accordance with their respective terms except to the extent certain rights, remedies, and waivers contained in the Deed of Trust may be limited or rendered ineffective by applicable laws and judicial decisions governing such provisions. Such laws and decisions do not, however, subject to the other exceptions and limitations of this opinion letter, render the Deed of Trust invalid as a whole, and there exist, in the Deed of Trust or pursuant to applicable law, legally adequate remedies for the realization of the principal benefits and/or security intended to be provided by the Deed of Trust. 13. The Deed of Trust and the Fixture Filing are in forms sufficient to create in favor of the Agent a valid security interest in the Fixtures in favor of the Agent. The proper and timely recording of the Deed of Trust and the Fixture Filing in the Office of the Recorder of Santa Clara County, California are sufficient in order to perfect the security interest in the Fixtures in favor of the Agent to the extent that security interests in such Fixtures may be perfected by filing a Fixture Filing under division 9 of the CUCC. The opinions expressed in this letter are subject to the following qualifications: a. The effects of bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium, or other similar laws now or hereafter in effect limiting the validity or enforceability of creditor's rights and remedies generally. 291 216 b. The effects of general principles of equity, regardless of whether considered in proceedings in equity or at law. c. The covenant of good faith and fair dealing implied in every agreement under common law (and to similar provisions of federal law, where applicable). d. The effect of any law or legal principle which provides that a court may refuse to enforce, or may limit the application of, a contract or any clause thereof which the court finds as a matter of law to have been unconscionable at the time it was made, or the enforcement thereof would be contrary to public policy. e. The unenforceability of provisions under certain circumstances, under California or federal law or court decisions (i) releasing or exonerating a party from liability, or limiting the liability of a party, for wrongful or negligent acts, or (ii) indemnifying a party to the extent that the events giving rise to the indemnity arise in whole or in part from the wrongful or negligent acts of the indemnitee, or (iii) where such release or indemnification is contrary to public policy, including but not limited to indemnification and/or release relating to any issues of securities laws. f. The effect of California Civil Code Section 1717 and other applicable statutes and judicial decisions which provide, among other things, that a court may limit the granting of attorneys' fees to those attorneys' fees which are determined by the court to be reasonable and that attorneys' fees may be granted only to a prevailing party and that a contractual provision for attorneys' fees is deemed to extend to both parties (notwithstanding that such provision by its express terms benefits only one party). g. The effect of any California or federal law or court decisions that requires a lender to enforce its remedies in a commercially reasonable manner. h. The effect of California court decisions invoking statutes or principles of equity which have held that certain covenants and provisions of agreements are unenforceable where (i) the breach of such covenants or provisions imposes restrictions or burdens upon the debtor, including the acceleration of indebtedness due under debt instruments, and it cannot be demonstrated that the enforceability of such restrictions or burdens is reasonably necessary for the protection of the creditor, or (ii) the creditor's enforcement of such covenants or provisions under the circumstances would violate the creditor's implied covenants of good faith and fair dealing. i. The unenforceability under certain circumstances of contractual provisions respecting self-help or summary remedies. j. The enforceability of any provision in the Deed of Trust that provides for a right of the Agent and the Lenders to enter upon any real property, or to take rents, or to assert similar rights prior to either the issuance of a court order pursuant to a receivership or similar proceeding, or the occurrence of any foreclosure sale respecting the real property in question. 292 217 k. The enforceability of any provision in the Deed of Trust that provides for the Agent's or the Lenders' right of foreclosure against the real property secured thereby based upon a portion of the outstanding indebtedness. l. The enforceability of any provision in the Deed of Trust or the Loan Documents that provides that (i) the foreclosure against the real property results in an absolute bar against Borrower in circumstances where a judicial foreclosure occurs and rights of redemption in favor of Borrower apply, or (ii) Borrower's rights of redemption are waived. m. The enforceability of the waiver of Borrower's or any Guarantor right to assert counterclaims or other claims or defenses in a foreclosure proceeding or other action. n. Decisions by California courts admitting evidence extrinsic to a written agreement between the parties thereto as evidence that the parties intended a meaning contrary to that expressed by the parties in writing. o. Provisions in the Loan Documents requiring Borrower or any Guarantor to execute, in the future, additional instruments and documents may be unenforceable. p. Any provision in the Loan Documents that purports to require that any action or decision of the Agent or any Lender is conclusively binding upon Borrower or any Guarantor may be unenforceable. q. Any provision in the Loan Documents that purports to waive, limit or restrict the right of Borrower or any Guarantor to offset against obligations owing under the Loan Documents may not be enforceable. r. Those provisions in the Loan Documents imposing late charges (interest or otherwise) and/or additional interest in the event of default are governed by the rules relating to "liquidated damages" as set forth in California Civil Code Sections 1671 et seq., and relevant case law (see, e.g., Garrett v. Coast and Southern Federal Savings & Loan, 9 Cal.3d 731 (1973)). We express no opinion as to the effect of judicial decisions and statutes limiting the enforceability of provisions imposing penalties, forfeitures, late payment charges, an increase in interest rate, or payment of other additional consideration (i) upon prepayment, late payment, maturity, default or a lender's election to accelerate a loan, particularly in cases where the occurrence of a default or waiving the benefit of a statutory right bears no reasonable relation to the damage suffered by the lender or is otherwise held to be a penalty, or (ii) as a consequence of costs incurred by the lender. The enforceability and/or validity of such provisions may be dependent upon the reasonableness thereof under the circumstances and therefore relate to a question of fact rather than a question of law. s. Any provision in the Loan Documents requiring the consent of the Agent or the Lenders or allowing the Agent or the Lenders to take certain actions may be interpreted by a court to 293 218 contain an implied covenant of reasonableness and/or fair dealing (see, e.g., Kendall v. Pestana, 40 Cal.3d 488 (1985); Cohen v. Ratinoff, 147 Cal.App.3d 321 (1983)). t. The unenforceability, under certain circumstances, of provisions waiving broadly or vaguely stated rights or unknown future rights, or rights which may not be waived on statutory or public policy grounds, or provisions stating that rights or remedies are not exclusive, that every right or remedy is cumulative and may be exercised in addition to, or with any other right or remedy, or that the election of some particular remedy or remedies does not preclude recourse to one or more others. u. Limitations on provisions based on public policy on provisions stating that a borrower's obligations are unaffected by reason of any default or failure on the part of a lender to perform or comply with the terms of the subject loan documents. v. Except as provided in paragraph H, we express no opinion as to the enforceability of the consent to service, jurisdiction or forum of any claim, demand, action or cause of action arising under or related to the Loan Documents or the transactions contemplated therein. We express no opinion as to any provision providing for the exclusive jurisdiction of a particular court or purporting to waive rights to trial by jury, service of process or objections to the laying of venue or to forum on the basis of forum non conveniens in connection with any litigation arising out of or pertaining to the Loan Documents. w. We express no opinion as to the enforceability of those provisions in the Loan Documents purporting to appoint the Agent or any Lender as attorney-in-fact for Borrower or any Guarantor or to grant an irrevocable power of attorney to the Agent or any Lender. x. We express no opinion as to any securities, anti-trust, tax, land use, safety, insurance company or banking rules or regulations, or any laws, rules or regulations applicable to the Agent or any Lender. aa. We express no opinion as to the effect of California Civil Code Section 1698 and similar statutes and federal laws and judicial decisions (i) providing that oral modifications to a contract or waivers of contractual provisions may be enforceable, if the modification was performed, notwithstanding any express provision in the agreement that the agreement may only be modified or an obligation thereunder waived in writing, or (ii) creating an implied agreement from trade practices or course of conduct. bb. We express no opinion as to the effect of certain rights, remedies and waivers contained in the Loan Documents being limited or rendered ineffective by applicable statutory law or judicial decisions governing such provisions, but such laws and judicial decisions do not render the Loan Documents unenforceable as a whole, and there exists, in the Loan Documents and pursuant to applicable law, legally adequate remedies for realization of the principal benefits purported to be afforded by the Loan Documents. 294 219 cc. We have not conducted any special investigation of statutes, laws, rules, or regulations and our opinion is limited to such California and United States statutes, laws, rules or regulations as in our experience are of general application to transactions of the sort contemplated by the Loan Documents. dd. With respect to our opinion in paragraph 9 and 13, we have assumed that, as of the relevant times, "value" (as that word is used in Section 9203(1(b) of the CUCC) has been given by the secured party. ee. We express no opinion as to Borrower's or any Guarantors' rights in, or title to, the Collateral. ff. With respect to our opinions expressed in paragraphs 4(a) and 5(a) regarding orders, we have relied solely upon our knowledge and upon a representation made to us in each of the Borrower's Certificate and the Guarantors' Certificate to the effect that, there are no orders binding upon Borrower or the Guarantors. gg. We express no opinion as to the accuracy or completeness of the descriptions of the Collateral in any Loan Document or any Financing Statement on the Fixture Filing. hh. We advise you that realization of a security interest in personal property in the event of default will be generally governed by the provisions and procedures set forth in Divisions 8 and 9 of the CUCC. ii. We advise you that perfection of a security interest in proceeds of collateral governed by the CUCC is subject to the provisions of Section 9306 of the CUCC. jj. We advise you that the effectiveness of the Financing Statements will lapse five years from the date they are filed unless appropriate continuation statements are filed within six months prior to the expiration of that five year period. kk. We express no opinion as to any provisions of the Loan Documents that purport to limit the standards imposed upon the Agent or any Lender for the care of Collateral in the possession of the Agent or any Lender to the extent such provisions are inconsistent with applicable provisions of the CUCC. We further advise you that: a. The enforceability of the Guaranty against a Guarantor may be subject to California statutory provisions and case law to the effect that a guarantor may be exonerated if the beneficiary of the guaranty alters the original obligation of the principal, fails to inform the guarantor of material information pertinent to the principal or any collateral, elects remedies that may impair the subrogation rights of the guarantor against the principal or that may impair the value of the collateral, fails to accord the guarantor the protections afforded a debtor under the 295 220 Uniform Commercial Code or otherwise takes any action that materially prejudices the guarantor unless, in any such case, the guarantor validly waives such rights or the consequences of any such action. See, e.g., California Civil Code Section 2799 through Section 2855; Sumitomo Bank of California v. Iwasaki, 70 Cal. 2d 81, 73 Cal. Rptr. 564 (1968); Union Bank v. Gradsky, 265 Cal. App. 2d 40, 71 Cal. Rptr. 64 (1968); Connolly v. Bank of Sonoma County, 184 Cal. App. 3d 1119, 229 Cal. Rptr. 396 (1986); C.I.T. Corp. v. Anwright Corp., 191 Cal. App. 3d 1420, 237 Cal. Rptr. 108 (1987); American National Bank v. Perma-Tile Roof Co., 200 Cal. App. 3d 889, 246 Cal. Rptr. 381 (1988); In re Kirkland, 915 F.2d 1236 (9th Cir. 1990); and Cathay Bank v. Lee, 18 Cal. Rptr. 2d 420 (1993). While express and specific waivers of a guarantor's right to be exonerated, such as those contained in the Guaranty, are generally enforceable under California law, we express no opinion as to whether the Guaranty contains an express and specific waiver of each exoneration defense a guarantor might assert or as to whether each of the waivers contained in the Guaranty is fully enforceable. b. It could be contended that the Guaranty has not been given for a fair or reasonably equivalent consideration, that a Guarantor is, or, by entering into the Guaranty may become, insolvent, and that the Guaranty may be voidable by creditors of a Guarantor or by a trustee or receiver of a Subsidiary in bankruptcy or similar proceedings pursuant to applicable bankruptcy, fraudulent conveyance or similar laws. Because of these possible contentions, our opinions are further limited by and subject to the effect of such laws. With respect to the opinion set forth in paragraph 12 above, you should be aware of the following provisions of California law: (i) Section 726 of the California Code of Civil Procedure provides that any action to recover on a debt or other right secured by a mortgage or a deed of trust on real property must comply with the provisions of that section, which provisions relate to and specify the procedures for the sale of encumbered property, the application of proceeds, the rendition in certain cases of a deficiency judgment, and other related matters. We advise you that in such an action or proceeding, the debtor may require the creditor to exhaust all of its security before a personal judgment may be obtained against the debtor for a deficiency. We also advise you that failure to comply with the provisions of section 726 may result in the loss of your liens on the real and personal property collateral and the loss of your right to a deficiency judgment. However, in our opinion, the limitations of section 726 do not prevent enforcement of your rights with respect to the real property described in the Deed of Trust provided you proceed in accordance with California law, nor do such limitations prevent enforcement of your rights with respect to any personal property or fixtures in which you have a perfected security interest provided you proceed in accordance with the requirements of Division 9 of the Uniform Commercial Code of the State of California. The decision as to which of the procedures of foreclosure a lender invokes under said Division 9 in connection with mixed security will be impacted by the effect of each on the right to a deficiency judgment and the right to reinstate the loan by curing the default which exists under certain circumstances when foreclosing on real property in California. In the context of mixed collateral, the decision by a lender as to how to 296 221 properly foreclose upon its security requires careful examination and analysis before taking any action or asserting any remedies. (ii) Section 580a of the California Code of Civil Procedure provides certain fair value limitations or obtaining any personal judgment for any deficiency following foreclosure of a deed of trust under circumstances where a deficiency is permissible, as well as a procedure for a fair value hearing to determine the deficiency amount. (iii) Section 580d of the California Code of Civil Procedure provides that no deficiency judgment shall be rendered upon a note secured by a deed of trust or mortgage on real property after sale of the real property under the power of sale contained in such deed of trust or mortgage. (iv) Section 2924c of the California Civil Code provides that whenever the maturity of an obligation secured by a deed of trust or mortgage on real property is accelerated by reason of a default in the payment of interest or in the payment of any installment of principal or other sums secured thereby, or by reason of failure of the trustor or mortgagor to pay taxes, assessments, or insurance premiums, the trustor or mortgagor and certain other entitled persons have the right, to be exercised at any time within the reinstatement period described in such section, to cure such default by paying the entire amount then due (including certain reasonable costs and expenses incurred in enforcing such obligations but excluding any principal amount that would not then be due had no default occurred) and thereby cure the default and reinstate such deed of trust or mortgage and the obligations secured thereby to the same effect as if no acceleration had occurred. If the power of sale in the deed of trust or mortgage is not to be exercised, such reinstatement right may be exercised at any time prior to entry of the decree of foreclosure. California Civil Code Section 2924 et seq, in addition, sets forth definitive notice procedures and rights of borrowers which must be followed as a condition precedent to foreclosure and we express no opinion on the enforceability of any provision of the Deed of Trust which may provide for remedies upon default without the necessity for complying with California Civil Code Section 2924 et seq regarding notice and cure rights of borrowers. With respect to the opinion expressed in paragraph 12 above, we draw your attention to the provisions of Section 726.5 and Section 736 of the California Code of Civil Procedure which define the limited circumstances under which a lender may ignore its real property security and elect, instead of foreclosing on such property, to bring a separate action against Borrower under the Environmental Indemnity where the real property is environmentally impaired as defined therein and the amount of damages that may be recoverable thereunder. We advise you that failure to proceed in accordance with Section 726.5 and 736 of the California Code of Civil Procedure in bringing a separate action against Borrower under the Environmental Indemnity may result in the loss of the real property as security under the Deed of Trust because of Section 726 of the California Code of Civil Procedure. We also advise you that the Environmental Indemnity will be enforceable under California law only under circumstances permitted by Section 726.5(b) of the California Code of Civil Procedure. 297 222 This opinion is rendered based on the facts and circumstances, together with applicable law, existing on the date of this opinion, and we express no opinion as to the effect on the Loan Documents and the Agent or any Lender's rights under any statute, rule, regulation or other law enacted, of any court decision rendered, or of the conduct of any person, which occurs after the date of this opinion. Moreover, we assume no obligation to advise the Agent or any Lender or any other person of any change, whether factual or legal, and whether or not material, that may hereafter arise or be brought to our attention after the date hereof. This opinion is intended solely for your benefit in connection with the Loan Documents and for the benefit of any successor-in-interest to you as Agent or any Lender, and is not to be made available to, or relied upon, by any other person, firm, or entity, without our prior written consent. Very truly yours, GRAY CARY WARE & FREIDENRICH A Professional Corporation 298 223 Exhibit A List of Lenders ABN AMRO BANK, NV 101 California St., Ste. 4550 San Francisco, CA 94111 FIRST NATIONAL BANK OF BOSTON 435 Tasso St., Ste. 250 Palo Alto, CA 94301 UNION BANK 445 S. Figueroa Street, 16th Floor Los Angeles, CA 90071 299 224 Exhibit B Officer's Certificate of Cadence Design Systems, Inc. 300 225 Exhibit C Officer's Certificate of Seeley Properties, Inc. and River Oaks Place Associates, L.P. 301 226 Exhibit D Good Standing CADENCE DESIGN SYSTEMS, INC. Arizona California Colorado Connecticut Delaware Florida Georgia Illinois(2) Kansas Maryland Massachusetts Michigan Minnesota New Hampshire New Jersey New York North Carolina Ohio Oregon Texas Virginia Washington SEELEY PROPERTIES, INC. California - -------------------- (2) Not in good standing as of April 5, 1996, for non-filing of 1996 Annual Report and failure to pay 1996 Franchise Tax. 302 227 EXHIBIT D-2 FORM OF FOREIGN COUNSEL OPINION Each opinion letter shall be addressed to the Agent on behalf of the Lenders and shall contain the following opinions, as applicable, concerning 65% of the outstanding shares of capital stock of the Material Foreign Subsidiary owned by the Borrower (the "Shares") and shall be given under the federal and state/local laws of the jurisdiction in which the Material Foreign Subsidiary is incorporated (the "State of Incorporation") with reasonable variations based on local laws and local practices: 1. The Material Foreign Subsidiary is a company duly incorporated, validly existing and in good standing under the laws of the State of Incorporation. 2. The Shares have been duly authorized for issuance by the Material Foreign Subsidiary and are owned of record by the Borrower. 3. Under the laws of the State of Incorporation, there are no legal restrictions on the transferability or transfer of the Shares and no governmental approvals or authorizations are required for any such transfer. The charter documents of the Material Foreign Subsidiary do not impose any restrictions on the transferability or transfer of the Shares and do not require any approval or other authorization in connection therewith. 4. The delivery of the Shares to the Agent [and other action taken in connection with the pledge] create(s) a valid pledge of such Shares, enforceable in the State of Incorporation against any purchaser of such Shares, including any bona fide purchaser for value. 5. All actions of the Material Foreign Subsidiary and the Borrower required by the laws of the State of Incorporation to create a valid and enforceable pledge have been duly taken by each such respective entity. 6. The Material Foreign Subsidiary and/or the Borrower have taken all necessary and appropriate corporate action to authorize the execution, delivery and performance of [any agreements required to be executed by the Material Foreign Subsidiary and/or the Borrower to effect the pledge] (the "Agreements") and have the corporate power and authority to execute, deliver and perform the Agreements. 7. The Agreements have been duly executed and delivered by the Material Foreign Subsidiary and/or the Borrower. Each of the Agreements constitutes a legal, valid and binding obligation of the Material Foreign Subsidiary and/or the Borrower, enforceable against it in accordance with its respective terms. 8. The execution, delivery and performance by the Material Foreign Subsidiary and/or the Borrower of each of the Agreements do not (a) violate or contravene any order of any court or 303 228 governmental agency as presently in effect applicable to such entity; (b) conflict with, or result in a breach of, or constitute a default under its charter documents; or (c) violate or result in a breach of, or constitute any default under, any of the material contracts to which it is a party.] 9. Neither any of the Lenders nor the Agent will be deemed to be resident, domiciled or carrying on business in the State of Incorporation by reason only of their possession of the Shares [and entry into the Agreements, as applicable,] nor will the pledge result in the imposition upon the Agent or any of the Lenders of any tax charge, any liability as a shareholder of the Material Foreign Subsidiary, including any liability for capital contributions or for funding any unfunded obligations, or any liability of the Material Foreign Subsidiary. 304 229 EXHIBIT E-1 FORM OF COMPLIANCE CERTIFICATE (delivered under Section 5.2 of the Credit Agreement) The undersigned is the duly elected [insert title of Authorized Officer] of CADENCE DESIGN SYSTEMS, INC., a Delaware corporation (the "Borrower"). This certificate is delivered pursuant to Section 5.2 of the Revolving Credit Agreement ("Credit Agreement"), dated as of April 11, 1996 among the Borrower, the financial institutions signatory thereto as Lenders, and Credit Lyonnais, a bank organized under the laws of the Republic of France, acting through its New York Branch, as Agent for the Lenders (capitalized terms having the meanings given in the Credit Agreement). The undersigned hereby certifies to the Lenders on behalf of the Borrower as follows: 1. I have reviewed the terms of the Credit Agreement, and have made, or have caused to be made under my supervision, a review in reasonable detail of the transactions and the condition of the Borrower and the Subsidiaries during the immediately preceding [QUARTER/YEAR] ended ______________, _____. 2. The review described in paragraph 1 above did not disclose the existence during or at the end of such [QUARTER/YEAR], and I have no knowledge of the existence as of the date hereof, of any Event of Default or Potential Default, any pending or overtly threatened material litigation, any Material Environmental Claim, any ERISA Event or any Material Adverse Change, except as set forth in Annex A hereto. 3. Described in Annex A are the exceptions, if any, to paragraph 2 listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Borrower has taken or proposes to take with respect to such condition or event. 4. Based upon the review described in paragraph 1 above, the Borrower has complied with all covenants set forth in Section 5.2 of the Credit Agreement during the immediately preceding [QUARTER/YEAR] ended ______________, _____ and neither the Borrower nor any Subsidiary at any time during or at the end of such [QUARTER/YEAR], except as specifically described in Annex A, did any of the following: (a) Directly or indirectly make, create, incur, assume or suffer to exist any Lien upon or with respect to any part of its property or assets, whether now owned or hereafter acquired, or become or remain bound by any agreement to do so or become or remain bound by any agreement restricting its ability to grant, create, incur, assume or suffer to exist any Lien upon or with respect to any part of its property or assets, whether now owned or hereafter acquired, as security for the payment of the Obligations or any refinancing or replacement thereof, except as otherwise permitted under the Credit Agreement. 305 230 (b) Engage in any Asset Sale or otherwise directly or indirectly sell, assign, lease, convey, transfer or otherwise dispose of all or any portion of its assets, business or property, or agree to do any of the foregoing, except as otherwise permitted under the Credit Agreement and in any event, in compliance with Section 2.6(d)(i) of the Credit Agreement. (c) Directly or indirectly make, acquire, carry or maintain any Investment, or become or remain bound by any agreement to make, acquire, carry or maintain any Investment, except as otherwise permitted under the Credit Agreement. (d) Directly or indirectly create, incur, assume, guarantee or suffer to exist, or otherwise become or remain directly or indirectly liable with respect to, any Debt or any Accommodation Obligation, except as otherwise permitted under the Credit Agreement. (e) Enter or agree to enter into any transaction with any Affiliate of the Borrower or of any Subsidiary of the Borrower except (i) under the Loan Documents or (ii) subject to Section 5.3(k) of the Credit Agreement, in the ordinary course of business and pursuant to the reasonable requirements of the business of the Borrower or such Subsidiary and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than those readily available to the Borrower or such Subsidiary in a comparable arm's-length transaction with a Person not an Affiliate of the Borrower or such Subsidiary. (f) Directly or indirectly (v) declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of its capital stock or any other equity, ownership or profit interests, (w) purchase, redeem or otherwise acquire for value any shares of any class of capital stock of, or other equity, ownership or profit interests in, the Borrower or any of its Subsidiaries or any warrants, rights or options to acquire any such shares or interests, now or hereafter outstanding, (x) enter into any agreement restricting the ability of any Subsidiary of the Borrower to declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities to its stockholders, (y) agree to or permit any amendment or modification of, or change in, any of the terms of agreements governing Subordinated Debt, or (z) pay, prepay, redeem, or purchase or otherwise acquire any Subordinated Debt, or make any deposit to provide for the payment of any Subordinated Debt when due, or exchange any Subordinated Debt, or give any notice in respect thereof, except as otherwise permitted under the Credit Agreement. (g) Merge or consolidate with or into or enter into any agreement to merge or consolidate with or into any Person, or acquire any ownership interest in any assets, business or Person, except as otherwise permitted under the Credit Agreement. (h) Engage in any business or activity other than those permitted under the Credit Agreement. (i) Directly or indirectly (or permit any ERISA Affiliate directly or indirectly to) (i) terminate any Plan subject to Title IV of ERISA so as to result in liability to the Borrower 306 231 or any ERISA Affiliate in excess of $10,000,000; (ii) permit any ERISA Event to exist; (iii) make a complete or partial withdrawal (within the meaning of ERISA Section 4201) from any Multiemployer Plan so as to result in liability to the Borrower or any ERISA Affiliate in excess of $10,000,000; or (iv) permit the total Unfunded Pension Liabilities (using the actuarial assumptions utilized by the PBGC) for all Pension Plans (other than Pension Plans which have no Unfunded Pension Liabilities) to exceed $10,000,000. (j) Cause, permit or suffer any Subsidiary to become or remain subject to any contractual obligation that in any manner limits or restricts its right to pay dividends or make distributions, whether in cash or in property, to its stockholders or to make loans or sell assets to the Borrower or any of its Subsidiaries or to enter into any other lawful transaction with the Borrower or any of its Subsidiaries, except limitations and restrictions set forth in the Loan Documents. (k) Make or suffer to exist any Investment in IMS (other than the shares of IMS' capital stock held by the Borrower on February 8, 1996 and any shares of stock issued in respect of stock dividends thereon or stock splits thereof), purchase or hold any Debt of IMS or issue or maintain any Accommodation Obligation of a Debt of IMS or, unless effected in accordance with Section 5.3(e) of the Credit Agreement, sell any asset to IMS or enter into or suffer to exist any other agreement or transaction with IMS (other than (i) the Stockholder Agreement dated as of May 10, 1995, (ii) the Shareholder Agreement dated as of May 17, 1995, (iii) the Asset Transfer Agreement dated as of June 30, 1994, (iv) the Connections Partner Membership Agreement dated as of June 30, 1994, (v) the Corporate Services Agreement dated as of May 1, 1995, (vi) the Tax Sharing Agreement dated as of April 1, 1995 and (vii) the Joint Sales Agency Agreement as referred to in an internal memorandum of the Borrower dated October 3, 1995, each between IMS and the Borrower, and the performance of the Borrower's obligations and exercise of its rights under such agreements). (l) In respect of any license agreement under which any Loan Party is the licensee and which is material to the conduct of such Loan Party's business, agree to any prohibition of or restriction on the creation of a security interest in any right of such Loan Party thereunder, other than, in the case only of any such license agreement that relates to any intellectual property not previously licensed to the Borrower or any of its Subsidiaries, such restrictions on the creation of a security interest as such Loan Party is required, in its commercially reasonable judgment, to accept. 5. The Borrower's Adjusted EBITDA as of the most recent Fiscal Quarter End Date for the four Fiscal Quarters then ended is $______________________, which is in compliance with Section 5.1(a) of the Credit Agreement. Supporting calculations in reasonable detail are attached hereto. 6. The Borrower's ratio of (i) Total Debt determined as of the most recent Fiscal Quarter End Date plus the net aggregate maximum contingent liability of the Borrower in respect of Permitted Stock Transactions (except any liability which the Borrower has the 307 232 unconditional right or option to discharge by delivery of its common stock) determined as of such day by marking each such Permitted Stock Transaction to market, to (ii) Adjusted EBITDA for the four Fiscal Quarters then ended is ____/1.0, which is in compliance with Section 5.1(b) of the Credit Agreement. Supporting calculations in reasonable detail are attached hereto. 7. The Borrower's Fixed Charge Coverage Ratio as of the most recent Fiscal Quarter End Date is ____/1.0, which is in compliance with Section 5.1(c) of the Credit Agreement. Supporting calculations in reasonable detail are attached hereto. 8. The sum of Cash, Permitted Cash Investments and Loan Availability is $__________________, which is in compliance with Section 5.1(d) of the Credit Agreement. Supporting calculations in reasonable detail are attached hereto. The foregoing certifications are made and delivered this ____ day of __________, _____. Very truly yours, CADENCE DESIGN SYSTEMS, INC. By: ------------------------------------- Name: Title: 308 233 EXHIBIT E-2 FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT Dated , Reference is made to the Revolving Credit Agreement, dated as of April 11, 1996, among Cadence Design Systems, Inc., a Delaware corporation, the financial institutions signatory thereto as Lenders, and Credit Lyonnais, a bank organized under the laws of the Republic of France, acting through its New York Branch, as Agent for the Lenders (as amended, modified and supplemented to date, the "Credit Agreement"). Unless otherwise defined herein, terms defined in the Credit Agreement are used herein with the same meanings. (the "Assignor") and (the "Assignee") agree as follows: 1. Subject to Section 3 below, the Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, WITHOUT RECOURSE, [all] [a portion] of Assignor's Pro Rata Share as is in effect on the Effective Date (as defined Section 4 below), equal to % of the Advances owing to the Assignor on the Effective Date. 2. The Assignor: (i) represents and warrants that, as of the date hereof, its commitment to extend credit under the Credit Agreement (without giving effect to assignments thereof which have not yet become effective) is $ ; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto, or the creation, perfection, priority or enforceability of any Lien or the existence, nature, value or sufficiency of any Collateral; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower or any Subsidiary of the Borrower of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto. 3. The Assignee: (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.1(g) of the Credit Agreement and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit 309 234 Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the Agent to take such actions on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender; [and] (vi) specifies as its address for notices the office set forth beneath its name on the signature pages hereof[; and (vii) attaches (A) in the case of an Assignee as to which, in the reasonable judgment of such Assignee, payments under the Credit Agreement or the other Loan Documents are exempt from the United States of America withholding tax, or are subject to such tax at a reduced rate under an applicable tax treaty, a properly completed and executed Internal Revenue Service Form 4224 or 1001 or other applicable form, certificate or document prescribed by the Internal Revenue Service of the United States certifying as to the Assignee's entitlement to such exemption or reduced rate with respect to all such payments, or (B) in the case of an Assignee as to which, in the reasonable judgment of such Assignee, such an exemption or reduced rate of tax is not allowable with respect to payments under the Credit Agreement and the other Loan Documents, a statement of the Assignee indicating that no such exemption or reduced rate is allowable with respect to such payments].1/ 4. The effective date of this Assignment and Acceptance shall be , or the date on which the Agent accepts this Assignment and Acceptance, whichever is later (the "Effective Date").1/ Following the execution of this Assignment and Acceptance it will be delivered to the Agent for acceptance and recording by the Agent. Concurrent with such delivery there shall be delivered to Agent the fee of $2,500 provided for in Section 8.7(a) of the Credit Agreement. If the Agent shall fail to accept this Assignment and Acceptance prior to the expiration of ___ days after the date hereof, this Assignment and Acceptance shall be without force and effect for any purpose, and the Assignor shall remain the owner of the interest in the Assignor's rights and obligations under the Credit Agreement and the other Loan Documents otherwise intended to be sold hereby. 5. Upon acceptance and recording by the Agent and as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder, and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement [and cease to be a party thereto].1/ - ------------------------- 3. Insert if the Assignee is organized under the laws of a jurisdiction outside the United States of America. 2. Such date shall be at least 5 Business Days after the execution of this Assignment and Acceptance. 3. Insert if Assignment and Acceptance covers all or the remaining portion of the Assignor's rights and obligations under the Credit Agreement. 310 235 6. From and after the Effective Date, the Agent shall make all payments under the Credit Agreement in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and commitment fees) to the Assignee. The Assignor and the Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Effective Date directly between themselves. 7. The assignment by the Assignor hereunder is expressly conditioned upon payment by the Assignee to the Assignor of $ , which equals the principal amount of the Assignee's ratable share of all Advances which are outstanding on the Effective Date under the Credit Agreement and which are being assigned hereby; provided, however, that with respect to the Eurodollar Rate [Advance] [Advances] made by the Lenders on , in an aggregate principal amount of Dollars ($ ) and having an interest period ending on , , the payment by the Assignee of the Assignee's ratable share of such Advance shall be made on , (or such earlier date that such Advance shall be refinanced) [add additional description for other Eurodollar Rate Advances]. The Assignor shall be entitled to receive and retain all interest accruing on such Eurodollar Rate Advance[s] up to the [respective] date[s] on which Assignee makes payment for such Advance[s] (or refinancing thereof). 8. Miscellaneous. Indemnity. Except to the extent the Assignor is entitled to and receives indemnification from some other Person, the Assignee agrees to indemnify and hold harmless the Assignor from and against any and all losses, costs, expenses (including, without limitation, reasonable attorneys' fees) and liabilities incurred by the Assignor in connection with or arising in any manner from the performance by the Assignee of any obligation assumed by the Assignee under this Assignment and Acceptance. Notices. Notices shall be given under this Assignment and Acceptance in the manner set forth in the Credit Agreement. The addresses for notice shall be those set forth below the respective signatures of the Assignor and the Assignee on this Agreement. Headings. Headings are for reference only and are to be ignored in interpreting this Assignment and Acceptance. GOVERNING LAW. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. Entire Agreement. This Assignment and Acceptance embodies the entire agreement and understanding between the parties hereto and supersedes all prior agreements and understandings between the parties relating to the subject matter hereof. 311 236 Further Assurances. The Assignor and the Assignee hereby agree to execute and deliver such other instruments, and take such other action, as either party may reasonably request in furtherance of the transactions contemplated by this Assignment and Acceptance. Counterparts. This Assignment and Acceptance may be executed in one or more duplicate counterparts, and when executed and delivered by all the parties listed below shall constitute a single binding agreement. 9. Retained Fees. Notwithstanding any other provision of this Assignment and Acceptance or the Credit Agreement, the Assignor shall be entitled to retain for its own account any fees that may be payable to the Assignor in a capacity other than as a Lender, including, to the extent applicable, as Agent. 10. Schedule 1. From and after the Effective Date, Schedule 1 to the Credit Agreement shall be amended and revised in the form attached to this Assignment and Acceptance. 312 237 IN WITNESS WHEREOF, the parties hereto have executed this Assignment and Acceptance Agreement by their duly authorized officers as of the date first above written. [NAME OF ASSIGNOR] By: -------------------------------- Name: Title: Notice Address: [NAME OF ASSIGNEE] By: -------------------------------- Name: Title: Notice Address: 313 238 Accepted this day of , CREDIT LYONNAIS as Administrative Agent By: ------------------------------- Name: Title: 314 239 SCHEDULE 1 SCHEDULE A PLEDGED SHARES
Stock Issuer Jurisdiction Class of Stock Stock Certificate Par Value Number Percentage of ------------ ------------ -------------- No(s). --------- of Shares Outstanding ------- --------- Shares ------ DOMESTIC: Seeley Properties, Inc. California Common 100% FOREIGN Cadence Design Systems S.A. France Common 100% Cadence Design Systems AB Sweden Common 100% Cadence Design Systems S.r.l. Italy Common 100% Cadence Design Systems GmbH Germany Common 100% Cadence Design Systems K.K. Japan Common 92.75% Cadence Taiwan, Inc. Taiwan Common 100% Cadence Design Systems Asia Ltd. Hong Kong Common 100% Cadence Korea Ltd. Korea Common 100% Cadence Design Systems, Ltd. United Kingdom Common 100% Cadence Design Systems (Canada) Ltd. Canada Common 100%
315 240 SCHEDULE B CHIEF EXECUTIVE OFFICE AND OTHER LOCATIONS CADENCE DESIGN SYSTEMS, INC. Corporate Headquarters: 555 River Oaks Parkway San Jose, CA 95134 ALTA GROUP 555 N. Mathilda Avenue Sunnyvale, CA 94086 R&D CENTERS San Jose, CA San Diego, CA SEELEY PROPERTIES, INC. Corporate Headquarters: 555 River Oaks Parkway San Jose, CA 95134 DESIGN FACTORIES Rancho Bernardo, CA Chelmsford, MA Taiwan, R.O.C. RIVER OAKS PLACE ASSOCIATES, L.P. Corporate Headquarters: 555 River Oaks Parkway San Jose, CA 95134 United Kingdom India 316 241 DOMESTIC SALES OFFICES 9057 Soquel Drive Building A. Suite G Aptos, CA 95003 1919 Addison Street Suite 303 Berkeley, CA 94704 327 Hillcrest Encinitas, CA 92024 2601 Main Street Suite 400 Irvine, CA 92714 5220 Pacific Concourse Drive Suite 160 Los Angeles, CA 90045 9805 Scranton Road Suite 250 San Diego, CA 92121-1756 555 River Oaks Parkway Sales- MS 1A1 San Jose, CA 95134 555 N. Mathilda Avenue Sunnyvale, CA 94086 23431 Via Alondra Trabuco Canyon, CA 92673 23931 Capistrano Ct. Valencia, CA 91355 1155 Kelly Johnson Blvd. Suite 111 Colorado Springs, CO 80920 13949 West Colfax Avenue Bldg. 1. Suite 140 Golden, CO 80401 100 Rialto Place Suite 210 Melbourne, FL 32901 7380 Sandlake Road Suite 380 Orlando, FL 32819 1881 Calmar Street N.W. Palm Bay, FL 32907 636 Bremerhaven Street N.W. Palm Bay, FL 32907 1200 North Federal Highway Suite 200 Boca Raton, FL 33432 1117 Perimeter Center West Fifth Floor East Atlanta GA 30338 8410 West Bryn Mawr Avenue, Suite 400 Chicago, IL 60631 1100 East Woodfield Road Suite 334 Schaumburg, IL 60173 1310 Wakarusa Drive Suite A Lawrence, KS 66049 270 Billerica Road Chelmsford, MA 01824 2700 Billerica Road Chelmsford, MA 01824 6760 Alexander Bell Drive Suite 140 Columbia, MD 21046 17370 North Laurel Park Drive, Suite 400E Livonia, MI 48152 8 Pine Tree Drive Suite 280 Arden Hills, MN 55112-2744 2276 Highcrest RD, MS 4241 Roseville, MN 55113 c/o UNISYS Corp. MS 4241 P.O. Box 64942 Saint Paul, MN 55164-0942 117 Edinburgh South Suite 100 Cary, NC 27511 547 Amherst Street Nashua, NH 03063 333 Thornall Street Edison, NJ 08837 140 Iroquois Avenue Oakland, NJ 07436 Pine West 2 Albany, NY 12205 300 Westage Business Center Suite 340 Fishkill, NY 12524 212 Sterling Place Highland, NY 12528 200 Broadhollow Road Suite 207 Melville, NY 11747 50 Charles Lindbergh Blvd Suite 400 Uniondale, NY 11553 7979 Victor-Pittsford Road Victor, NY 14564 25000 Great Northern Corporate Center, Suite 300 North Olmsted, OH 44070 9525 S.W. Gemini Drive Beaverton, OR 97008 317 242 107 Hilltop Drive Downington, PA 19355 336 Minor Street Emmaus, PA 18049 320 Abbey Lane Lansdale, PA 19446 One Tower Bridge 100 Front Street, Ste 250 W. Conshohocken, PA 19428 8911 Capital of Texas Hwy Suite 1200 Austin, TX 787591416 FM-550 Forney, TX 75126 2100 W. Northwest Hwy #1082 Grapevine, TX 76092 5215 N. O'Connor Road Suite 1000 Irving, TX 75039-3712 11400 S.E. 8th Street Suite 320 Bellevue, WA 98004 4811 West Parkview Drive Mequon, WI 53092 318 243 INTERNATIONAL SALES OFFICES 60 Columbia Way, Ste 300 Markham, Ontario L3R 0C9 Canada 1130 Morrison Drive Suite 240 Ottawa, Ontario K2H-9N6 Cadence China Limited Room 999 Ritan Office Bldg A15 Guang Hua Road Chaoyang District, Beijing 100020 Batiment Avenir 18 Rue Grange Dame Rose - BP 128 Velizy - CEDEX, Paris 78140 Kirschbaumweg 26a Cologne, D-50996 Germany Richard Reitzner Allee 8 Building H2 D-85540 Haar Munich, Germany SDF A-1, Noida Export Processing Zone DSC Road Noida-201305 Ghaziabad, UP, India Ackerstein Bldg 103 Medinat Hayehudim St. P.O.B. 12027 Herzlia, 46766 Israel Centro Direzionale Colleoni Palazzo Orione Ingresso 3 Viale Colleoni 17 Agrate Brianza (MI), 20041 Italy Milanofiori-Strada 7 Palazzo R/2 20089 Rozzano Milan, 20089 Italy 17 Fl., Yuwha Bldg., 23-7 Yoido-dong, Yuongdungpo-gu Seoul, Korea World Commerce Centre 11 Canton Road Room 1109 Harbor City Tsimshatsui, Kowloon Hong Kong Bruistensingel 380 5232 AE's-Hertogenbosch Benelux, Netherlands Shin-Osaka Ueno Toyo-Bldg 7-4-17- Nishi-Nakajima Yodogawa-ku, Osaka 532 Japan - CKK Sumitomo Fudosan Shin Yokohama Bldg 2-5-5 Shin Yokohama Kohoku-ku, Yokohama 222 Japan C/O Firma Progress Room 411 Projezd Cherepanovykh 54 Moscow, 125183 Russia Cadence Design Systems (S) Pte Ltd 77 Science Park Drive, #03-15/16 CINTECH III, Singapore Science Park Singapore 0511 Torshamsngatan 39 S-164 40 KISTA Stockholm, Sweden Hertistrasse 29/Postfach Wallisellen Zurich, CH-8304 Switzerland 2F No 7, R&D 2nd Road Science Based Industrial Park Hsinchu City Taiwan, R.O.C. Bagshot Road Bracknell, Berkshire RG12 3PH United Kingdon Bagshot Road Bracknell, Berkshire RG12 3PH United Kingdom NVision 9 Wemyss Place Edinburgh, Scotland EH3 6DH United Kingdom Magdalen Centre The Oxford Science Park Oxford, OX4 4GA United Kingdom 319 244 SCHEDULE C TRADE NAMES None. SCHEDULE D RESTRICTIONS ON COLLATERAL None. 320 245 SCHEDULE E TAXPAYER ID NUMBER Cadence Design Systems, Inc.: No. 77-0148231 Seeley Properties, Inc.: Applied For 321 246 BORROWER SCHEDULES SCHEDULE 4.1(d) LIST OF SUBSIDIARIES
Number of Number Shares of Shares Cadence's Percentage Authorized Owned by Owned by Ownership of Issuer Jurisdiction Class of Stock Shares Cadence Others Outstanding Shares ------ ------------ -------------- ------ ------- ------ ------------------ DOMESTIC CORPORATIONS: Redwood Design Automation, Inc. California Common TBD TBD 0 100% (Inactive) Cadence Puerto Rico, Inc. Delaware Common TBD TBD 0 100% (Inactive) Simon Software, Inc. California Common TBD TBD 0 100% (Inactive) Seeley Properties, Inc. California Common 75,000 75,000 0 100% Integrated Measurement Systems, Inc. Oregon Common 15,000,000 3,709,000 2,990,853 55.366473% DOMESTIC NON-CORPORATIONS River Oaks Place Assoc., L.P. California N/A N/A N/A (1) 99% Telos Venture Partners, L.P. California N/A N/A N/A (1) 82.5%
- ------------------------ (6) 1% General Partner is Seeley Properties, Inc.; Cadence is 99% Limited Partner. (7) 16.5% Limited Partner is Bruce Bourbon; 1% General Partner is Telos Management LLC; Cadence is 82.5% Limited Partner. 322 247
Number of Number Shares of Shares Cadence's Percentage Authorized Owned by Owned by Ownership of Issuer Jurisdiction Class of Stock Shares Cadence Others Outstanding Shares ------ ------------ -------------- ------ ------- ------ ------------------ Telos Management L.L.C. California N/A N/A N/A (1) 99% FOREIGN Cadence International Sales Corp. USVI TBD TBD TBD TBD 100% Valid Europe S.A. Belgium TBD TBD TBD TBD Cadence Design Systems AG Switzerland TBD TBD TBD TBD 100% Cadence Design Systems S.A. France Common TBD 90,162 0 100% Cadence Design Systems AB Sweden TBD TBD TBD TBD 100% Cadence Design Systems S.r.l. Italy TBD TBD TBD TBD 100% Accent S.r.l. Italy TBD TBD TBD TBD 51% Cadence Design Systems B.V. The Netherlands TBD TBD TBD TBD 100% Cadence Design Systems GmbH Germany TBD TBD TBD TBD 100% Redwood Design Automation, Ltd. United Kingdom Common TBD TBD TBD 100% Cadence Design Systems K.K. Japan Common TBD 47,000 7.25% 92.75% Cadence Taiwan, Inc. Taiwan Common TBD TBD TBD 100% Cadence Design Systems Asia Limited Hong Kong Common TBD TBD TBD 100% Cadence China Limited Hong Kong Common TBD TBD TBD 100%
- -------------------- (8) Managing Member (with 1% interest) is Bruce Bourbon; Cadence holdings 99% membership interest. 323 248
Number of Number Shares of Shares Cadence's Percentage Authorized Owned by Owned by Ownership of Issuer Jurisdiction Class of Stock Shares Cadence Others Outstanding Shares ------ ------------ -------------- ------ ------- ------ ------------------ Cadence Design Systems (S) Pte Ltd. Singapore Common TBD TBD TBD 100% Cadence Korea Ltd. Korea Common TBD TBD TBD 100% Cadence Design Systems (India) Private Ltd. India Common TBD TBD TBD 100% Cadence Design Systems, Ltd. United Common TBD TBD TBD 100% Kingdom Cadence Design Systems (Israel) Ltd. Israel Common TBD TBD TBD 100% Valid Export Services Ltd. Barbados Common TBD TBD TBD 100% (Inactive) UVW, Ltd. United Common TBD TBD TBD 100% (Inactive) Kingdom Cadence Design Systems Canada Common TBD TBD TBD 100% (Canada) Ltd. Valid Export Services Ltd. Barbados Common TBD TBD TBD 100% (Inactive)
324 249 SCHEDULE 4.1(e) 325 250 LIST OF GOVERNMENTAL APPROVALS None. 326 251 SCHEDULE 4.1(q) LIST OF ERISA MATTERS None. 327 252 SCHEDULE 4.1(j) LITIGATION 1. Please refer to Part I, Item 3 of the Company's Form 10-K for the fiscal year ending December 30, 1995 for a description of the pending case regarding Avant! Corporation and certain other litigation matters. 2. In June 1994, Pragmatic C Software made a demand against Cadence for royalties allegedly due Pragmatic C in connection with software sublicensing agreements for three Pragmatic C programs. Cadence attempted to resolve this dispute; however, Cadence's efforts were unsuccessful. Pragmatic C commenced an arbitration proceeding at the beginning of 1995. The arbitration hearings are currently scheduled for April 16-18, 1996. Management believes that this dispute will be resolved at that time, and that this matter will not have a material adverse impact on Cadence. 3. In March 1993, Synopsys filed a lawsuit against Cadence, alleging that two of its employees had used Synopsys trade secrets to develop Cadence's "Leapfrog" product. Both employees had served as independent contractors to a third company, Zycad, from whom Synopsys had purchased its competing software product known as "VSS". Cadence and Synopsys entered into a tentative confidential settlement agreement in March 1996. Management believes that this dispute will be resolved in the second quarter of 1996, and that this matter will not have a material adverse impact on Cadence. 328 253 SCHEDULE 4.1(o) LIST OF BUSINESS LINES 1. Please refer to Part I Item 1 of the Company's Form 10-K for the fiscal year ending December 30, 1995. 329 254 SCHEDULE 4.1(p) LIST OF ENVIRONMENTAL MATTERS 1) Company entered into a Voluntary Cleanup Agreement, dated February 23, 1996 ("DTSC Agreement), with the State of California Environmental Protection Agency, Department of Toxic Substances Control ("DTSC") concerning property located at 2655 Seely Road, County of Santa Clara, San Jose, California 95134 (the "Property"). A Phase II Environmental Assessment performed by Levine-Fricke indicated the soil was contaminated with certain hazardous substances regarding which certain response activities were performed. The purpose of the DTSC Agreement was to obtain DTSC review and approval of such activities and resulting site conditions. The DTSC has completed its review and approval of conditions at the site. By letter dated April 1, 1996, the DTSC made the determination that no further action was necessary with respect to the investigation and remediation of hazardous substances at the site. 2) Prior to the development of the Property, the following reports were prepared by Levine-Fricke in connection with investigating, remediating and evaluating conditions and potential health risks at the Property: (a) Phase I Environmental Site Assessment, Seely Avenue Site, dated March 29, 1990. (b) Work Order Number 3, Work Plan for Phase III Site Investigation, Tank Removal, Soil Excavation, and Risk Assessment, dated May 16, 1990. (c) Report on Removal of Three Underground Fuel Storage Tanks at the Seely Avenue Site, 691 Montague Expressway, dated July 31, 1990. (d) Revised Phase II Environmental Site Investigation, Seely Avenue Site, dated December 6, 1990. (e) Revised Preliminary Endangerment Assessment, Seely Avenue Site, dated April 11, 1991. 330 255 SCHEDULE 4.1(t) LIST OF UNDISCLOSED LIABILITIES None. 331 256 SCHEDULE 5.2(h) LIST OF TAXES AND LIENABLE ITEMS Valid Europe S.A. is currently disputing certain taxes asserted by Administration des Contributions Directes, the taxing authority in Belgium. 332 257 SCHEDULE 5.3(c) LIST OF INVESTMENTS CADENCE DESIGN SYSTEMS, INC.: CONSOLIDATED INVESTMENTS INVESTMENTS IN JOINT VENTURES: Telos Venture Partners, LP $ 1,500,000 SICAN GmbH 500,000 ----------- $ 2,000,000 OTHER INVESTMENTS Thinking Machines $ 1,420 Wang 4,356 ----------- $ 5,776 DEPOSITS: Japan $ 2,877,104 Korea 695,390 ----------- $ 3,572,494 MINORITY INTERESTS: Cadence Design Systems KK (92.75%) $ 1,481,020 Integrated Measurement Systems, Inc. (55%) 10,609,279 ----------- $12,090,299
INVESTMENTS IN SUBSIDIARIES LISTED IN SCHEDULE 4.1(D) 333 258 SCHEDULE 5.3(d) LIENS AND DEBTS CADENCE DESIGN SYSTEMS, INC.: LIENS CALIFORNIA - SECRETARY OF STATE File 87215345, 9/2/87, Equitable Life Leasing Corporation, particular equipment described; Amendment UCC-2 File 87215345A0 dated 9/6/88; Continuation UCC-2 File 87215345A1 dated 7/20/92. File 88037529, 2/18/88, Equitable Life Leasing Corporation, particular equipment described; Amendment UCC-2 File 88037529A0 dated 9/6/88; Continuation UCC-2 File 88037529A1 dated 1/15/93. File 91043855, 3/7/91, Comdisco, Inc., particular equipment described. File 91156573, 7/23/91, Comdisco, Inc., particular equipment described. File 91202357, 9/17/91, Forsythe/McArthur Associates, Inc., particular equipment described. File 91223368, 10/16/91, Hewlett Packard Company, particular equipment described. File 91225855, 10/21/91, Comdisco, Inc., particular equipment described. File 91236418, 11/4/91, Hewlett-Packard Company, particular equipment described. File 92077146, 4/16/92, Hewlett-Packard Company, particular equipment described. File 92202951, 9/18/92, Hewlett-Packard Company, particular equipment described. File 92224145, 10/20/92, Comdisco, Inc., assignee IBJ Schroder Leasing Corporation, particular equipment described. File 92225622, 10/22/92, Comdisco, Inc., particular equipment described. File 92235316, 11/6/92, Comdisco, Inc., particular equipment described. File 92240191, 11/6/92, Hewlett-Packard Company, particular equipment described. File 92240194, 11/6/92, Hewlett-Packard Company, particular equipment described. File 92240202, 11/6/92, Hewlett Packard Co., particular equipment described. File 92241886, 11/9/92, Hewlett-Packard Co., particular equipment described. File 92249420, 11/25/92, Comdisco, Inc., particular equipment described. File 93025549, 2/4/93, Hewlett-Packard Co., particular equipment described. File 93052405, 3/15/93, Sun Microsystems Finance, Inc., assignee International Leasing Corp., particular equipment described. File 93052406, 3/15/93, Sun Microsystems Finance, Inc., assignee International Leasing Corp., particular equipment described. File 93066639, 4/2/93, Hewlett-Packard Co., particular equipment described. 334 259 File 93069741, 4/6/93, Hewlett-Packard Co., particular equipment described. File 93078596, 4/19/93, Sun Microsystems Finance, Inc., assignee International Leasing Corp., particular equipment described. File 93124883, 6/21/93, Sun Microsystems Finance, Inc., assignee International Leasing Corp., particular equipment described. File 93124884, 6/21/93, Sun Microsystems Finance, Inc., assignee International Leasing Corp., particular equipment described. File 93168684, 8/18/93, Hewlett-Packard Co., particular equipment described. File 93168685, 8/18/93, Hewlett-Packard Company, particular equipment described. File 93169332, 8/19/93, Hewlett-Packard Company, particular equipment described. File 94119655, 6/13/94, Hewlett-Packard Company, particular equipment described. File 94178467, 9/2/94, Comdisco, Inc., particular equipment described. File 9433260222, 11/3/94, Hewlett-Packard Company, particular equipment described. CALIFORNIA - SANTA CLARA COUNTY No filings. TEXAS - SECRETARY OF STATE File 93-161482, 8/18/93, Hewlett-Packard Company, particular equipment described. MASSACHUSETTS - SECRETARY OF THE COMMONWEALTH 1. File 180581, 8/18/93, Hewlett-Packard Company, particular equipment described. CADENCE DESIGN SYSTEMS, INC.: CONSOLIDATED DEBTS LONG TERM OBLIGATIONS: Capital Leases - Cadence Inc. 58,000 Capital Leases - IMS 55,000 Capital Leases - Cadence, KK 1,506,000 ---------- $1,619,000
SEELEY PROPERTIES, INC.: LIENS CALIFORNIA - SECRETARY OF STATE No filings as of 3/7/96. 335 260 CALIFORNIA - SANTA CLARA COUNTY No filings as of 3/7/96. SEELY PROPERTIES, INC.: LIENS CALIFORNIA - SECRETARY OF STATE No filings as of 3/6/96. CALIFORNIA - SANTA CLARA COUNTY No filings as of 3/12/96. RIVER OAKS PLACE ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP: LIENS CALIFORNIA - SECRETARY OF STATE No filings as of 3/12/96. CALIFORNIA - SANTA CLARA COUNTY (related debt repaid in December, 1995: liens to be removed) File 10437156, 2/28/90, The Prudential Insurance Company of America, Deed of Trust, Security Agreement and Fixture Filing with Assignment of Rents. File 10437157, 2/28/90, The Prudential Insurance Company of America, Assignment of Lessor's Interest in Leases. File 10816077, 2/25/91, The Prudential Insurance Company of America, Amendment to Deed of Trust, Security Agreement and Fixture Filing with Assignment of Rents. VALID LOGIC SYSTEMS: LIENS CALIFORNIA - SECRETARY OF STATE File 86166332, 6/30/86, Equitable Life Leasing Corporation, particular equipment described; Continuation UCC-2 File 86166332A0 dated 3/22/91. File 86166333, 6/30/86, Equitable Life Leasing Corporation, particular equipment described; Continuation UCC-2 86166333A0 dated 3/22/91. File 86166334, 6/30/86, Equitable Life Leasing Corporation, particular equipment described; Continuation UCC-2 86166334A0 dated 3/22/91. File 86232884, 9/15/86, Equitable Life Leasing Corporation, particular equipment described; Continuation UCC-2 86232884A0 dated 4/4/91. File 86232885, 9/15/86, Equitable Life Leasing Corporation, particular equipment described; Continuation UCC-2 86232885A0 dated 3/22/91. 336 261 File 86232886, 9/15/86, Equitable Life Leasing Corporation, particular equipment described; Continuation UCC-2 86232886A0 dated 3/22/91. File 86232887, 9/15/86, Equitable Life Leasing Corporation, particular equipment described; Continuation UCC-2 86232887A0 dated 3/22/91. File 86232888, 9/15/86, Equitable Life Leasing Corporation, particular equipment described; Continuation UCC-2 86232888A0 dated 3/22/91. File 91107572, 5/15/91, SPCC, Inc., particular equipment described. File 91165873, 7/30/91, Hewlett Packard Company, particular equipment described. File 91217088, 10/7/91, Hewlett Packard Company, particular equipment described. File 91241628, 11/13/91, El Camino Resources, Ltd., assignee Heritage/Pullman Bank and Trust Company, particular equipment described. File 91241629, 11/13/91, El Camino Resources, Ltd., assignee Heritage/Pullman Bank and Trust Company, particular equipment described. File 91241630, 11/13/91, El Camino Resources, Ltd., assignee Heritage/Pullman Bank and Trust Company, particular equipment described. File 91241631, 11/13/91, El Camino Resources, Ltd., assignee Heritage/Pullman Bank and Trust Company, particular equipment described. File 91241632, 11/13/91, El Camino Resources, Ltd., assignee Heritage/Pullman Bank and Trust Company, particular equipment described. File 91241633, 11/13/91, El Camino Resources, Ltd., assignee Heritage/Pullman Bank and Trust Company, particular equipment described. File 91241634, 11/13/91, El Camino Resources, Ltd., assignee Heritage/Pullman Bank and Trust Company, particular equipment described. File 91241635, 11/13/91, El Camino Resources, Ltd., assignee Heritage/Pullman Bank and Trust Company, particular equipment described. CALIFORNIA - SANTA CLARA COUNTY No filings as of 3/26/96. 337 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-30-1995 MAR-01-1996 73,436 9,722 90,908 0 6,620 198,384 242,594 109,590 378,860 211,481 0 0 0 (20,412) 149,964 378,860 163,430 163,430 33,639 33,639 91,218 0 0 38,178 12,599 25,579 0 0 0 25,579 .28 .28
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